True Value of Money

Money is only worth what you can purchase with it. Money is worthless unless you spend it. Its value lies in what it can be exchanged for. If someone gave you a million dollars but under a condition you could never spend the money, it would be completely worthless. Maybe you could fold it into purses or clothes like they do in Venezuela, but it most likely will be of no use to you. (Consumer price inflation in Venezuela averaged 9,032.8% in the ten years to 2022 making the cash more valuable as a material then a currency)

If you had a time machine with $20 and went back to 1950 you could buy 100 hamburgers and 50 french fries which is just an obscene amount of food. $20 in 1950 is worth $257.53 today which really illustrates the impact of inflation on money over time.  

McDonalds menu in 1950

Your Money is Bleeding Value

Your money is slowly losing value each and every year by 2% so if you had $20 in a safe it would dissolve in purchasing power becoming less and less valuable even though it is the same $20 bill. $20 in 2024 is equivalent in purchasing power to about $33.47 in 2050, meaning you would have to spend $33.47 to buy the same amount of $20 in today's money. 

Purchasing Power

Purchasing power is the value of how many goods or services that you can buy with a unit of money. $20 today is not $20 the same as it was last year and it won’t be the same as it will be next year. Money is only worth what someone with exchange it for.  

Investing with Inflation

When investing you need to take inflation and the decrease in purchasing power into consideration, as you need to make up for the loss of the 2% inflation just to break even. They say you double your money every 10 years when investing which would look like turning $100,000 into $200,000 or doubling your money, but when taking purchasing power into consideration it is actually not double. For example, $100,000 in 2014 is worth $131,085.26 in 2024, which means you only gained $68,914.74 in purchasing power value. 

Money means nothing, it's what it represents that is important. The true value of money is in what you can purchase. What you can purchase with money is constantly changing so it's important to invest to retain the value of your money. 

If you found this helpful and would like help budgeting or investing please email me at TaylorMckeeCoaching@gmail.com