At some point in your life you've probably heard someone say they don't care about money; maybe you've even said that yourself. While this sentiment sounds nice in theory, the reality - for better or for worse - is that you shouldn't underestimate the importance of money.
On this page:
- why do we need money
- benefits of money
- disadvantages of money
- planning for the future
why do we need money
Money can't buy happiness, but security and security for you and your loved ones can. People need money to pay for all the things that make their lives possible, such as shelter, food, health care bills, and a good education. You don't necessarily have to be Bill Gates or have a lot of money to pay for these things, but you will need some cash by the day you die.
Because money is necessary to obtain the goods and services you need to survive, an understanding of personal finance is essential. You must be responsible with the money you earn and save enough for the future to ensure you still have enough left over when you can no longer trade your work for money.
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The sooner you start saving your money, the more likely it is that you'll never face a lack of money or financial stress. If you save enough and invest wisely, you can even become financially free — which happens when you have enough money to live on for the rest of your life.
Money is a universal medium of exchange
One reason so many people profess to not care about money is because the love of money has been described as "the root of all evil."
It is true that materialistic people can be driven by their obsession with money to do bad things for their own financial gain. But in reality, money is nothing more than a medium of exchange.
Money makes it easier to exchange your labor for a variety of goods and services. Below are some things to consider when discussing the value of money and why money matters.
- Without money, if you wanted food, you would have to find someone who had food who was willing to trade it for a service you could provide directly or a product you could make. Barters like this are cumbersome and inefficient, not to mention a less reliable means of getting the things you need.
- With money, you don't have to hope that someone will want to give you something you need in exchange for something you have available to trade. Everyone recognizes that money has value, so you can exchange it for any good or service. This increases market liquidity, which refers to how easily assets can be bought or sold.
- Of course, this only works in situations where money actually has a stable value - and he derives that value from the fact that it's a scarce commodity. If anyone could get as much money as they wanted by printing, it would no longer have any value.
- In order to preserve the true value of money, a central authority must ensure that the money supply remains limited. In many cases, a central bank like the US Federal Reserve controls the money supply, making sure we don't end up with so much money that it's no longer considered valuable - a process known as inflation.
benefits of money
The existence of money allows you to trade your work for things you value. There are many great benefits of money, including the following:
- Money gives you freedom. If you have enough money, you can live where you want, take care of your needs, and pursue your hobbies. When you can become financially independent and have the financial resources to live without a job, you enjoy even more freedom to do whatever you want with your time.
- Money gives you the power to achieve your dreams.Having money allows you to start a business, build a dream home, pay the expenses associated with raising a family, or achieve any other goal that you believe will help you lead a better life respectively.
- Money gives security.When you have enough money in the bank, you don't have to worry about having a roof over your head, having enough to eat, or being able to see a doctor if you get sick. That doesn't mean you can afford anything you want, but you can enjoy a stable middle-class life.
Although money can't buy happiness, freedom, security, and the power to achieve your dreams can go a long way in making you happy. That's why it's so important to work hard, make money, and learn how to save and invest it. When you start investing your money, it starts working for you, helping you produce more - and eventually you should have enough to retire.
disadvantages of money
Of course, there are also some definite downsides to money, including:
- Money obsession or love of money can cause a lot of problems. Trying to get money at any cost, or constantly trying to get as much money as possible, could lead you to unethical or even criminal behavior such as theft or fraud. Focusing too much on money or material things at the expense of other people and things in your life could also cause problems for you and your family. If all you have is money but you have no one to share your life with and nothing to enjoy, you probably won't be happy.
- Money can cause disagreements:When you and your partner or family members disagree about what to do with money, it can create significant tension in your life. In fact, money is one of the top reasons American couples divorce.
Most of these disadvantages are not related to money itself, but to the way people handle money and the attitudes people have about money. You can be responsible about earning and saving money without letting it cause problems in your life.
planning for the future
Since money is something you will always need, it is important that you make plans as early as possible to ensure you always have enough.
