Feeds:
Posts
Comments

Archive for the ‘Investing’ Category

In a previous blog I said I would talk about things which are incredibly obvious to some, but not however to everyone. The name of that blog was in fact “Stating the damn obvious”, click here to read it. Today what I want to speak about is why having money in the bank can make you poorer.

Money is not wealth.

Money, money, money, the name of a famous Abba song.

Image source.

“Money, money, money, in a rich man’s world”, as the famous Abba song goes.

Money is not wealth but merely a means of accessing wealth. Money in of itself has no inherent value and is merely a means to an end, the end being acquiring things, services and so forth. It is often just a piece of paper. Money is also a means of measuring wealth. When someone has a certain amount of money we can say that he has the ability or potential to do X, Y and Z with it. If however someone has a billion dollars but lives the life of a pauper and lives in a shoebox, he has the ability and the potential to buy a huge mansion, but he does not do so. He is “wealthy” in that he has money, he is not wealthy in that he is not using or enjoying things which he could acquire with that money, namely in this case a beautiful house.

A miser holding on to his money very possessively.

 Image source.

A beautiful house in California.

Money depreciates

As time passes, the value of money goes down and down. What that means is 10 years ago $10 (even though I am British I am using dollars as it is still the world’s international currency) could buy you a certain amount of things. Maybe a hamburger, a bottle of milk and so forth.

10 years later you can’t buy as much as you could before, with that same $10. The $10 now has the same “purchasing power” (things you can buy with it) as $5 had 10 years ago.

In larger terms. If you became a millionaire today and bought what you wished to and then left the remaining cash in the bank, you would over time become poorer. Let us say you left half a million dollars i.e. $500,000 in the bank after spending the first half a million. You would of course gain interest on that money, but still 5 or 10 years later in real terms that $500,000 has the same value that $300,000 does now (depending on inflation).

So do the super-rich tend to leave lots of money in bank accounts. Yes, some do and some don’t. Some do so that they have cash, capital, whatever you want to call it which they can withdraw and use when they want to buy something or invest in something. Others however protect themselves from “money depreciation” by buying valuable things such as houses, expensive cars, jewellery, paintings. All of these things are assets which unlike money go up in value.

Sothebys, where paintings are sold for millions in auctions.

 Image source.

Money goes down in value, Assets go up.

Also the money which you make from renting a house or flat that you’ve bought, which we call “rental income” is usually far more than money you would get from interest on your bank account. Also if you spent money on buying the house you can sell the house for a higher price later on and make a profit, unlike your bank account money which is static and goes down in value. Your credit rating would also be better as you have a house.

So do not hoarde money excessively as it goes down in value, but invest it where it will grow and make you more money.

So imagine there are two brothers, Peter and Simon. Peter has $1 million and spends half, and saves half of it in the bank and leaves it there.  Simon on the other hand spends half but saves a quarter in the bank and invests the other quarter in property, paintings, and jewellery, and sells them all all of 10 years later.  Then 10 years later Peter would still have $500,000 (plus interest), Simon however would have $250,000 (plus interest) and possibly $375,000 if all the property, paintings and jewellery went up by 50% over 10 years. If however he bought a much coveted masterpiece of art, he could possibly sell it for millions.

Money doesn’t grow on trees, but it does grow if you invest it in assets!

Money doesn't grow on trees, but it can grow with assets and investments. You can "lose money" if you leave it in the bank as the value decreases, thus making you poorer in real terms.

 Image source.

This is as I said in the beginning very, very simple and basic information for some. It isn’t for others however and hopefully they will find this useful. Having money in the bank for a long long time can make you poorer. Using it to make more money by buying assets will make you richer.

 

– Jahan Choudhry.

Read Full Post »

I have been writing a few articles recently and I have also been sharing images and quotes which I have found from facebook contacts and so on. If you have found anything that you have read here to be useful, why not instead of keeping it to yourself, share it with others, in the same why I shared the following images from people on my facebook list.

Pool on the top of a tall building in Singapore.

Click here to read the original article.

Left-right brain conflict.

Click here to read the original article.

The most beautiful people we know...

Click here to read the original article.

Mount Fuji in Japan, from facebook.

Click here to read the original article.

F.L.Y., first love yourself...

Click here to read the original article.

All of these pictures and quotes were free for me to save on to my hard drive and then upload on to this blog. I enjoyed them and they had an effect on me so I thought I would share them with my readers.

Sharing is caring.

When you share, especially when it is free, you do not in fact detract from what you have. You are in fact giving. To give is greater than to get. When you give, you will in the future recieve and with interest. This concept is central to the concept of “tithing”, which I would like to speak about in greater detail in the future. However please do not mistake this for not being very careful and prudent with your finances. On the contrary I would encourage everyone to be as conservative with their own personal or business expenditure as they can and not incur any unnecessary costs, waste money for no reason, and to go for the cheapest deal they can. “Tithing”, does not mean being reckless with the hard earned money that you have acquired.

In fact the great Warren Buffet once famously said “The first rule of investing is don’t lose money; the second rule is don’t  forget Rule No. 1.”, by this he did not just mean avoid investing in anything risky but a general policy of “cash conservation”, or being modest with money. He in fact for example advised young people against credit cards.

Please read this excellent article for more information.

Legendary investor and billionaire Warren Buffet who lives a very modest lifestyle.

Image source.

Buffet the billionaire, who lives a very modest, some say "frugal" lifestyle with a simple hamburger and soft drink.

Image source.

“Tithing” or other forms of giving are not necessarily just monetary. Some of the greatest forms of giving can be in different forms for example by giving up your time to help someone, emotional support, even if  it is just a simple smile and so forth. Do not do it with self-interest in the hope or expectation that you will get an immediate reward. Do it, because it’s the right thing to do. Do the right thing, something which I touched upon earlier in a previous article (click here to read).

When you give, you get more back. Maybe not from the person you gave to, not right that time, but in the future you will recieve what you gave. This, as I said does not mean be taken advantage of, and I will explain in the future how to balance this. When you share knowledge or help others to learn and know more, you yourself in the future will learn more or be told things by other people. So if you wish to please share my articles with a simple click on a button on the bottom of my articles such as the facebook button.

A facebook share button.

Image source.

The facebook share, and other share buttons on the bottom of my articles.

When you find something which you yourself enjoy, or benefit from, you can share it and let others too enjoy, benefit from it, especially if it just involves the click of a single button.

So happy sharing, it’s free! Also even happier recieving even more after your sharing.

–  Jahan Choudhry

Read Full Post »