Thursday, March 15, 2012

Making Your Money Work For You

"'Every gold piece you save is a slave to work for you. Every copper it earns is its child that also can earn for you"

As outlined in an earlier article, the 3rd and final step to financial freedom is allowing your money to work for you. The biggest question many people have will be, how? How do I make my money work for me? To find the answer to this question, you need to understand the fundamental purpose of money in society.

There are 2 primary uses of money in modern day society.

The first, and the one most common, is to exchange it for immediate consumption. This is what we know as spending, or shopping. This pretty much includes anything and everything you use money for in life, like groceries, gas, bus tickets, car payments, insurance, etc.

The second, and less common, is to exchange it with another party who will use it for their immediate consumption, in exchange for the ability to consume more yourself, in the future. This is what is known as investing.

Since this isn't the Home Shopping Channel, we will avoid discussing the first one, and focus on the second use of money, investing.

Investing can be as simple as depositing your savings into a savings account at Scotiabank. With the current interest rates, it may not be a wise investment, but still one nonetheless. You are forgoing immediate consumption (maybe a new iPad 2?) and loaning it to the bank, who will also forgo immediate consumption an loan that money back out to others. In return, the bank will pay you interest for this use, as will the person who loaned the money from the bank.

Now that you've learned some basics about investing, it's time to go and make your money work for you!

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