What Is Money?

Wealth is the ability to fully experience life.

– Henry David Thoreau

What would you do without money? Imagine carrying around leather coats you just finished stitching together from hides you tanned from an elk you shot and skinned, with the hope of finding someone willing to take them in exchange for that new smartphone you want …. Or imagine having to wash dishes at a restaurant to pay for the meal you wanted.  Not fun!  

Except if you’re ridiculously good at it.

The advent of money was a big deal in finance.  It created a standard.  As long as everyone accepts the value of money as a currency, it allows you to handle many financial transactions: you get paid, you buy goods, you pay for services, and you save.

Money stores the value of what you do for work

Without it, you would still be using the barter system, and you would have to be prepared to offer many jobs or diverse goods to make trades.  

Barter: the exchange of one good or service for another good or service.  

I went to the bank and asked to borrow a cup of money. They said, ‘What for?’ I said, ‘I’m going to buy some sugar.’ 

– Steven Wright

Money splits up the barter exchange: one person pays you money for your good or service; you use that money to go buy the goods or services you want.  This way, you no longer need the “double coincidence of wants.” 

With money, you have new possibilities  

As soon as you can store the value of your work, new possibilities arise.  First, you no longer need to be able to offer many services for barter, you can develop a special skill.  Second, money is “liquid,” meaning it is available whenever you need to use it compared to pulling out your fur coats from storage.  Finally, you can save up to buy big ticket items. 

How do you save enough to buy a car when you need the car to go to work to earn and save money?  There’s an app for that, it’s called credit – credit cards, revolving credit, short-term loans, long-term loans, etc.

Buying on credit 

The advent of loans to buy cars, sewing machines, refrigerators, and other items was another big deal in finance.  The short-term loan from a bank allows you to purchase and use a car right away, if you have good credit (more on building credit later).  Same goes for using a mortgage to buy a house.  

Credit cards are not money; they are a form of a short-term loan from a bank that you can use in place of money for purchasing goods or services.  

You then repay the lender all that you borrowed plus interest.  Of course, to keep your credit good, you have to make all the payments on your credit cards, car loans and mortgage on time. 

Benefits of money and credit, with some concerns

We now use apps to pay with our smartphones in place of money and even plastic credit cards.  The apps, like credit cards and money itself, are all part of finance.  

While this all sounds wonderful, there are some serious hitches:  as soon as you introduce money, you find many companies make money off of you almost any time you use money or credit:  bank fees, PayPal fees, investment fees and commissions, interest on loans, share of profits on sale, life insurance, commissions and real estate commissions.  

But then again, money permits you to purchase and own another type of asset: investments.  

More on fees and on investing in future posts – stay tuned!

How to Compare Loan Options

“It’s not hard to make decisions when you know what your values are”          

– Roy E. Disney

Difficult Decisions

Which of these options would you choose?

  1. Paying $8,000 of interest over 10 years
  2. Paying $5,000 of interest over 5 years
  3. Paying $3,500 of interest over 2 years.

A little overwhelming isn’t it? This list could be your choices for student loan repayment options, with different payback periods and interest rates. How can you possibly figure out which is best? 

If you said, “Option 3, duh…”, you’d be paying less interest overall, but at what cost? What you can afford to pay, depends on your income. If your monthly payment is too high, you can’t afford to live. You can’t give up too much of your income for student loans or else you can’t pay rent.  


So, the smallest interest might not be the best? That also depends on what you think your money is worth over time. 

This comparison is a time value of money problem.  You remember what we said about investing:

        If you invest at 5%, you need just $7,102 today in order to have $50,000 in 40 years.

Okay, now turn this around.  The net present value of $50,000 in 40 years at a 5% rate of return is $7,102. How does that help?  It allows you to compare everything at one point in time, today. 


I know, it takes some really good technique with a calculator.  In future posts, we will try to tackle more of this.

Inflation: Money, Not Balloons

“The first panacea for a mismanaged nation is inflation of the currency; the second is war. Both bring a temporary prosperity; both bring a permanent ruin. But both are the refuge of political and economic opportunists.”  

-Ernest Hemingway

College, Cars and Why College Costs Are a Scam

You got cheated on college. Badly. It’s been in the news and on your facebook feed. But how exactly? Well, you know that a dollar invested will grow.  However, at the same time, the prices for goods and services also grow.  When goods and services become more expensive over time we have inflation. How does this prove you got cheated?  Here’s an example, using cars and college: 

Your parents could’ve bought a new car in 1975 for an average price of $4,950. If you bought a car in 2015, the average new car price was $31,252. The price increased 600%. That is the impact of inflation.  

Now let’s compare the cost of just 1 year of college. The average cost of college tuition, room, and board in 1975 was $2,577. 40 years later, the average for college tuition, room, and board in 2015 was $43,921. College costs jumped 1700%!!!!!!!!!!  


