What does it mean to make the economy strong or weak? In what way are you participating in making your country’s economy stronger?
The Economy is talked about as if it has a life of its own. From the news reports, you might think that the economy controls people’s behavior rather than the other way around. The truth is that actions and beliefs of the members of society control the economy. Individuals earning and spending determines whether the economy is growing or declining.
Let’s bring that concept home. As an adult member of society, you participate in the country’s economic health by earning and spending money. In order to earn money, you exchange some product or service for money. Ideally, you will gain more money in exchange for the goods or services than it cost you to produce them. If you are an employee, your role is to contribute to your company’s endeavor of adding value to the goods or services that they sell. This is your most basic participation in the economic system.
Then, you take the profits or earnings you made from the first exchange and exchange that for goods or services that you consume. And the person you purchased from turns around and repeats the process. That continuous movement of money defines the economy.
If the people of a society only purchase items they consume and don’t add value and resell something, then the economy grinds downward. You’ve got to add value and bring in positive cash flow.
Positive and Negative Cash Flow
The concept of positive and negative cash flow is a fundamental business concept. Cash flow is a financial term that refers to money coming in relative to money going out. Basically, it’s a way of stating whether the company is making or losing money over a specified period of time. Positive cash flow happens when more money comes into your business or individual accounts than the amount of money that goes out. A negative cash flow condition exists when your outgo exceeds your income. You can apply the concept to your own wallet and bank account. Are you earning more than you spend or spending more than you earn?A portion of all I earn is mine to keep! - George Clason Click To Tweet
If you find yourself existing month after month in a negative cash flow condition, you need to take whatever action necessary to correct that state. You can survive a temporary period of negative cash flow, but as time goes by, it becomes more and more painful and is ultimately unsustainable. If you have been following the Paladin blog for any period of time, you have probably seen this quote: “If your out-go exceeds your income, your upkeep will be your downfall.”
The Controlled Economy
There is a common myth about the economy. Like all myths, there is some basis in truth. The myth is that the economy is controlled by major financial institutions, the government, ‘the Fed’ or some other mysterious force. While those entities do have influence over the course of the economy, they do not control it. The type of language used in describing trends or changes in the economy gives an impression that these institutions have control. Expressions like economic stimulation, economic slowdown, interest rate manipulation, inflation, and deflation are used in conjunction with powerful forces.
The economy is controlled by the movement of funds in response to market conditions. Increases in employment opportunities so more people are earning and spending money improves the economy. When more people have disposable income more money is available for others to earn, driving the system in an upward spiral. When world events cause a loss of jobs or cause people to stay home and sit on their wallets, other people sell less and have less money to spend, so they stay home and sit on their wallets. This is a downward spiral.
Your Participation in the Economy
The best thing you can do for the economy is to be judicious with your funds. Earn as much as you can and always spend less than you earn. Think of your fiscal behaviors this way; if everyone did what you are doing (earning and spending) on a continued basis, how would the economy perform? This mindset can be applied to any behavior to have a positive impact in your world. What if everyone did what I am doing? By spending less than you earn, you will ALWAYS have money, right?
One of the benefits of having money is that you qualify for better interest rates. By borrowing money at a low rate, businesses that sell big-ticket items make sales and are able to stay in business and thus have money to spend. That money goes around in an upward spiral. Conversely, if you continually increase a deficit spending model, you cannot qualify for a low-interest rate and will pay high interest on big-ticket items. This drives the economy down into a recession model. I am talking here in the long term, not a given month. So my advice on the situation is to spend less than you earn. Give generously and save a portion of all you earn.
A portion of all I earn is mine to keep! – George Clason
Easy Come, Easy Go?
When you start to realize how hard you had to work to get the money you are spending, you will likely be a lot more mindful how you spend it. In a Quora article by Bernie Klinder, I read an excellent example of the relationship between earning, spending and saving money. Mr. Klinder makes a clear and compelling argument for why wealthy people are often very frugal. If you grasp his point, it might just change your life! Pure genius! A dollar saved is worth $1.62 earned!
So Where Does Wealth Come From in the First Place?
The ability to create wealth comes from God. The raw materials from the earth are the basis of wealth generation. For example, food comes from the earth and is harvested, moved to market and exchanged for money.
But remember the Lord your God, for it is he who gives you the ability to produce wealth, and so confirms his covenant, which he swore to your ancestors, as it is today. – Deuteronomy 8:18 (NIV)
If You Don’t Have a Plan Yet, Make One
So, do you have a plan on how you will grow your role to participate constructively in the American economic system? The first step in your plan should be to define where you are today and label that as your starting point. If you are not employed or underemployed, your starting point would be to identify a career path that you want to embark on. You would start be exploring the details of the career path including what is required to qualify for the job and what promotion possibilities are. To learn more about ways to improve your income check out Finding A Practical Solution To Unlock Your Competitive Income.
If you are working in a career that you enjoy, but feel the entrepreneurial itch and are curious about what type of business you might want to embark on you might explore what opportunities align to your unique talents and ability.
Now a Bit About Controlling the Out-go
We have discussed ways to increase income and touched on keeping a portion of the money earned. Now we can move on to the outgo part.
It is very difficult to go very many days without spending money in our country. Unless you live quite a ways out into a rural area, you probably spend money every day. Creating habits in how you spend money has a massive effect over time. Making your own coffee vs buying a cup in the coffee shop, for instance, makes a huge difference over the course of a year. Just do the simple math and choose which habit you want to create for yourself.
Little changes in your daily behaviors will not have much effect in the current week, month or even year. But over multiple years, the habits you choose WILL determine where you end up in the long run. You will find that I am a big believer in the force of habit. I practice developing habits that I want to foster. Sometimes I develop a habit just to see what difference it will make over a measured period of time.
You can read more about my habit fixation in my blog post titled How to Develop Habits to Improve Your Professional Growth.
If you want a real challenge in creating and benefiting from the force of habit, sign up for my five-day mini course on developing habits. Studying habits is one of my favorite pastimes. Another great pastime is watching my money grow! Learning to put money growth on automatic by leveraging the force of habit is a huge force multiplier. That combines two of my favs into one fun challenge.