I was recently talking about the difference in the value of money, comparing the pesos in the Philippines with the dollar here in the U.S. Ever since immigrating to the ‘Land of Milk and Honey’, it has been a non stop learning experience for me. Getting culture shocked was simply the beginning. Today, I have been through numerous ups and downs, thicks and thins, and summers and winters than I care to recount. I’ve had businesses succeed as well as fall apart, properties fall under on the one hand and incredible bargains sealed on the other.
I think I am very fortunate to be where I am standing today, almost entirely debt free. A fully paid for residence, no more car loan payments, and very little in the way of credit card balances. I mention this, not because I want to brag (though I assure you, I am quite vain and proud, bordering on arrogance even.) Rather, it is my objective to share with you the summation of the lessons I’ve learned about money and finance from my humble virtual platform with the sincere intention that you can make good use of this knowledge and avoid the pitfalls I blindly walked into.
That brings us to lesson number one, understanding what you have in your hands.
You see, understanding is key. If you want to become a doctor, you have to understand medicine and the ways your body reacts to it. If you want to become a lawyer, you must understand the law and how it affects the people around you. Want to be an engineer? You had better get a good understanding of physics and mathematics. If you want to be wealthy, or at the very least, financially stable, the first step is that you must have a good grasp of what money is.
Go ahead. Take your paper currency out and look at it. Have you ever asked yourself why a printed piece of paper has as much value on it as what it says?
For thousands of years, majority of civilizations have used some type of precious metal to be their form of money. In most cases, this was usually gold. Money was necessary, simply because bartering was cumbersome. Trading chickens for bread, for example may work just fine for some, but what if the baker was allergic to chickens? No trade between the two commodities could occur unless a third commodity came into play that the baker would accept in place of chickens. That is essentially why money was invented. It had to be compact, valuable, divisible, durable and universal. Gold fit these criteria perfectly and so, it has and probably will always be a valuable form of money.
What about paper money? Well, that came from the Chinese Dynasties during the Middle Ages. During long caravan voyages, instead of carrying around precious gold that could be stolen or lost, a merchant would approach his family bank, turn in or deposit his wealth and receive a sealed certificate. He would travel to the next city, present his certificate and withdraw the same amount minus a small fee. This would prove to be a much more practical way of doing business.
It was from here that paper currencies evolved. Merchant caravans would bring the practice further and further west. The Islamic sheiks closest to China began to adopt the practice. Jewish pilgrims would carry this further west into Europe.
I remember once, I saw a very old British Note. It said on it “Bank of England. I promise to pay the bearer of this note on demand, a sum of ten pounds.” That is what it essentially was, a certificate indicating that you had that much gold in the bank. So, for my fellow Americans, the dollar that you and I carry around, used to give you the ability to walk up to the Treasury office and exchange that $100 bill or note for $100 worth of gold. But that all changed.
In August 15, 1971, President Nixon took the U.S. off of the Gold Standard. That meant, that you could no longer change your paper money to the pegged rate of $35 per ounce of gold. It meant, that the dollar was no longer backed by how much of this precious metal our government held. The dollar was merely backed by promises of what its value is worth.
In short, my friends, the cherished time we trade for the paper money that becomes less and less valuable as more and more of it is printed out is a plan doomed to end… well, NOT in your favor. Sooner or later, people around the world will not continue to accept it, since it isn’t supported by anything of value (other than the promise that we will continue to credit it, and from what I’ve seen lately… a really poor job of debt management is being done.)
Regardless of whether you believe any of this, the lesson underneath it all is, instead of collecting something that is losing its value… start collecting assets that retain or increase value over time.
To achieve my goals of seeing at least 80% of the world and to be able to live anywhere it is currently summer, I have aimed at having a residence that I can easily rent out for a profit, portable freedom businesses that generate trickles of income, stocks and other paper assets that provide dividends regularly, and commodities such as gold and silver that retain or increase their value especially as paper currencies become worthless. And in the doomsday scenario where the dollar should ever fall apart and a new chicken currency arises, I would still be able to survive by charging my renters for chickens…
Food for thought.