Sometimes it takes a lot of money to achieve big goals — like buying a house or paying for college. To ensure you have enough money to do these things, set clear financial goals and work toward achieving them.
You must plan for the day when you will no longer be able to make money from your work because you are getting too old or ill to work. Saving money in tax-advantaged retirement accounts like a 401(k) or IRA can be the best way to do this. When you save money in a tax-deferred account, it costs you less to set the money aside because you won't be taxed on it. And if you invest it, it can start making good returns.
When your money is invested, the funds invested produce more money - a so-called return. The mechanism by which money makes more money - and the amount it makes - will vary by investment. For example, when you buy bonds, your investment makes money because your money is lent to someone (like a government or a company) who pays it back to you with interest. Investing in stocks allows you to make money from your investment because you have a small stake in a company that has the potential to grow and generate income.
If you save enough money, you can buy things like a house or a college degree that will help you make a good income. And you can live on the returns your money earns, eliminating the need to trade your labor. In this case, you have ultimate flexibility because you can do whatever you want in life and your needs will still be met.
The sooner you start saving, the more your money can work for you — especially if you use compound interest. Compound interest occurs when you earn a return on invested funds, and you then earn a return on that return. It can help your money grow fast. If you invest when you are young, compound interest can turn a small investment into a significant sum over many years.
Conclusion: Money is something you will always need
working toearn moneycan seem like an annoyance, especially when your job is mundane and you don't love what you do. Still, money justifies your work. Because you get paid for your work, you get something of value that enables you to live your life.
While the quest to make money can be corrupting if you take it too far, having enough money can be quite liberating because it gives you the freedom to buy what you need and do what you do want. Remember, it's up to you to save so you can use money to shape your future.
Comparison Table for Advantages and Disadvantages of Money.
|Homogeneous||It's easy to waste|
Money allows us to meet our basic needs—to buy food and shelter and pay for healthcare. Meeting these needs is essential, and if we don't have enough money to do so, our personal wellbeing and the wellbeing of the community as a whole suffers greatly.What are the 5 advantages of money? ›
Having money makes it possible for you to start a business, build a dream home, pay the costs associated with having a family, or accomplish other goals you believe will help you live a better life.What are some cons of money? ›
- Instability. A great disadvantage of money is that its value does not remain constant which creates instability in the economy. ...
- Inequality of Income: ...
- Growth of Monopolies: ...
- Over-Capitalization: ...
- Misuse of Capital: ...
- Hoarding: ...
- Black Money: ...
- Political Instability:
Cash allows you to keep closer control of your spending, for example by preventing you from overspending. It's fast. Banknotes and coins settle a payment instantly. It's secure.Why is the use of money better than better? ›
Money evaluates every commodity and service with a convincing value. A person who doesn't want anything in exchange will also be ready to work for someone for money. Money is a durable thing and lasts many years, even if kept unused.Is money the purpose of life? ›
For most people, the answer is a resounding no. In simple and obvious ways, we all need money for everything from fulfilling basic needs necessary for survival to making our wildest dreams come true. But making money should not be the one overarching goal in life, overshadowing everything else we have going on.Why is money so powerful? ›
Money Is So Powerful Because it Provides People With Power – to Have the Freedom to Do What They Want, Be Who They Want, and Go Where They Want. This is entirely true. Without money, you will have fewer options and freedom.Does money make people happy? ›
In a six-month experiment, people who received cash transfers of $10,000 generally reported feeling happier than people who did not receive the payment. A recent experiment suggests that money can indeed buy happiness — at least for six months, among households making up to $123,000 a year.What are the 4 purposes of money? ›
Money serves several functions: a medium of exchange, a unit of account, a store of value, and a standard of deferred payment.
- Function # 1. A Medium of Exchange: ...
- Function # 2. A Measure of Value: ...
