Training for life: Understand money and focus on economy for a better life
Winston Churchill said, “You need to study your past if you want to change your future.”
Let’s go down the rabbit hole and study what happens to a person’s money overtime. I have found two financial principles that literally deceive people on daily basis but there are ways to counterattack these negative effects.
I) Inflation vs. Deflation Have you observed the price of gas these days? Have you driven on your first street or main street and notice the price of gas? If you go to any of the gas station in town right now, the price of unleaded is approximately at about $2.19 a gallon and any of the other type of gas are above that mark.
Have you observed the price of gas during the year 2020? Jog your memory and remember the price was it for a full tank in March 2020? Now, compare it to today’s price. Better yet, if you still have them go and compare your receipts from 2020 and the one of today? If you have done any of those experiment or have travelled enough last year and this month you know that gas price has skyrocketed.
In March 2020 gas prices started to fall and continually fell until in its reach rock bottom in May 2020 with a price index adjustment of 91 cents/gal. In other words, May 2020 the price of unleaded gas was approximately $1.34 on 1st Street in Pratt and in most of the surrounding towns like St John, Stafford, Cunningham, Greensburg all the way to Wichita.
While the world had their eyes riveted on Covid-19 a gigantic economical storm was taking place and we perhaps didn’t see it. That constant increase and decrease of price is at the base of what is called inflation and deflation. Inflation is when prices rise, and deflation is when prices fall. How does that affect you on a daily basis? Why is it important for you to understand those principles? How important is money in your life?
Your power in our economy is not your money. Money is only a piece of paper that have no intrinsic value. Take a dollar bill observe it and touch it, it is literally only a piece of paper. The power of a dollar depends mainly upon two things: 1) what we can do with it 2) the environment in which we use it.
What you can do with it is called our Purchasing power. In other words, how much products or services you can buy or purchase. The environment has to do with economical climate whether we are in an “inflated” or “deflated” economy.
Do you remember our gas prices experiment? In May 2020 gas price was $1.34 a gallon, consequently your purchasing power was very strong because for $1.34 you could have one gallon of gas. Fast forward in Jan 2021 – different economic environment – take your $1.34 and go to gas station. You can now only purchase 0.6 gallon of gas (1.34 divided by 2.19).
During times of uncertainty, masses of people have the same instinct which is to save their money! This is very much a “cow mentality” on how to weather the economical storms of life (cf. Pratt Tribune article Nov 11th 2020 “Are you a Cow or Buffalo?”). Saving your money is the wrong instinct while facing economical storms, because it is during those difficult times that your purchasing power is the strongest! When hardships such as unemployment, layoffs, reduction of working hours or slowing down of business occur parallelly to deflation, thus making it difficult to make ends meet. You may by now have sense something quite clear which is:
II) Learn from the past – History is one of the master teachers of life. When you go through any sort of hardships, challenges, oppositions in life, take a deep breath and look at the past. Look at those that went through similar situations and overcame. Observe the coping mechanisms, methods, plans, skills, qualities they used in order to overcome. Economically speaking look at how people overcame the great depression in the 1920’s or even more contemporary have a look at the 2008 real estate crisis. Look at both what led to such a crisis and what helped to resolve it. If insanity is doing the same thing over and over and expecting a different result, we ought to look at the past and create a better future now.
III) Follow three simple and sound economic principles – There are various reasons why economic bubbles happens but there are also very simple and sound economic principles to protect yourself and your loved ones from such devastating blows. 1- Work hard but also work smart – Educate yourself, become a valuable asset of your company, or dominate the market with your products. Become an expert in your field and work smart and efficiently. What processes could you change right now that would catapult your work into the next level. 2- Pay your tithes and offerings or be charitable – The law of the harvest is simple whatever you sow you will reap. Giving 10% of your income to a good cause or to someone in need will bring into your life blessings and opportunities that you could not receive otherwise. 3- Spend less than you earn - This one is key to avoid negative effects of economic bubbles! Apart from the purchase of a house and paying for education, be frugal!
Do not put yourself and your family in difficult situation by spending more than necessary. Pay every in full and if you can’t afford it, don’t buy it!
You do not have to be an econ major in order to recognize that the economic principles just described are true. The Federal Reserve is the entity that generates our dollars and it has the authority and power to inflate our system with dollars at will thus reducing our purchasing power. That is why you need to start right now to study the past and learn from it. That why you need to take control of your dollars by following sound economic principles and values by working hard and smart, being charitable, and spend less than you earn so you can save during times of deflation. While it is true that money doesn’t bring happiness, let us be honest and admit it sure contributes to it. It doesn’t matter whether you are a farmer, educator, coach, medical professional, lawyer, lineman, entrepreneur or government employee, take control of the US dollar!
References https://www.ksdot.org/bureaus/burconsmain/Connections/PriceIndex.asp https://www.churchofjesuschrist.org/manual/my-foundation-principles-skills-habits/4-manage-money?lang=eng