It’s absurd and that is why so many people today are saddled with insane debt.  

Inflation affects all prices for goods and services, but it really hit college and health care costs the worst.  Anyone who graduated college in the last decade or so knows it!

The Time Value of Money

We must use time wisely and forever realize that the time is always ripe to do right.

– Nelson Mandela

Investing and time

Your retirement is on sale. Right now. And at a big discount.

If you invest now, you will be in better shape than if you wait.  Much better. Every dollar can grow.  Sounds magical, doesn’t it?  But your money can grow, if you invest it.  Plant your dollar in a patch, tend to it and it will produce a crop of interest, dividends and growth called capital gains. Something else magical happens, the crop of one year is added to the crop that grows in the following year. So, you not only get interest, dividends and capital gains on the initial dollar, but you also gain interest, dividends and capital gains on the interest, dividends, and capital gains.  And this happens every year.  It is called compounding and it’s awesome. The investment growth in any single year usually isn’t a big deal.  Over time, like several decades until you hit retirement, the impact is huge. Some examples:

  1. To have $50,000 in 40 years, you’ll need to invest $7,102 today (assuming 5% growth market average is about 7%).  Yes, just $7,102 in your patch will grow to be $50,000 in 40 years at 5%.
  2. But if you wait, and want to have the same $50,000 in 30 years, you need to invest $11,569 at 5%. That’s a big difference.

Waiting a decade means that you need to save over 60% more than if you just start now, and it doesn’t take a lot to get started. Fintech companies like Betterment have a balance minimum of $0, which means you can start saving just a little bit here and there. Your retirement really is on sale now.  So start saving!

In future posts, we will describe more on investing.  Just as you have to water and weed your garden, you have to monitor and re-balance your investments.  Also, just as picking what will grow well, producing the best harvest in your garden, while getting rid of plants that no longer grow as well or that interfere with others growing, your investments need to have the right mix.


Every Dollar Has a Job

“Budgets are nothing if not statements of priorities”

– Jeff Merkley

Think of Yourself Like a Business

Imagine you have been put in charge of your favorite coffee shop. You really like their coffee, so you want to do all you can to keep it going. Could you manage it or would the shop go out of business?

While you may not have the industry knowledge to manage a coffee shop…yet, you should have the skills to manage your own income and expenses like a business. If you don’t manage your income and expenses? Then you could go out of business! Okay, that’s a bit harsh, but who enjoys feeling broke all the time, and not being able to afford the things you really want?
Every dollar serves some purpose and you need to know what that is. 
Back to the coffee shop. If you did manage it, you would need to keep track of everything that came into the shop and everything that left.

You would know what cash and credit card payments you received.  That is your Income. Also, you would know how many cups of coffee, pounds of coffee beans, and all the paraphernalia the shop sold.  These are your sales (sort of like the hours you “sell” to your employer). You would keep track of what you paid for supplies, rent, electricity, water, and insurance. You would also know how much you paid each employee and what you paid in payroll taxes and benefits.  These are your expenses. Finally, you would know what you made, which is the coffee shop income less its expenses.  That is called your profit (before taxes).

What would you do with that profit?  You would pay income taxes, of course. You might create an emergency fund so you would be prepared for some unexpected calamity, like a delayed coffee shipment, or a broken storefront window. If you were really forward thinking, you might even set aside funds to replace broken equipment or maybe even save up to buy a building rather than continue to rent.

What if, instead of a profit, your expenses continually exceeded income? You have a loss – ouch! You don’t want to lose the coffee shop, so you might borrow some money to cover bills. That only postpones your problem; it doesn’t fix it. So you create a budget to learn why your expenses were so much compared to income. You might hire a bookkeeper to make sure you didn’t miss anything.

You could even hire a coffee shop planner who would tell you if you are buying too many supplies compared to what you sold.  The planner would make sure you charge enough for coffee and she would tell you to stop paying that Friday night blues band that wants free coffee and isn’t actually improving business.

I’m sure you figured out where this is all going: You need to know what you make and where you spend each dollar. 

If you don’t know, look at the last 12 months of income and spending, even start a budget so you see why you keep borrowing on credit cards instead of saving for your future.

In the end, there is no left over money.  Every dollar needs to work for you, as hard as you work to make every dollar.

In future posts, we will look at the ways you spend, your “fixed expenses,” like income taxes, health insurance and rent, your “variable expenses” like food, phone bills and clothing, and your “discretionary expenses” like Netflix and, you guessed it, coffee!

Woke Money Is Smart Money

“At base, financial literacy is inextricably connected to control over one’s future”

– Ann Cotton

Wake Up to a Happier You

When you go to college you learn about your chosen profession along with many other topics.  Often, you learn the history of your profession so you understand why your profession is where it is today and how you can advance it.

