How To Invest Money - Money Value

I've currently been traveling in Bali and Malaysia over the past 1-2 weeks and its very interesting to see the different value of money in different country. Obviously to understand how to invest money we first need to know why people value money differently. Bali's primary industry is tourism, i.e. Bali derive a large proportion of its wealth from tourist spending their money in its country.

Looking at the conversion rate, 1 USD buys near 10,000 Rupiah and can buy you a decent bowl of noodles, a few kilograms of oranges, or just a couple bottles of water. Why is it that 1 USD can buy more in Bali then it can in USA? Did somebody worked harder to earn the USD than they did to earn the Rupiah?

A country's economy is very important when deciding where and how to invest money because if a country's economy is weak the money you earn can buy less when traveling around the world. Some things to look out for are:

• Economic Growth
  
• Inflation Rate
  
• Interest Rates
  
• Unemployment Rate

Economic Growth, obviously we want the economy to be growing, but not too fast otherwise there will be inflationary pressures etc.

Inflation Rate, we want positive small number, around 2-5% because we want money toe erode slowly which will make people to spend money today since money is worth more today than it is tomorrow. At the same time we don't want this to become too high otherwise there will be no confidence in your country's money

Interest rate helps controls inflation as it changes the cost of money and also the rate at which you earn money at a risk free rate. We don't want this to be too high also!

Unemployment Rate hopefully is obvious, the more people who are unemployed means the economy is not fully utilised and potentially higher levels of poverty. Though we will never be able to get 0% unemployment, we would like this to be as small as possible so that the economy is fully utilised.

Hopefully this has given you some ideas of how to invest money. An important factor is to select the economy which you want to invest your money.

How to Invest Money - Money and Value

Have you ever stopped to wonder why you pay somebody

• $4-5 for a cup of coffee?
• $100-200 for a pair of shoes?
• $1,000-3,000 for a computer?
• $20,000 - 40,000 for a car?
• $200,000-500,000 for a home?

This is an important question because we can figure out how to invest money based on where value is. Think about it, how come a computer with the state of the art technology is worth $1,000-3,000 and a house which is just bricks, mortar with a roof, some doors and windows is worth $200,000-500,000?

The answer to the question comes down to value... i.e. how much value is derived from each item of good or services? Very interestingly is actually how much perceived value is actually created between two parties.

How is value created?
Here is an example for you. Recently I purchased a memory card for my phone, I first checked the internet find the 'market price' of the memory card. The price range from varies internet stores was about $30-40 and $5-10 for postage and handling. In my mind, I could buy the memory card for about $35-50 and it takes about 3-5 days for delivery to my doorstep. I browsed a bit more and the stores selling it at the cheaper range were all out of stock so the real market price that I would be looking to buy is around $40-50

That same day I was doing some shopping and walked passed an electronic store so I decided to walk in and see if they have the memory card I wanted and of course they did. It cost $70 and I decided to buy it.

Why did I pay $20-30 more for something?

• I was impatient and didn't feel like waiting 3-5 days
• I can use it immediately
• Don't have to worry about the credibility of the store and quality of the goods
• I didn't have to give my credit card over the internet to a store I didn't really know

Thats how that local store made my money, its because it created value for me and to me, the time saved was more important than the extra $20-30 I paid.

This happens all the time around you in life, think about ebay, when you go shopping, hiring the services of a gardener, accountant, lawyer etc.

Money is create by the value that you add to the other party. Where and how to invest money depends on where we think the value is added for us.

How to Invest Money - What is Money?

I guess when we talk about how to invest money, the first thing we ask ourself is... "what is money?" Depending how you answer this question you may or may not struggle through life.

Some common answer are:

• money is a mean to and end
• money is a tool
• with money, i can do whatever i want with whoever i want, where-ever i want and whenever i want
  
• money is what makes the world go around
• money is freedom
  
• money causes greed
• money is the root of all evil
• money isn't everything in life
  
• people with money most probably stole it
• money doesn't buy you happiness

I can write a list that will never end... but I will stop here. Have a good read over the 10 points and ask yourself what you truly believe is true and ask yourself the question why.

Hopefully you will have more green points than red points. You may ask why? and the simple answer is that making money is the easiest thing in the world, keeping it is what most people don't do correctly. The strategies on how to invest money is only 20% of the picture, the other 80% is psychology! If your brain is telling you that you do not deserve the money, then your brain will subconsciously lose your money for you (ie. forcing you to spend it all, give it away, make bad financial decisions etc)

I'll go through some of the negative points and explain a bit more

• money causes greed... I know a lots of poor greedy people, what about you?
• money is the root of all people... people are evil, having money only make you more or less evil
• money definitely isn't everything in life, but having money does help you live your life the way you want it
• money is created when value is created, the reason you paid for it is because you value it... there is nothing stolen only time saved
• i rather be a rich sad person than a poor sad person

I hope i'm making some of you uncomfortable, because it means its working and that you are learning something. Fear/discomfort etc. are all good things is a way your body is telling you that change is about to come! So be prepared!

Stay tuned for more lessons on how to invest money