- Function # 3. A Store of Value (Purchasing Power): ...
- Function # 4. The Basis of Credit: ...
- Function # 5. A Unit of Account: ...
- Function # 6. A Standard of Postponed Payment:
- 1) Spend less than you earn. We all know this is the most basic part of money management. ...
- 2) Pay yourself first. ...
- 3) Avoid bad debts. ...
- 4) Grow your money. ...
- 5) Protect yourself and your wealth.
Some 42% of U.S. adults said that money has a negative impact on their mental health, according to a survey from Bankrate. The study included nearly 2,500 American adults and took place between April 6 and 8. Of those who said money has affected their mental health, most cited feeling stressed, anxious and overwhelmed.What is a problem of money? ›
Identifying the problem
Lack of income/job loss. Unexpected expenses. Too much debt. Need for financial independence. Overspending or lack of budget.
They found evidence that anticipating paying with money (making the decision to purchase) did indeed activate pain processing regions in the brain, albeit those were associated with higher-order, affective pain, and not somatosensory (i.e., physical) pain.Why do people prefer to hold money? ›
According to Keynes, people hold money (M) in cash for three motives: (i) Transactions motive , (ii) Precautionary motive, and (iii) Speculative motive. The transactions motive for holding cash relates to 'the need for cash for current transactions for personal and business exchange.Why do people prefer cash? ›
Saving: Many consumers believe paying with cash is better to control their spending. Setting aside a monthly amount for things like recreational activities helps us plan our savings and avoid unnecessary spending. Autonomy: Digital payment receivers sometimes suffer technical glitches.Why is paying cash better? ›
Paying with cash vs. credit helps you keep your debt in check. It can be easy to get into debt, and not so easy to get out of it. In addition to paying more in total for purchases over time, you're also accumulating more debt if you don't pay your bills off from month to month.Is money the most important thing in life? ›
Money isn't the most important thing in the world, but it sure is nice and definitely a necessity. It is also one of the easiest means to help others. The most important thing is probably love.Does money matter the most? ›
More Money Matters
In Maslow's hierarchy of needs, the only factors more important than financial security per se and physical safety are our physiological needs for air, water, warmth, and rest — all of which are increasingly dependent on money as well.
An analysis comparing reported income to reported well-being revealed a strong, positive relationship between the measures. People who earned more money reported greater day-to-day well-being and better overall life satisfaction.Does money change your life? ›
Psychologists have found that money dramatically changes how people see the world. Other researchers have been trying to understand how money impacts interpersonal relationships. The goal of all these studies – past and present – is to find out if money is capable of altering an individual's personality.Why money doesn t buy happiness? ›
It's often said that money doesn't buy happiness, and, in a 2010 study, Kahneman and Deaton show that it doesn't. Nevertheless, most people apparently think that it does. Kahneman and Deaton found that "emotional well-being" is associated with social interaction rather than with higher income.How does money affect human behavior? ›
Wealth can cloud moral judgment
Another study suggested that merely thinking about money could lead to unethical behavior. Researchers from Harvard and the University of Utah found that study participants were more likely to lie or behave immorally after being exposed to money-related words.
The quantity of services and goods that can be purchased with a monetary unit is known as the purchasing power of money.Why is money an energy? ›
Money is not just a tool for your financial needs. It is an energy that flows through and around you every day. It can be focused on your goals, or it can be spread out in many different directions. The way you use your money is a reflection of what's going on inside of you.Can money make you mean? ›
Most of the findings point to money bringing out negative behavior in people. "The more money you have, the more focused on yourself you become, and less-sensitive to the welfare of people around you," Piff says.Why money is more important than happy? ›
If you can focus on a balance of happiness in your life rather than only on your monetary possessions, you are more likely to achieve better physical and mental health. That balance comes with less stress and will be better for you long term. On top of that, having that balance will be better for your finances.What are the 3 principles of money? ›
- Cash Flow. Cash flow—the broad term for the net balance of money moving into and out of a business at a specific point in time—is a key financial principle to understand. ...
