What is Real Money and Why Does It Matter?
Money is an essential part of our lives. We use it to buy goods and services, pay taxes, save for the future, and more. But not all money is the same. There are different types of money that have different characteristics and effects on our economy and society.
In this article, we will explore one type of money that is very important for us: real money. We will explain what it is, how it differs from other types of money, what are its benefits and downsides, and how to manage it wisely.
real money
Types of Money
Real Money
Real money is a type of money issued by a central bank as a legal payment instrument in a country, including banknotes and coins. The term also refers to money in terms of its purchasing power on goods and services. The term "real money" can also be used informally to refer to a large amount of money.
For example, if you have $100 in your wallet, that is real money. If you can buy a pair of shoes for $50, that means your real money has a purchasing power of two pairs of shoes. If you have $1 million in your bank account, that is also real money, and you can use it to buy many things.
Nominal Money
Nominal money is the current monetary value of something without adjusting for inflation. Inflation is the general increase in the prices of goods and services over time. For example, if you receive a 10% increase in your wages from $100 to $110, this is the nominal increase. However, if inflation is 5%, then the real increase in wages is (10-5%) 5%. The real wage is a better guide to how your living standards change.
For example, if you bought a house for $200,000 in 2010, that is the nominal price. But if the inflation rate was 2% per year, then the real price of the house in 2020 would be $200,000 x (1+0.02)^10 = $243,798. The real price reflects the change in the purchasing power of money over time.
Virtual Money
Virtual money is a digital, unregulated currency issued and controlled by the developer. Examples include Litecoin and Bitcoin. Virtual money is not backed by any physical commodity or government authority, and its value depends on supply and demand in the market.
For example, if you have 10 bitcoins in your digital wallet, that is virtual money. You can use it to buy goods and services from merchants who accept bitcoins as payment. However, the value of bitcoins can fluctuate significantly depending on the market conditions. In 2017, one bitcoin was worth about $20,000, but in 2018, it dropped to about $3,000.
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Benefits of Real Money
Freedom
One of the benefits of real money is that it gives you freedom. When you have enough real money, you can live where you want, take care of your needs, and indulge in your hobbies. You don't have to depend on anyone else for your financial well-being. You can also choose how to spend or save your real money according to your preferences and goals.
Power
Another benefit of real money is that it gives you the power to pursue your dreams. You can use real money to invest in your education, business, or personal growth. You can also use it to support causes or people that you care about. Real money can help you achieve your potential and make a positive impact on the world.
Security
A third benefit of real money is that it gives you security. You can use real money to save for emergencies, retirement, or other goals. You can also use it to protect yourself and your loved ones from unforeseen risks or losses. Real money can give you peace of mind and confidence in your future.
Downsides of Real Money
Stress and Anxiety
One of the downsides of real money is that it can cause stress and anxiety. If you don't have enough real money, you may struggle to pay your bills, debts, or expenses. You may also worry about losing your job, income, or savings. You may feel insecure or unhappy about your financial situation.
Inequality and Injustice
Another downside of real money is that it can create inequality and injustice. Some people have more real money than others, which can lead to unfair advantages or disadvantages in society. For example, people with more real money may have better access to education, health care, or opportunities than people with less real money. People with less real money may face discrimination, exploitation, or oppression from people with more real money.
Loss of Value
A third downside of real money is that it can lose its value over time. Inflation can erode the purchasing power of real money, making it worth less than before. For example, if you have $100 today and inflation is 2% per year, then in 10 years your $100 will only buy what $82 can buy today. This means that you will need more real money to maintain your living standards over time.
Conclusion
Real money is a type of money issued by a central bank as a legal payment instrument in a country, including banknotes and coins. The term also refers to money in terms of its purchasing power on goods and services. The term "real money" can also be used informally to refer to a large amount of money.
Real money differs from nominal money, which is the current monetary value of something without adjusting for inflation, and virtual money, which is a digital, unregulated currency issued and controlled by the developer.
Real money has some benefits, such as freedom, power, and security. It also has some downsides, such as stress and anxiety, inequality and injustice, and loss of value.
To manage real money wisely, you should follow some tips, such as:
Set a realistic budget and stick to it
Save and invest a portion of your income regularly
Avoid unnecessary debts and pay off your existing ones
Protect yourself from frauds and scams
Seek professional advice when needed
By doing so, you can make the most of your real money and enjoy its benefits while minimizing its downsides.
FAQs
Here are some common questions and answers about real money:
What is the difference between real money and fiat money?
Fiat money is a type of money that has no intrinsic value but is declared as legal tender by a government. Fiat money is usually paper or metal coins that are not backed by any physical commodity or asset. Real money is a type of fiat money that is issued by a central bank as a legal payment instrument in a country. Real money also refers to money in terms of its purchasing power on goods and services.
What is the difference between real money and commodity money?
Commodity money is a type of money that has intrinsic value because it is made of or backed by a physical commodity or asset, such as gold or silver. Commodity money can be used as a medium of exchange, a unit of account, and a store of value. Real money is a type of fiat money that is issued by a central bank as a legal payment instrument in a country. Real money also refers to money in terms of its purchasing power on goods and services.
What is the difference between real money and cryptocurrency?
Cryptocurrency is a type of virtual money that is created and controlled by cryptography, which is the science of encoding and decoding information. Cryptocurrency is not issued or regulated by any central authority, and its value depends on supply and demand in the market. Cryptocurrency can be used as a medium of exchange, a unit of account, and a store of value. Real money is a type of fiat money that is issued by a central bank as a legal payment instrument in a country. Real money also refers to money in terms of its purchasing power on goods and services.
How can I increase my real income?
Real income is the income you receive after adjusting for inflation. To increase your real income, you can do the following:
Increase your nominal income by working more hours, getting a raise, or finding a better job
Reduce your expenses by spending less on unnecessary items, finding cheaper alternatives, or negotiating discounts
Increase your savings and investments by putting aside some of your income in a high-interest account, buying stocks or bonds, or starting a business
Avoid inflation by choosing goods and services that have stable or low prices, or buying them when they are on sale
How can I measure my real wealth?
Real wealth is the total value of your assets minus your liabilities after adjusting for inflation. To measure your real wealth, you can do the following:
List all your assets, such as cash, bank accounts, investments, property, vehicles, jewelry, etc.
List all your liabilities, such as debts, loans, mortgages, taxes, bills, etc.
Subtract your liabilities from your assets to get your net worth
Adjust your net worth for inflation by using an inflation calculator or an index such as the Consumer Price Index (CPI)
I hope this article has helped you understand what real money is and why it matters. If you have any questions or comments, please feel free to contact me. Thank you for reading!
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