Do you know what money is?

Guy Davis

Last updated 6th March 2024

We need to reset your understanding of what money actually is. Schools and society do a terrible job of teaching people what money really is.

Some key things to understand:

Money is a tool

Money itself isn’t really worth anything. You can’t eat it, it doesn’t grow, it isn’t pretty and it doesn’t provide any enjoyment. It is just pieces of metal, paper, or numbers on a screen.

Money is only useful to us because it is a means of exchange- it lets you get all the things that you actually want and need.

Let’s take a step back and think about why people go to work, and why they spend money. It is a simple exchange of services:
they have things they want, and to get them they have to offer something in exchange - which is them working.

Your employer can’t easily give you a house or a car in exchange for you working, so money sits in the middle to make it easy. They give you money and you can then use that money to get the things you ultimately want. So when you think about it you’re not actually working for money itself- you are working for the things the money can buy.

Even if you sit on the money in the middle for a while (savings), it’s still not the money you are after, it’s still the potential that money has to be used for something in the future.

Money is a tool. Thinking of it in this way is the foundation for understanding money and how to use it and acquire it.

Money has a cost to it

There are three main ways to get money, and all come with a cost:

Just how much money costs you in real terms when you’re working for it depends how hard you’re working, how good you are at extracting value for your skills and how much you enjoy your job.

When it comes to borrowing it, the cost of money is the interest rate you have to pay in order to borrow it.

And don’t do the third option.