Friday, July 25, 2008

Options for Money

What options do we have with our available cash flow? Essentially, there are four things each of us can do with the money we have. We can spend it, share it, save it, or invest it.

Most of us understand the spending part, and according to most economists, those of us in North America have mastered that art. John Maynard Keynes, the economist of the early 20th century whose work most federal monetary policy is based on, suggested that consumers would reach a point at which they would have what they want, and no longer consume bigger and better things.

The only challenge with this philosophy is that it flies in the face of human behaviour, and is therefore based on faulty assumptions. If you've wondered why government decision making is so messed up with regard to how taxes work, and the role of government, this is part of the reason.

Another thing we can do with money is to share it. According to any number of studies, Americans are the most giving people in the world. It is a part of our culture, and a part of how we identify ourselves. This, in my opinion, is an excellent attribute. Part of our responsibility for the space we take on this earth is to share what we have to ease another's journey.

The third thing we can do with money is save it. Saving is the art or discipline of setting aside a portion of our income, very consistently. It comes from the thought that there may be days in our future where we are unable to work, or choose not to, and therefore we need to be prepared. Saving comes from a mindset that we should be prepared, as best we can, for future contingencies. This mindset isn't common in our culture, in large part because we have enjoyed relative affluence for several decades. This mindset is still very common in the Asian cultures, especially first generation immigrants.

The fourth thing we can do with money is invest it. Investing is the process of putting money to work, and expecting a return. The old Economics 101 class explains it as "money at work" versus "man at work", which is what most of do each day. Many people get caught up in the investment process looking for the next big thing, or shortcuts, or homeruns, and fail to understand the process itself.

All investments are investments in people, as it generally takes three things to create a solid return on investment. These three things are money, ideas, and people. The easiest thing to find is the money. Otherwise there wouldn't be trillions of dollars sitting in money market accounts.

The most difficult thing to find are people. Many people are willing to show up on a regular basis as long as they are provided a job and work to do. To find those people who will take responsibility for an organization, and someone else's investment in them, is rare.

We could talk more about this, and will, but that's enough for today.

Until next time...

Randy

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