Understanding the Economic Money Cycle

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Our capitalist societies are designed around money; money which is meant to move from hand to hand in a virtuous cycle. This process of exchanging money for goods and services generates additional wealth at each stage and, thus, fuels overall economic growth.

Work is an important part of this cycle because economic growth relies on it. By working, we become part of the process, such that we serve someone who pays us and then pay someone who serves us.

Everything within our society is targeted toward these ideas. Since early childhood, we are conditioned to these ideas with the toys that we are given – like mini-cash registers – and the role models – generally working parents – we witness.

We are taught the virtue of hard work, told to study hard, and helped to select our own dream job. We thus become valued members of society that earn and spend money, thereby fuelling the economic cycle. We don’t think anything of this, because that is what is familiar to us and what we have observed in our parents and grandparents.

Standard of Living

There are important differences between developing and developed economies. In developing countries, economic growth is usually correlated with a real growth in standard of living. People that accumulate wealth can afford a tangible increase in comfort that was previously inaccessible to them. This includes basic needs such as hygiene, food and safety.

But in developed countries, where public healthcare, education, and transportation systems exist, economic growth only translates into individual lifestyle changes, generally toward luxury rather than necessity. While we all have vital needs that must be paid for (food, shelter, clothes), there are also many superfluous wants that we could easily save money on. In recent years, economic growth in Western societies has translated into lifestyle inflation rather than a significant rise in the quality of life.

As discussed previously, a government’s main goal is to keep all of us working for as long as possible. A strong economy allows everyone to have a job, and in return, pay taxes. Once we earn a salary, we are encouraged to spend it (pay more taxes) and rely on other people to provide us with a service.

For instance, because we have a job, we need to put our children in a childcare, such that someone else can have a job looking after our kids. Additionally, because we have less time at home due to work, we may choose to pay someone else to cook or clean for us.

In this way, our job creates the opportunity for other people to work and also contribute to the money cycle. Indeed, this ability of affording conveniences and having others service us is now seen as indicative of a high standard of living.

On the surface, this sounds like a good situation. You’re contributing to society and society is giving back to you. However, there is an important drawback: You will have to keep your job! While the job itself may not be a problem – you might really enjoy your line of work – you will probably find that you are missing out on other things you would really like to do because you have to work.

For instance, many working parents find it difficult that complete strangers are spending more time with their children everyday than they do. Similarly, when you are at a restaurant, you have no control over what goes into your food. Manicures and pedicures are nice, but are they really necessary?

If we didn’t have to work, we could take care of all those tasks ourselves. We pay someone else for a service because we lack time, time that we spend to earn money so we can pay that person… This creates its own cycle!

Zero-Sum Game

In this cycle, it doesn’t really matter how much you earn. You could earn a lot of money but if you spend all of it hiring other people, you will not be left with much. Indeed, there are several interesting studies of perceived wealth.

These studies demonstrate that some families earning in excess of $250,000 per year consider themselves to be struggling. While their struggle is obviously debatable, the fact is that most people spend almost as much as they earn, irrespective of their level of income.

That’s because they match their lifestyle to their salary. Those people are perfect contributors to the money cycle: They earn to spend. In my mind, working only makes sense if it yields a positive net gain. You need to think about the value of this net gain in real terms: Do you need this money? What are you going to use it for?

Every time you work, you are exchanging time for money. You need to think about whether your time is worth more to you or the things that you will buy for the money you earn. This is a choice only you can make.

Monkeyism is a way of life. It adopts a different perspective, not trying to maximise your earnings, but rather helping you understand how much money you need in order to retire and maintain your desired lifestyle.

Every morning when I head to work, I look around the train and I see disheartened unmotivated people. They are heading to work but clearly don’t want to be. Sure, they may be taking home nice salaries and benefit packages – But they also have expenses incurred and motivated by this lifestyle.

They have to pay for transport, lunch, childcare services, professional clothing, income tax, and other work-related expenses. In order to be close to work they often also pay back a mortgage or rent an overpriced house in high-demand neighbourhoods. The question is whether that is what you really want to do.

I know people who earn above average income and still can’t save any money. That’s down to lifestyle choice. Of course, not everyone is in that situation because they are frivolous, there are many well-intentioned people who have difficulties making ends meet.

The problem is that we never stop to think about our situation and how we might alter it. We take certain things for granted. We see the world in the way that we have been conditioned to. And we never challenge the status quo. We just want to fit in and move along.

Society pushes us toward a certain lifestyle. It encourages mortgage uptake as soon as one can get approval, so that we can live in our dream home. We think that everyone should have a car, fly to some holiday destinations once a year, or renew our wardrobe and electronics every couple of years.

This is fine if these things make you happy. The problem is that we end up playing a zero-sum game: We end up being a slave to a job to get money for things we don’t need.

Macro Economy

When I talk to people about early retirement, they often invoke the “sense of duty” or “patriotism” argument. We should keep working in order to keep the economy strong. They are right; we do need people to work if our governments want to play on the financial world stage.

And if you truly adopt the Monkeyism philosophy, you will work and contribute to Society through your labour and taxes. I don’t expect people to be able to move straight from school to retirement. The fact is that we all need to work at some point in order to save enough money to generate passive income.

I am not suggesting an economic revolution, I just think that we can let the system work for us, rather than against us. If we are smart about our work and our money, we don’t have to work nearly as many years as we have been led to think.

Would society collapse if people were financially independent and retired at 40? No. Absolutely not. In fact, the financial services would be regeared toward delivering passive income for those retirees.

Would there still be manufacturing and service-based industries? Yes. There are many goods and services we cannot provide for ourselves. There would still be people wanting to travel and seeking entertainment.

So what is the result? Well, as we reduce the number of goods and services we consume, there may be a need for fewer jobs. But this isn’t going to be a problem because there will also be fewer people in the workforce. That means there will be no unemployment crisis. In short, society would adapt to balance demand and supply.

People look at yearly GDP growth as an indicator for a society’s well-being. Being in recession drives everyone into depression. Why? Because we have always been told an economy needs to grow or our future will be negatively affected. But this only happens because self-sufficiency is not encouraged in our societies.

Rather, we are enticed to spend money we haven’t yet earned on items we don’t really need. Consumption is the engine of a capitalist economy. By adhering to the consumerist behaviour, we lock ourselves into salaried jobs, always trying to generate more money so we can spend more. It is a never-ending cycle.

But if we understand how the cycle works, we can break free. Take some time to reflect on your lifestyle and whether you are happy or whether you are playing a zero-sum game. If you are not happy, consider making an important change. Start thinking about early retirement and planning towards financial independence!

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Monkey Master

My wife and I are currently living in Sydney, Australia. We plan on becoming financially self-sufficient in 2015 so we can retire at 35. We are regular working people, trying to be smart about saving money and generating passive income. I want to share with you how we reached that decision and how we are planning towards financial independence. Continue Reading.
Contact: monkeymaster@monkeyism.com

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