What is Money?
If you look up the definition of money, you’ll inevitably see that it’s defined as 3 things: 1) unit of account, 2) medium of exchange, and 3) store of value. This is an academic definition. I studied engineering in college, and I remember learning that engineers think that their equations are an approximation of the real world, while theoretical scientists think that the real world is an approximation of their equations. What I’m trying to say is that as a pragmatist, I care much more about practical implications than academic theory.
For most intents and purposes, I think money as unit of account and medium of exchange is mostly an academic discussion at this point. For a more comprehensive discussion of money’s origins, regardless of what you think about bitcoin, the first few chapters of The Bitcoin Standard by Saifedean Ammous is a great start. It reviews all the history about bartering and sea shells and gold coins. It’s interesting and important to know but not so exciting to write about in a blog post.
For me, I care most about money’s role as a store of value. But what is value? According to Your Money or Your Life by Vicki Robin, money is essentially life energy. I think that’s a pretty good way to think about it. It certainly costs my own life energy to obtain money. I can then use that money to convert it back to life energy. When I buy a car, I am getting all of the life energy that was required to design the car, build the factories, mine the metals out of the earth, and putting the car together. When I pay someone to mow the lawn, I am getting that person’s life energy so that I don’t have to do it myself.
As previously discussed, despite our very high incomes, doctors are still a part of the labor class. That means that we trade life energy for money linearly. And our life energy is the most precious resource that we have. This is not like your HP in a video game, once you spend it you cannot get it back. It’s finite, and we don’t know exactly how much of it we have.
In addition, our perception of time is not constant. When I was a kid, summer break felt like forever. Now in my late 30s, I feel like months and years go by in a flash. Tim Urban has a fascinating but also quite sobering blog post about this. By the time you graduate from high school, you have spent 93% of all the in-person time that you will spend with your parents ever. As a parent, that should make you think long and hard about staying late for work, or doing that extra case but missing dinner, or going to a medical conference and missing a bunch of your kids’ sporting events.
That’s not to say that the trade of life energy for money is one that we should never make. Money is necessary but not sufficient to create a happy life for your family. But I think it is incredibly important to view money as a liquid form of your previous life energy, and that it should be spent only on things that it is worth trading away your life energy for.
Spending money on a comfortable home that will keep your family safe and create happy memories for decades is most definitely worth it. Wearing designer clothes every day over high quality clothes from Costco, probably not. Going on a memorable vacation that will create memory dividends forever is worth it. Buying a fancy car that you’re constantly worried about getting scratched is not.
The challenging part is that in our modern environment, we are constantly bombarded by cues that make us want to spend our hard-earned money. Some of the brightest minds in our society devote their careers to figuring out ways to get people to consume more and more. This can be ads on our phones and computers and TV.
For me, the greatest temptations are social comparisons. I didn’t really notice this during my medical training, because we were all making very low wages. This really started when I became an attending. When I started practice, our net worth was less than a million. We rented a decent house in a nice suburb, and our kids went to private school. That’s when the comparisons started to ramp up. Our kids made friends and we became friends with their parents. We were exposed to a lot of wealth. The other parents were private equity partners, venture capitalists, and corporate executives. We were comparatively young parents since we had our first child during residency, and most of the other parents were older than us. It felt like every weekend we were going to someone’s beautiful multimillion dollar house with a pool, or fancy country clubs, with fancy cars and birthday parties. Meanwhile my first year in practice we made about $400,000, and my wife drove our 10 year old car from grad school. This made me a little miserable at times. I think I went on Zillow every single day to look at houses.
But we managed to stay frugal, and saved a very high percentage of our after-tax income. We rented a house for years, which allowed us to build significant wealth and skip the starter home thing. We invested the money well, and became more and more comfortable financially over time. We slowly upgraded our cars. I think this ability to put a bit of space between cues to spend and actually spending is a fundamental skill for building wealth.
So that’s how I think you should think about money. It is the most valuable resource you have - your life energy. And the world is constantly trying to separate it from you. It is the default state. But you have to guard it like the most precious thing you own, it really is your money or your life.
