What is money?

Chances are when you think of money, you think of dollar bills, coins, a £20 note or even a credit card.

If it weren’t for money, we would be bartering – trading goods for goods (things for things). Donald the Farmer would be trading the sheep’s wool for clothes from a nearby factory to have something to wear.

Some of you fashionistas would be chuffed to have wardrobes completely decked out with outfits, but most of us, including Donald, want to pay the rent, keep the heating on and go on a holiday every now and again. Unless you’re planning on burning those bootcut Levi’s jeans to keep you warm, you’d rather have another way to pay for the heating.

That’s why money exists. Money allows people to buy stuff from others. In other words, money is a medium that facilitates the exchange of goods and services.

Now how do we decide how much something is worth? There’s a lot of factors that come into play, but ultimately it comes down to what economists call supply and demand. It’s all about how much of something exists vs. how much of something is wanted or needed.

It’s why one of the most desired fashion accessories, the Hermes Birkin bag, costs around $800 to make, yet can sell for as much as $450,000. You won’t find one for less than $10,000.

Now think about your own desires. What do you want most in life? Is it the ability to go on luxury holidays whenever you want? A big house? Prada bag collection? A LaFerrari supercar?

Now what if you were handed a million dollars? Would you go ahead and tick everything off the list? I would!

Now imagine everyone was given the same money and anyone could spend a million on anything they want. Chances are, there will be people that share the same wants as you and will try to do what you did with that money.

However there are only so many artisans that have the skill to craft a Birkin bag and few technicians with the attention to detail needed to hand assemble a LaFerrari. So what happens when everyone can afford one?

It’s simple! Prices go up until only a few people can afford the them.

This doesn’t just apply to Birkin bags and LaFerraris, it applies to anything out there. From that big house you’ve always wanted, to the groceries you need to keep yourself fed. When demand is greater than supply, prices go up until they closely match.

The dollars, euros, pounds (or whatever currency) you use can be printed by central banks at any time and amount needed. The central banks to do this to fund borrowing (debt) in all forms, all the way from your credit card use to as much as the billions of dollars needed for government spending. There is more money in the world than ever before, take the US dollar for example:

Most of that money usually ends up in the hands of a few – fashion moguls make hundreds of dollars for every time someone swipes their card to buy designer clothing. Defence companies like BAE Systems and Lockheed Martin make billions off government defence contracts, these are just a few examples. The few use most of that money to buy more assets, such as businesses, property (houses), collectible art, fashion etc.

While salaries haven’t kept up with house prices, a lot of that printed money still ends up with the average person through salary/wage increases which will usually be spent on groceries, rent, cars, holidays, events, experiences etc.

When everyone gets a salary increase (the National Living Wage here in the UK has gone up from £8.72 to £12.21 over the last couple of years), it means everyone can just about afford to pay a bit more for the things they need. Just like in the million dollar example earlier, prices go up, even for everyday items. Just think about how much your grocery bill has gone up by over the last couple of years!

This means that every dollar, rupee, pound or euro buys you less and less as every year goes by. Gone are the days you could buy a bunch of sweets with a couple cents or pennies. It’s gotten so bad, that pennies now cost more to make than they’re worth.

So what can you do to protect your money from losing its value? The simple answer would be to invest in more in assets such as stocks, cash generating businesses, property and precious metals while spending less on the non-essentials.

Now it’s painfully obvious to us that it is easier said than done (everyone would be doing it otherwise). There are a lot of obstacles for most people to even get started.

That’s why I’ve set out on a mission here, at Resciply, to educate people on how they can set themselves up for a successful future in an increasingly expensive world.

Life is not easy, but it certainly will be.