The Importance of Money
Disclaimer: Please note that all content and information in this blog are for educational and informational purposes only and should not be taken as professional investment advice.
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What about money is important? I believe it is the ability of money to generate more money for you, without you having to do anything. The value I see in money is the value I can get out of it without having to do anything. In other words, what money my money can generate me. And we can quantify the value of money with the risk-free rate.
Currently, the risk-free rate is hovering around 3%. In other words, a year later, my money today would have generated 3% more money. For perspective, 3% of $1,000 is $30 a year or $0.08 a day. It may seem small but if we scale it up by x100, it's $8 a day for $100k — about 1-2 meals at a hawker centre each day, completely free. And not just free but risk-free, as the income we generate from our capital is risk-free.
If we x10 that, it's 10-20 meals daily, which is more than enough to feed a family of 4 three meals a day. That's what $1m can generate at today's risk-free rate of ~3%. We x10 that again, and it's more than enough to cover one's living expenses. That's $800 of interest a day on a $10m portfolio at a 3% risk-free rate.
That's my view on the importance of money. In short, it is the value money can give me without eating into my principal. To me, that is more important than the absolute sum of $10m. Having the ability to generate $800 in cash risk-free each day is priceless. While it is dependent on having a huge capital and having decently high interest rates, what's truly important is that it is able to comfortably meet our needs.
Having the interest earned from our cash meeting all our needs is a great blessing, with few attaining such an ability. You must have either a huge capital or really low expenses. Either way, being able to live off the interest generated by your cash (i.e. the risk-free rate) means you have achieved financial independence, whether by hard work, a windfall, or an inheritance.
Takeaway
I believe the importance of money is in the financial certainty and financial independence it brings, which can be measured by its ability to generate income risk-free. The money you earn from your money is an indication of your financial independence — whether you can live without having to work, while having all your needs fully met.
Whichever stage you are at, you should strive to reach there — be it through wealth accumulation or cutting down expenses. Having peace of mind from being able to live off your bank interest is priceless.
While some may criticise it for being an unrealistic goal, it is unhealthy to adopt such a mentality of avoiding the "impossible", where one avoids trying to achieve something just because it seems impossible. By avoiding it completely, it guarantees never attaining it. But if one strives to achieve it, even if you didn't manage to fully attain it, getting even halfway or one third there is better than not starting at all. Save and invest with the end goal in mind of being able to live off your cash's interest in retirement. And even if you didn't managed to, there is nothing to regret as you know you have done your best — and that is what truly matters.
Currently, the risk-free rate is hovering around 3%. In other words, a year later, my money today would have generated 3% more money. For perspective, 3% of $1,000 is $30 a year or $0.08 a day. It may seem small but if we scale it up by x100, it's $8 a day for $100k — about 1-2 meals at a hawker centre each day, completely free. And not just free but risk-free, as the income we generate from our capital is risk-free.
If we x10 that, it's 10-20 meals daily, which is more than enough to feed a family of 4 three meals a day. That's what $1m can generate at today's risk-free rate of ~3%. We x10 that again, and it's more than enough to cover one's living expenses. That's $800 of interest a day on a $10m portfolio at a 3% risk-free rate.
That's my view on the importance of money. In short, it is the value money can give me without eating into my principal. To me, that is more important than the absolute sum of $10m. Having the ability to generate $800 in cash risk-free each day is priceless. While it is dependent on having a huge capital and having decently high interest rates, what's truly important is that it is able to comfortably meet our needs.
Having the interest earned from our cash meeting all our needs is a great blessing, with few attaining such an ability. You must have either a huge capital or really low expenses. Either way, being able to live off the interest generated by your cash (i.e. the risk-free rate) means you have achieved financial independence, whether by hard work, a windfall, or an inheritance.
Takeaway
I believe the importance of money is in the financial certainty and financial independence it brings, which can be measured by its ability to generate income risk-free. The money you earn from your money is an indication of your financial independence — whether you can live without having to work, while having all your needs fully met.
Whichever stage you are at, you should strive to reach there — be it through wealth accumulation or cutting down expenses. Having peace of mind from being able to live off your bank interest is priceless.
While some may criticise it for being an unrealistic goal, it is unhealthy to adopt such a mentality of avoiding the "impossible", where one avoids trying to achieve something just because it seems impossible. By avoiding it completely, it guarantees never attaining it. But if one strives to achieve it, even if you didn't manage to fully attain it, getting even halfway or one third there is better than not starting at all. Save and invest with the end goal in mind of being able to live off your cash's interest in retirement. And even if you didn't managed to, there is nothing to regret as you know you have done your best — and that is what truly matters.
"Shoot for the moon. Even if you miss, you'll land among the stars." — Norman Vincent Peale
So, what's the importance of money to you?
So, what's the importance of money to you?
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Disclaimer:
The content and information provided on this blog is solely for educational and informational purposes, and should not be construed as financial advice. The accuracy or completeness of the content and information provided in the blog cannot be guaranteed. Before making any investment decisions, it is important for readers to research and carry out independent verification of the information provided, or consult with a qualified financial professional. No warranty and no liability whatsoever is accepted for any loss arising whether directly or indirectly as a result of actions taken based on the ideas or information found in this blog.
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