How to protect the value of Money? [Guide]

“Time is Money” – Benjamin Franklin

I have been working for almost 9 years now. But some of my initial years of work passed just like that, without me realizing how to use money for our advantage.

In a way, whatever money I’ve earned, used to just sit in my salary account for days and months, without realizing its potential. This is similar to holding an ice cube in hands, it melts and after some time disappears.  

The value of Money also reduces over time.

That’s why it is said, there is a greater benefit to receiving some money today than receiving the same amount at a later point in time. We would’ve bought more goods with 100 bucks, a decade ago than today.

Thus over a period, the value of money gets eroded due to an increase in prices of goods and services i.e., Inflation.

What is value of money?

Money is just a medium or tool to preserve our energy or effort. We can determine the value of money by measuring its purchasing power at a point in time.

For example how many goods can we purchase with a given amount of money today and how many similar goods can we purchase with the same amount of money in the future, say after a few years.

Usually, after some years the no of goods or services that can be purchased gets reduced. Thus Present money has more purchasing power i.e., can buy more goods or services than future money. 

So, it is clear that money loses its value over time. But how do we protect its value when our money is just sitting idle in our bank account?

Protecting the value of money

We have earned money after spending our time and of course our energy too. If we are not using this money properly, it is as good as wasting our time and energy.

If we must value our time/effort then we must know how to keep the money that we earn from not just losing its value, but also to multiply it and increase its value.

Here comes the Earn, Save and Invest view that financial geeks talk generally about. When we are investing our money, it will not only keep the value of money from eroding but multiplies it by keeping money in some useful economic activity.

Let’s say we lend some money to a pushcart vendor who earns a living by selling vegetables. With the money that we gave him/her, they are earning a livelihood and also keeping our value of money by returning the interest along with the principal.

So the original principal amount gets compounded when added with the interest earned.

Saving & Investing

“Compound interest is the eighth wonder of the world”, Einstein once said.

So when we put money into some economic activity, it is being put to use to generate more money and gets compounded in the process. This preserves the value of money and if the economic activity flourishes, not just preserving value, it has the potential to multiply the money manifold.

Saving is more to do with the financial discipline one has to have. It must not be seen just as some financial term but as a psychological aspect i.e., it must become more of a habit. Just the way we clean our house frequently, the way we groom ourselves, Saving must become a habit.

Investing is again a broader term. We invest our time, energy, and money in various aspects of our lives. Be it family, relationships, career, materialistic things, etc. But Investing Money in tangible and intangible assets is the area that we are currently looking at. Also, the definition of investing money is, to provide capital to someone who is performing an economic activity to create value.

Investing can be done in various areas starting from real estate, gold, currency, securities, deposits, etc. And investing is not a standard formula for every individual. As the needs vary from person to person, Investing also must be looked through the prism of needs.

Thus a person who wants to ensure financial security to his/her family has different needs than a person running a business and wants to ensure financial independence from his business perspective.

Investing in various areas must be tailored to suit individual needs so that one reaps appropriate benefit out of it. Irrespective of where one invests, still the primary goal of investing remains the same i.e., protecting the value of money.

The second best chance

To sum it up, saving must become a habit for everyone which acts as a strong foundation and allows one to invest in areas of his/her choice. Over the foundation of savings, our structure of Investing can be built.

It is investing which protects the value of money and is a must if we value our time and energy. And there is no right time to start investing.

As a Chinese proverb says “The best time to plant a tree was 20 years ago. The second best time is now”.

On the same lines, if you are not already investing, your second best chance to start investing is NOW.