Thursday, August 9, 2012

An attempt to understand Money

I remember the criteria we had for ‘The best company to work for‘ during campus placements – it was the company which offered the highest pay!! It probably came from the training we had from early childhood that money is extremely important and somehow it magically translates to success and happiness. Since it is so important, I thought it is worth to pause for a moment and try to understand what it really is.

It is very interesting to understand how do we determine the value of the goods and services we avail and more importantly, how does the world put a value on the goods and services we offer. I have to admit that I don’t understand any of the macro economics stuff yet. This post is more of an attempt to understand money at the most basic level.

I started by googling ‘how to understand money’ and ‘history of money’. This page is good for starters. After going through few articles, if I have to summarize the theoretical description of money in my words , it has to be – ‘Money is the most widely agreed metric that is used to measure the value of goods and services one can offer and the quality of goods and services one can afford’. In other words, ‘It is the most commonly agreed metric to measure one’s earning power and buying potential’. These could be miles away from the accurate description!!

From my understanding, one’s earning power is determined by the demand and supply equation. More demand, less supply translates to more earning power. And one’s buying potential is directly proportional to his earning power. Looking around, we can find many examples – why do some celebrities get paid astronomical sums for just an appearance? High demand, low supply.

The story is fine and simple till this point. The tough question is how to determine our own earning power and buying potential? We really don’t have complete control on our earning power, as we don’t get to control the demand and supply equation. If I was the only guy to graduate from my university in Electronics engineering in 2008, the value of my services would have been much different today!! But, the buying potential is definitely a personal choice. I think it is more apt to call it buying requirement. All of us need not have to aspire to own a Benz and when we don’t aspire to own it, we definitely don’t have to earn enough to buy it. I think this is where most of us miss the connection, including me. We have been trained from kindergarten that we should earn as much as possible and not as much as needed. We have not been trained to gauge our necessities and earn accordingly. Instead, we have been trained to earn to the maximum possible extent and spend accordingly. It is more like ‘I have money and will upgrade my phone, rather than I need to upgrade my phone and earn money for it’.

Also, when it comes to earning, we are invariably exchanging our time, energy and resources in return for money. There is this saying that the value of anything should be measured by what we lose to earn it. May be, the same thought could come handy to decide how much of our time, energy and resources do we trade to earn. The world might say we are worth ‘X’ rupees per hour for the services we offer, but it is up to us to decide how many hours of service we put for sale.

Money by itself is not the end, it is a means. Imagine, if we are given a million dollars with the condition that we cannot spend it, it would be worthless!!

Finally, not all things which make us happy should have a monetary value associated. As the popular saying goes, “The most important things in life aren’t things”. It would be inappropriate to say money is not important. May be, it is not as important as we think or we don’t understand it as well as we should, at least me. Looking back, the criteria we had for ‘The best company to work for’ was probably not the most accurate.