Basic Financial Concepts: Money, Finance, Inflation

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In this section, we analyze the meaning of some financial concepts that are most often found on the financial market and the meaning of which you need to understand if you are faced with the task of getting out of poverty and becoming rich and financially independent.

The language barrier in financial terms between financiers and all others is the cause of a very large number of problems. Many of the financial concepts used in everyday speech, but often people put in them a completely different meaning.

Therefore, it makes sense to understand some financial concepts that are often found on the financial market.

And let’s start with financial concepts like MONEY, FINANCE and INFLATION.

What is money?

Money is some kind of social invention, just like electricity, email, and a mobile phone. Every invention is done for a purpose and solves a problem.

The question arises: why money is invented, and what problem do they solve?

The meaning of the invention of money is that you use money to do only what you like in life, and everything that you do not like is made by other people for money.

The invention, naturally, is extremely useful, extremely convenient, and, of course, this very invention and the very essence of money were created over the centuries, and gradually money became more convenient, more convenient and more convenient.

What is finance?

Financial concept – FINANCE means money? Is it so?

In fact, the financial concept of “Finance” is not only money. Finance is a system of financial relations between people, organizations, the state (and between states), ensuring the movement of various resources (including money) between all participants of these financial relations.

Of course, money is an essential part of this system of financial relations, acting as an intermediary in the transfer of various resources.

I want to emphasize once again that finance is a system of financial relations.

It means:

  • in order to change one’s own financial situation, one should pay most close attention not to questions of accumulation and investment of money, but to questions of changing one’s system of relations with the outside world.

For example, if a person leads a completely passive way of life according to the formula “woke up – breakfast – work – dinner – TV – bed”, then in this way of life of a poor man there is no place for new financial relations, and therefore for new money, for wealth.

To put more money (wealth) into your life, you need to do so that new financial relationships with people can enter your life. It is impossible to seriously change the financial situation with money, without changing anything in your lifestyle.

Where does inflation come from?

What inflation is probably no longer necessary to explain to anyone. Inflation is one of the first phenomena of a market economy that Russians faced after the start of economic transformations in the 1980s-1990s.

Inflation is the price increase for various goods and services or, more precisely, the decline in the purchasing power of money.

We have become accustomed to the fact that, as a result of inflation, money gradually loses its purchasing power, and we know that after a while it will be possible to buy less goods and services for the same amount.

There is a widespread opinion among economists that the main cause of inflation is an excessive amount of money in the economy. Simply put, if the amount of money in circulation exceeds the amount of goods and services for which this money can be spent, the price level will gradually increase.

The easiest way to explain the reasons for the emergence of inflation is that the government prints “extra” money to cover government spending.

The English root of the word “inflation” – inflate – “inflate, inflate, inflate” – just hints at this situation: when the government “inflates” the economy with money, this inevitably leads to higher prices.

And, it would seem, if the state does not release “extra” money into circulation, inflation should be at zero level. But it turns out that inflation is not so easy to manage.

An imbalance between the amount of money and the amount of goods (inflation) can occur not only because the state prints money, but also for a number of other reasons.

For example, the causes of inflation can be a drop in the production of goods, an increase in the number of loans issued by banks, an acceleration of money circulation, an imbalance in the country’s balance of payments, an increase in prices by monopolies, a rise in prices in international commodity markets, and many other factors.

From the point of view of the economy as a whole, moderate inflation (a rise in prices within 10% per year) is more useful, not harmful, because it forces us to get rid of money (that is, buy goods and services and invest free money), and thus , stimulates economic growth.

Too much inflation has a bad effect on the economy and, oddly enough, deflation (that is, a decline in the general price level). The first has a big impact on investment processes, and the second leads to a decrease in consumer demand.

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