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How To Spend Your Money Wisely

How To Spend Your Money Wisely

Money can live a healthy life, just as man can live a healthy life, in the sense that when money is managed effectively, it can be nourishing to man’s life.

Monitor Your Money:

You must first comprehend where your money is going in order to begin learning how to spend it more intelligently. Create a budget and keep track of your earnings and outgoings. When you are aware of where your money is going, you can start looking for ways to spend it more wisely.

 

Consider the Long-Term Advantages and Disadvantages of Purchases :

Impulsive purchases are made far too frequently. While this is acceptable when purchasing a $1 chocolate bar from the grocery store, it becomes problematic when making larger purchases. Consider how a purchase will effect you in the future before making one.

How much longer will it last? Will it increase your debt? Is the value you’ll acquire from it throughout the course of its life worth the price?

You might use these inquiries to decide whether or not anything is actually worth purchasing.

Put Only What You Can Afford To Pay Off Each Month On Your Credit Card:

Your money won’t necessarily suffer if you use credit cards. After all, they are practical, and a lot of cards provide cash back on purchases.

However, you ought to only use your credit card for purchases if you can make a complete payment on it at the end of the month.

You won’t pay interest if you pay off your credit card debt each month, making it practically equivalent to paying cash.

However, if you don’t pay off your balance each month, the interest accumulated might easily become out of hand.

Stop Trying to Impress Other People :

The typical individual spends much too much money just attempting to keep up their appearance. Much of what we buy, from expensive cars to designer apparel, is done so more to please others than because it is something we genuinely desire and love.

But trying to “Keep Up With the Joneses” is expensive and pointless. Don’t succumb to the idea that you need to spend money in order to impress others; instead, buy the items you enjoy.

Determine Which Behavior Drains Your Budget :

You can start looking for habits that might be blowing your budget after you start keeping track of your expenses.

These behaviors could involve overly expensive pastimes, frequent eating out, excessive apparel purchases, or any number of other drains on finances.

You may assess whether some habits are actually important once you identify the ones that are consuming a significant percentage of your revenue.

Learn To Prioritize Savings Above Purchases:

Some people have a natural ability to save money and find fulfillment in increasing their net worth.

Others view money as something that must be spent as soon as it is in their possession, and anything else feels like a missed chance.

If you belong to the second group, make an effort to develop a mindset that prioritizes savings over purchases.

In the end, spending money on things that will quickly wear out or lose their appeal will almost always be more detrimental to your life than investing or saving money.

Start Your investments Early :

Spending your money wisely involves more than just avoiding pointless purchases; it also involves using the money you save to purchase items that will help you achieve your financial objectives. In light of this, there is no such thing as starting or ending an investment portfolio too soon or too small.

No matter your age (young or old) or the amount of money you have to invest, investing in high-quality businesses that will increase in value over time is always a sensible use of your money.

What is money?

Money is a commodity known as a means of economic exchange is money which serves as the channel via which values and prices are communicated.

It is the primary indicator of wealth since it moves from one person to another and from one country to another, promoting trade.

In economics, money is defined as a generally accepted medium of exchange for goods and services.

Major Four Types Of Money:

Commodity Money:

The simplest and perhaps oldest sort of money is commodity money.

It is based on limited natural resources that serve as a means of exchange, a container for value, and a basis for accounting. A barter system, in which commodities and services are directly exchanged for one another, is closely related to (and derives from) commodity money.

This procedure is made easier by commodity money because it serves as a widely used means of exchange. The most important thing to keep in mind about commodity money is that the intrinsic value of the product itself determines its value. In other words, the item itself turns into currency. Gold coins, beads, shells, spices, and other items serve as examples of commodity money.

Fiat Money:

Fiat currency is valued by a government directive (i.e., fiat).