- Time Value of Money. ...
- Risk and Return.
1 Timothy 6:17 says, “Instruct those who are rich in the present age not to be arrogant or to set their hope on the uncertainty of wealth, but on God, who richly provides us with all things to enjoy.” We all must use money. However, having money or spending money cannot be the end goal.
What are the six characteristics of money? durability, portability, divisibility, uniformity, limited supply, and acceptability. Objects used as money must withstand the physical wear and tear that comes with being used over and over again.What are the 4 types of money? ›
Economists differentiate among three different types of money: commodity money, fiat money, and bank money. Commodity money is a good whose value serves as the value of money. Gold coins are an example of commodity money.How should we use money? ›
- Create a budget: Making a budget is the first and the most important step of money management. ...
- Save first, spend later: ...
- Set financial goals: ...
- Start investing early: ...
- Avoid debt: ...
- Save Early: ...
- Ensure protection against emergencies:
Let's recap: The golden rule is don't spend more than you earn, and focus on what you can keep. Maybe it sounds obvious, but you'd be surprised at how many people don't understand or follow this rule and end up in debt. Look at credit card use as an example.What are the 7 tips of spending money wisely? ›
- The Trick to Tracking Your Spending.
- Get Control of Your Impulses.
- Only Put Money on Your Credit Card if You Can Afford to Pay it off Each Month.
- Stop Trying to Impress Other People.
- Figure out What Habits Drain Your Budget.
- Learn to Value Investing Over Products.
- Learn to Invest NOW.
We recommend the popular 50/30/20 budget to maximize your money. In it, you spend roughly 50% of your after-tax dollars on necessities, no more than 30% on wants, and at least 20% on savings and debt repayment.Why money is not important in our life? ›
Money can't be there for you when you're upset or give you confidence when you're feeling down, it can only buy you things to distract you for a while. No matter how much money you have, you can never replace the love you get from friends and family.Is money good or evil? ›
Money Is Not Evil
Clearly, money can be used for purposes that lead to harming others and dividing families and communities. However, money can also be used for charitable and beneficial purposes. Money, then, is a tool and not an object with its own will to do evil.
Money solves specific problems. Housing, food, shelter, transportation, etc.Why is money so emotional? ›
It's no secret that money and emotion go hand in hand. We work hard to take care of our families, take care of ourselves and save up for the future, so it's no surprise that money is an emotional topic for most people. Money has the ability to impact our stress levels, mental health and personal relationships.
- Unnecessary Spending.
- Never-Ending Payments.
- Living on Borrowed Money.
- Buying a New Car.
- Spending Too Much on a Home.
- Misusing Home Equity.
- Living Paycheck to Paycheck.
- Not Investing in Retirement.
Money — including amount of debt, savings and general money management — is the number one stressor for adults ages 18 to 57, according to the 2022 “Stress in America” survey.Does lack of money cause stress? ›
First, as we know from the Stress in America survey, financial stress is a very common cause of stress overall and it's more likely to occur if people have lower incomes. But, people with lower incomes may also experience exposure to stress across many other domains in their lives.Does money cause unhappiness? ›
In fact, recent studies have shown that the more money you have, the more likely you are to suffer from depression and other mental health problems.What are 3 disadvantages of using cash? ›
Cash Can't be Recovered if it's Lost or Stolen
It is unlikely that you can recover cash if you lose it, whereas a credit card and debit card can be cancelled and stopped when it is lost. Even if someone manages to get your credit card or debit card and use it to make purchases, the money can be recovered by the issuer.
Three advantages of savings accounts are the potential to earn interest, it's easy to open and access, and FDIC insurance and security. Three disadvantages of savings accounts are minimum balance requirements, lower interest rates than other accounts/investments, and federal limits on saving withdrawal.