Ask anyone if they have a decent understanding of finance and, on the whole, most people will say they do. When it comes to money, we’re so used to receiving and spending it that we automatically assume we understand money’s fundamental mechanics and, in turn, its true value. To some extent, we all have an innate understanding of cash. However, when you scratch beneath the surface, it’s also true that most people fail to appreciate its nuances.
In many ways, this is can be the thing that separates those who know how to handle money and those that don’t. Warren Buffett, for example, has a very different take on money than the average person. While many believe the optimal way to have money is to save, Buffett believes the opposite. The billionaire investor is quoted as saying “if you don’t find a way to make money while you sleep, you’ll work until you die”.
Money Isn’t a Static Object You Should Seek to Keep
There are a few implications in what Buffett is saying. However, the main one is that money is a commodity, a liquid asset. It’s a tool that should be working for you and not sitting idly in a bank account.
While investment worked for Buffett, it isn’t necessarily the only route you can take. Maybe you could learn how to set up a business or put money into someone else’s start-up. Whatever way you do it, the point here is that you should embrace the dynamic nature of money. Learn how it ebbs and flows. Harness its ability to grow and use that to turn something into something more. Too many people see money as a fixed asset. However, you only need to look at the world of forex to see this isn’t true.
When you run through the basics of foreign exchange (forex) trading, you can see how money is in a constant state of flux. Today, it’s even easier to see how the markets move thanks to online trading sites. When you scroll through lists of trusted forex brokers, you’ll see phrases such as “currency pairs”, “pips” and “leverage”. These are crucial concepts in forex trading because they reflect how the value of international currencies not only change in isolation but impact the value of other currencies. For example, the currency pair USD/GBP shows the value of USD in relation to GBP. This value will change throughout the day on a microscopic level (pips, i.e. changes in value after a decimal point). Forex traders speculate on these movements.
Make Your Money Work and It Will Work for You
However, what’s important to note outside of trading as a practice is that the changes in value show how money is a commodity in the same way shares, gold or oil can be. Money is dynamic, and that’s what allows people to trade it. If it were a static asset, you could never make a profit or loss because the value wouldn’t change.
That’s important and it links back to the comment from Warren Buffett. To make money, you need to make it work for you. Don’t sit on it as though it’s never going to change value. To push the point even further, consider the concept of inflation. £10 in 1980 isn’t worth the same as £10 in 2020. Money in a bank account that’s not earning any interest actually depreciates in value over time.
Again, this moves us towards a definition of money being a liquid asset that needs to flow in order to reach its full potential. Pouring it into a glass and never using it is not only a waste, it’s a strategy that will cost you money. So, the lesson here is that money should be put to work. To increase your wealth, don’t see yourself as a collector of it but a user.
Investing in forex, contracts for difference or oil are all possible routes. However, you should find something that interests you when aiming to put your assets to work. Money is at its best when it’s allowed to flow. Restricting it will only cause it to lose value over time. If you can understand this, you’ll understand the true meaning of money. If you are thinking of venturing into trading forex and concerned about the deposit fees needed, trading platform Degiro has a zero minimum deposit that is perfect for new investors. To find out more, AskTraders has curated a guide on the different Degiro deposit methods.