Paying taxes is critical, and thanks to Taxfyle, anyone can use a free income tax calculator to file their taxes. But then, money management is more than just paying your taxes and trying to stay out of debt.
You also have to consider what happens when borrowing gets out of hand or how wealth is distributed in depressions. That’s why we need to lean on the lessons from history. Here are three critical money lessons from the past 100 years.
Savings aren’t always the way.
Saving is one of the first money management lessons most of us ever learn. It’s so famous and powerful that Ben Franklin is quoted saying, “A penny saved is a penny earned.”
However, savings aren’t always the best option, especially when you’re in an unstable economy with a volatile currency. Inflation can devalue your money quicker than you could ever spend it.
Most financial advisors agree that it’s important to find interest rates for your money that outpace the rate of inflation. Savings obviously won’t do these.
Every time the U.S experiences inflation, people lose money whether they want to or not. It’s even worse in depressions when weaker financial institutions go under it.
A combination of high and low-risk investments, on the other hand, can give you the leverage you need to grow your money and retain its value.
Credit and debt can wreck you.
If you’ve been exposed to any financial education, you’ll know that credit and debt are great tools for building wealth. You can leverage them to strike bigger deals and increase your profits. Good debt can also give you a great credit score, which gives you access to all kinds of perks.
However, these tools can also lead to bankruptcy if left unchecked. They can sink an entire economy, as they did in the Great Depression of 1929. Institutions kept lending people money to invest in a speculative bubble, even though they knew the borrowers had no way to pay back.
Eventually, the bubble burst, and its effects rippled throughout the economy, from the stock market to pretty traders. Everyone was in debt, and no one had any real purchasing power.
Credit and debt must be managed carefully to avoid similar outcomes in the future.
Money comes from unlikely places.
While on the topic of depressions, it’s interesting to note that they can also be great wealth builders — according to some economists, anyway. The theory is that as demand falls, the prices of valuable assets like real estate tend to fall as well.
Individuals or institutions with the means can buy up these assets for pennies on the dollar and enjoy explosive appreciation when the economy recovers. However, this approach is based on several factors.
Firstly, investors need to have sufficient means, even in a depressed economy. Since the economy affects all businesses, international investors are usually the only people with resources.
Secondly, there’s the risk associated with investing in a depressed economy. It’s difficult to say how long the depression will last, or if things will ever go back to the status quo. If the economy never bounces back, investors risk a significant loss.