How money works and why you don't save money for retirement
So I've been looking into how money works and the value of money recently. If I want to accumulate money, I think it is important to understand it better.
Here are a few things of what I learned:
U.S. Dollar does not comply with the gold standard
Nixon in 1971 took the U.S. Dollar off of the gold standard. Basically, the dollar is no longer backed by gold. This allowed the U.S. to keep printing money to fix short term problems with our economy.
So what is the U.S. Dollar backed by? The government says "Full faith and credit".
So if you think about it carefully, the dollar is actually backed by the military. If the US decides to hold back on military expenses or our military is weakened to the point where we cannot back our interests, then our dollar value will not worth anything.
Oil is priced and traded in Dollars
This is an agreement through OPEC, where oil is traded in dollars. This is also important because it gives dollars some worth.
If this was changed to another bill, then our economy would be in jeopardy as well.
This correlates with our strong military and why US needs to have a strong military. If we didn't, we would not be able to keep this standard because every other nation wants it to change.
Government is printing money
Our government is constantly printing new money. This causes the US dollar value to always go down; thus inflation.
This is important to you, because if you are planning to save money for your retirement, then you are getting screwed.
Statistically, the value of money is going down and longevity is going up. Chances are, the money you saved for retirement is not going to last you.
This also applies to long term stock investments. Many people believe that long term stock investments are the safest place to put their money for retirement.
You have to be careful with this because, many stocks long term growth is either lower or equal to the rate of inflation.
Also, inflation rate suggested by our government is not exactly accurate. Look at colleges for example. From 1995 to 2015, the cost increased by 295%.
What can you do about it
I think their are several ways to tackle this problem and they all have to do with spending.
Invest in things that is not influenced by inflation.
Such assets would be gold, silver, or real estate. Their are more examples but these are the most common. You usually hear that gold is always going up. This may be true but even more true, is that dollars are going down, thus the reason why it takes more dollars to get the same amount of gold.
Invest in dividend paying stocks
This is my personal opinion of course and their would be many investors out their that can educate me (please do).
If I am going to buy a long term stock, I figured I might as well invest in a dividend paying stock.
A dividend paying stock is when a company that makes extra earnings, will give part of the earnings to the stock holders. Basically you get a pay check just for owning that stock.
Invest in yourself
I honestly believe that you are the best investment you will ever make. By being more educated with more skills open you up to infinite possibilities. No body will be able to take these from you unless they kill you. Its like they say, the more you learn, the more you earn.
I hope this was able to help you gain a better understanding on the subject of money. I also have much to learn and probably missed out on a lot of information.
If you have more information you want to share in regards to money, please comment so we can all learn as a whole.