This means that once the government proclaims fiat money to be legal currency, it becomes mandatory for all citizens and businesses to accept it as payment. If they don’t, they risk being punished or even imprisoned. Fiat money is not backed by any tangible goods, in contrast to commodity money. Its intrinsic worth is, by definition, much lower than its face value. Thus, the link between supply and demand determines the value of fiat money.

Fiat money is the foundation of the majority of contemporary economies. Coins and bills are examples of fiat money.

Fiduciary Money:

The value of fiduciary money hinges on the belief that it would be widely used as a medium of exchange. It is not deemed legal currency by the government, unlike fiat money, so no one is compelled to accept it as payment by law. Instead, if the bearer requests it, the issuer of fiduciary money will exchange it back for a good or fiat money.

Fiduciary money is much like conventional fiat or commodity money in that it can be used by anyone as long as they have faith that the promise won’t be breached.

Fiduciary money includes things like cheques, banknotes, and drafts.

Commercial Bank Money:

Claims against financial institutions that can be used to pay for products or services are known as commercial bank money. It stands for the percentage of a currency’s value that is made up of debt created by commercial banks. More specifically, what is known as fractional reserve banking is how commercial bank money is produced.

Commercial banks engage in a practice known as “fractional reserve banking,” whereby they extend loans that exceed the value of the actual currency they possess.

Just keep in mind at this point that debt created by commercial banks is essentially what commercial bank money is—debt that may be converted into “real” money or used to purchase goods and services.

Functions Of Money:

Since we spend money so frequently as consumers, we hardly ever give it much thought. We all know we need money to buy products and services, but how many of us are actually aware of what it is used for?

Let’s take this chance to explore money’s purposes in more detail. In this session, we’ll focus on the roles of the store of value, the unit of account, and the medium of exchange.

Medium Of Exchange:

This implies that we pay for products and services using money.

Prior to the invention of money, bartering was the primary method of acquiring goods and services.

For instance, a cow could be exchanged for fur. But since we have money now, we may use it as a form of payment to get those must-have shoes. We are confident that when we enter a store, the cashier will accept our money because it is a widely used means of payment.

Unit Of Account:

There is a criterion for determining the value of the things we want to buy. We refer to this as a unit of account.

Basically, we know how much $200 is when anything costs that. It could be confusing if the item costs 200 seashells.

This indicates that if we put $25 in our piggy bank, it will still be worth $25 a month later. Over time, money is able to hold onto its value.

Qualities Of Money:

General Acceptability:

Acceptance is a crucial aspect of money. Acceptance of good money is necessary for everyone, without exception. Money has the intrinsic property of being generally accepted since the law deems it to be legal currency.

Homogeneity :

Examine these two 100-rupee notes. They have the same appearance and feel, right? They are equal in value as well. In actuality, no one can tell the difference between two banknotes that have just left the mint.

Homogeneity is a crucial aspect of good money. Transactions will become dubious if money is not uniform since people won’t know what they are getting.

Portability :

Good money, in addition to being accepted, also needs to be portable. Money is excellent if it can be transported or transferred easily from one location to another.

Durability :

Aside from acceptance and portability, the material used to manufacture money needs to retain its worth over a lengthy period of time. Ice and fruits, for instance, are not ideal forms of currency since they quickly lose value over time. After all, fruit rots and ice melts. As a result, durability is a crucial attribute of good money.

Cognizability :

It is essential to be able to detect money. Today, we can determine a currency note’s worth by looking at it.

People may struggle to distinguish between dealing with money and another inferior asset if money is not cognizable.

Divisibility :

When discussing the characteristics of good money, it’s crucial to keep in mind that money can be divided in many ways.

Money’s divisibility makes it possible for someone to purchase a smaller quantity of a good. Cows, for instance, cannot be used as good currency.
This is so because dividing a cow will lead it to lose value.

Stability :

Stability is likely the most important characteristics of good money. Money’s value is steady because it cannot fluctuate for a very long time.

Money will stop serving as a standard of postponed payment and a measure of value if its value keeps fluctuating.

– Kehinde Owoeye

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