Growing up I was in the fortunate situation of not really caring about money. This doesn’t mean my family had innumerable amounts of it. It just means we had enough to cover the important things like food, clothes, school items and such. You see, a kid doesn’t care about money unless the lack thereof makes life difficult. A child doesn’t need a Playstation or an iPhone (even if it will roll on the floor in agony claiming the opposite). But a child does need safety, warmth, and attention. So when the lack of money gets in the way of these things, money will become important even for a child.
When you start caring about money
Imagine a 7-year-old who has to walk 5 miles every day just to get to school. On most days his lunchbox is empty and he has to rely on the snack the school provides. And after walking 5 miles back home, he needs to help gather the hens, milk the cows, and watch his siblings before he can start his homework.
This child will feel the lack of money. He may become bitter and resent those who have it, or he may silently swear to himself that he will do anything it takes to never be poor again. That’s up to him. Just one thing is certain: this is a kid that will grow up caring about money — a lot.
But that wasn’t me. And I’m pretty sure it wasn’t you. Most of us grew up in a home where our basic needs were covered. Then, at one point during school, we understood that money is this weird thing that lets you buy things. If you have it you can get a new bike. No money, no bike.
You also became aware that some kids had 2 bikes and an iPhone, while others didn’t have either. You also heard about people who have innumerable amounts of money and you started wondering what it would be like to have all the bikes, iPhones, and Legos you ever wanted.
Sadly, that’s the understanding most adults have about money. Sure, the Legos and dolls are replaced by cars, yachts, and houses. But it’s basically the same way of thinking.
When you start understanding money
Most people think of money as something you trade for physical objects. The more money you earn, the more stuff you can buy.
That’s wrong. And it’s the main reason why most people aren’t rich (or financially safe).
So what do rich people do differently? I’ve spent years studying how they think about money. I’ve also read several books on behavioral economics trying to understand why poor people lose money so easily. After spending countless hours trying to piece it all together and get into the minds of billionaires, I came up with 7 essential points.
Top 7 lessons about money
Money is an instrument. Use it wisely and you can become its master. Use it poorly and you will become its slave. Either way, money is just printed paper or digits on a screen. A depression or a cyber attack can wipe those things out. But the real value of money lies in how you use it, which is something nobody can take away once you get the hang of it. Never forget that.
Money does buy happiness, but only up to a point. Read that again and memorize it — especially the last part. Study after study has shown that happiness goes hand in hand with wealth, but only up to a point (around $75.000/year with some variation depending on where you live). After that it plateaus. Or worse, in some cases, it even goes down. That’s how you get unhappy millionaires — they don’t understand that you can’t become happier by making more money.
Money offers safety. You need a minimum amount to cover your basic needs (food, clean water, a shelter, and health care). And you need to cover those first if you want to be happy (I’ve explained why in this post). Once you have these things covered for yourself, use money to offer safety for your loved ones.
Money enables freedom. The freedom to choose where you live, what you eat, how you spend your free time — they are all determined by money. As is the freedom to educate yourself and your children. And the freedom to travel. And about 10 other types of freedom I didn’t want to list so you wouldn’t get bored. But you get the idea: we like freedom. It’s important. And money enables it.
Money helps you make an impact. How significant that impact is depends on the amount. From renovating a kindergarten classroom to funding cancer research or building self-sustaining cities, it’s all just a matter of scale. And it’s up to you if you just donate money or also put in some time and effort. But it can’t be done without money.
Money is a sign of skill. This is the way we’ve decided to organize our civilization. There were times when a skill would get you a luxurious meal or keep you from getting beheaded. Nowadays we reward skills with money. Sure, some skills are better paid than others. And the pay is often not proportional to the effort required to perfect the skill. But one thing is certain: if you are unskilled you will make no money. And if you are skilled, society will repay you with money and respect.
Money is a score. This one took me the longest time to understand. For the life of me, I couldn’t figure out why anyone would still want to make money after having more than you, your children, and your grandchildren could ever spend. To really understand this you need to get into the mind of a billionaire. Or, better yet, several billionaires. And after reading the biographies of Jeff Bezos, Warren Buffett, Elon Musk, and several others, I finally got it. After a certain point, money is just a score. Just like you and I like to beat the high score in a video game, billionaires like to beat high scores in bank accounts. The difference between the two? Billionaires understand all the previous 6 points I’ve listed.
And they all take action. Because knowledge without action is just intellectual masturbation.
So I hope this post didn’t just give you a better understanding of why money is important, but also motivated you to make some. Put in the hours, push your brain cells a bit further, and do the work. Do it for yourself, your family, and the world around you. Get out there and earn some!
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Recommended reading: Predictably Irrational by Dan Ariely
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