Money, money, money…
“I work all night, I work all day to pay the bills I have to pay†— ABBA
Everybody wishes to have more money.
We even spend countless hours day in and day out in pursuit of earning more.
Either because we can’t get enough, or because we have to pay the bills:
Money is the main thing that dictates our lives. It’s the driver of our civilization.
Yet, in a twist of irony, if you were to stop someone on the street and ask them to define ‘money,’ many might struggle to give a clear answer.â€
Time for a quick 101 on money
Money is a tool for efficient communication between people: It’s used for exchanging values between people across space and time.
These values are often referred to as energy:
Energy is a concept in physics that describes the capacity of a system to perform work.
People in general trade their physical or mental energy for energy in the form of money.
When they earn money and deposit it into their accounts, it’s like gaining potential energy.
Spending that money, or investing it, is akin to converting potential energy into kinetic energy or other forms.
In physics, some energy is often lost to inefficiencies, usually as heat. This is like transaction fees, bad investments, or other financial drains that reduce the effective amount of money you have to work with.
However, the principle of conservation of energy says that energy is neither created nor destroyed, only transformed.
In financial terms, imagine you have a fixed amount of money. Even if you lose some money due to bad investments or fees, the money is not lost but only changes hands.
Saving money for future goals is similar to storing energy for future use, like in batteries or potential energy in dams.
The resources are kept for when they will be most needed
Money as Electricity
Electricity is perhaps the most distilled form of energy. For us humans, it’s useful because it’s easy to make and transport.
Interestingly, we can also expand our analogy to electricity:
Voltage (V) — Motivation or Opportunity
Voltage refers to the electrical potential difference between two points. It’s a measure of the force that pushes electric current through a conductor.
For our analogy, think of voltage as the motivation or the opportunities available to earn money. The greater your motivation or the more opportunities you have, the more potential there is to earn.
For example, being in a booming industry or having a unique skill set might provide high “voltage†or potential to earn.
In other words:
When increasing your voltage, you can “charge†more money for your work.
Current (I) — Inflow of Money
Current in the context of electricity refers to the flow of electric charge.
Current, in the context of money, would be the actual inflow of money, your income. The stronger your motivation and the better your opportunities, the higher your income might be, assuming no other limiting factors.
As you seize more opportunities (higher voltage) and there aren’t any major obstacles (resistance), you’ll see a larger inflow of money (current).
Resistance (R) — Obstacles or Challenges
Resistance in the context of electricity is a measure of how much a device or material reduces the electric current flow through it.
Resistance in the context of money can be thought of as the challenges or obstacles in your path to earning money. These could be a lack of necessary resources, market saturation, competition, personal limitations, fees, taxes, etc.
The greater the resistance, the harder it is for you to convert your opportunities (voltage) into actual income (current).
Ohm’s Law in this context:
Using the formula I = V/R
If your motivation or opportunity (V) increases but your obstacles remain the same (R), your income (I) should theoretically increase.
Conversely, if your challenges or obstacles (R) increase but your motivation or opportunities remain constant (V), your income (I) will decrease.
Conclusion
I hope this little exploration has provided a fresh lens through which you view the role of money in our lives.
I’m curious to hear if it has shifted your perspective on the way you look at money.
Let me know in the comments!