What if your money could go to money college?  Your dollars would learn how to keep credit card balances low, maintain a good credit score, prioritize spending, set aside money for emergencies, take advantage of tax deductions, afford the things you care about, pay off debt efficiently and so much more.

If your money paid attention in class, it would know how much you need to save now to afford a house in 5 years, or how to save and invest well so you can retire comfortably at age 60.  If your money had good instruction on history, it would know how to avoid mistakes that your friends or even your parents may have made trying to manage their finances.

Imagine what your money could do if it got a PhD! Maybe your money would know how to start a new business, raise capital from investors and help you to be even more successful. Or your money would know how to form a partnership to bring opportunities to communities that are suffering.

We created Woke Money so you can improve your financial literacy, so you can fill in the gaps that school, family, and friends didn’t or couldn’t teach you.

We want you to get to know every dollar you have, understand how those dollars can do more work for you. We want you to overcome any fear or anxiety you may have about paying taxes, starting investments or comparing insurance. We want to encourage you to stay informed so you can identify a good opportunity and manage risk. We want you to be able to enjoy today because you know you are on track for a good future! Use the power you gain from this knowledge for good,  adjust your habits to create a better life!

Try out this first step:

Identify what you care about most, whether it’s buying a home, not living paycheck to paycheck or paying off your growing student loan or perhaps credit card debt.

Then make a pledge to yourself to take action: I am going to conquer my fear of investing and save for the vacation I always wanted!

You can’t afford to wait!

There is no spare time … you get 86,400 seconds each day of your life, to use or waste, so make a good plan for each one!

Putting It All Together

“The financial advice market presents an impossible conundrum: in order to work with a financial planner, you must have enough money to be of interest. In order to amass enough money, it is critical to work with a financial planner. Most financial plans come with a $1,500-$3,000 price tag – numbers that are simply out of reach for most Americans.” 

– Alexa von Tobel

Creating Your Own Money Plan 

You face many financial decisions in life. 

    “Do I buy a house now or continue to rent?”

    “Do I pay off all my student loans right away or begin saving for retirement now too?”

    “Should I lease or buy a car?  Is pre-owned better than brand new?”

    “Can I afford to go to the bachelorette party AND go to the wedding?”

How do you answer these questions? Investopedia states that “there is no specific template for a financial plan” but offers a broad definition here:

         A comprehensive evaluation of an investor’s current and future financial state by using currently known variables to predict future cash flows, asset values and withdrawal plans.

The people that can afford it, work with an investment or tax professional and use current net worth, tax liabilities, asset allocation, and future retirement and estate plans in developing the plan.  These will be used along with estimates of asset growth to determine if a person’s financial goals can be met in the future, or what steps need to be taken to ensure that they are. 

Hiring a professional is expensive, and often you already need a decent chunk of money to even get started in investing. If you aren’t ready to hire someone to create your plan, you can develop your own plan now.  This way, you get to know what you should be doing now.  A simple plan is a list of goals and ways of getting there:

To create this plan, you by start by understanding your long-term financial goals and your resources.

Time value of money – Cost out your Goals:

As you saw in our section on the time value of money, investments compounding over time have a big impact on future goals, but so does inflation.  Those factor in on these long-term goals: 


Many investor sites offer free calculators that factor in return on investment and inflation.  The results allow you to estimate how much you need to save now to be able to fund a reasonable retirement, but remember it’s not a guarantee.  

Life insurance 

If you have children, you should have insurance. If anything happens to you, your loved ones will be financially secure.


If you have children who hope to go to college, or if you plan to return for a new degree, you can find websites that help you estimate what you need to save now.

You may have other goals as well, such as buying a home.  And you will want to create an emergency fund.  Put these all in order of priority on one side of the plan you are sketching out. 

Every dollar has a job – Use all your Resources

You learned in our section “Every Dollar Has a Job” that you need to account for all of your resources.  These include the income you earn, credit card awards, tax refunds and company benefits. 

List these on the other side of the plan you are sketching out. 

Woke money is smart money – Have a Plan

The art of creating a workable plan is to mesh the goals with the resources in the best way.  If your situation is complex, you may want advice from a professional. Some websites offer free tools, like the budgeting tool on Learnvest, and offer financial advice at a more affordable price than traditional financial advisors.

In the end, your plan will remind you what to do so you improve your finances.  Here is a sample list:

  • ‍Maximize my 401(k) contributions,
  • Set up and contribute to a Roth IRA from my side gig,
  • Add to my emergency fund,
  • Monitor my credit rating,
  • Steer clear of any major credit card debt,
  • Review my beneficiary designations at work,
  • Sign a medical directive and durable power of attorney, and
  • Save enough for a fun (not too expensive) vacation next summer!

It doesn’t matter how many pages or what the plan looks like; what matters is that you learn from reviewing your finances and change how you manage your resources so that you improve your finances.  A simple list on a Post-It is a great plan, if you follow it!