Beating Broke

Personal Finance from the Broke Perspective

Affluent Wants vs. Needs

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We already know that a good portion of saving money (both saving in savings accounts and saving on spending) can be determining whether something that we think we need is really a need or not and whether we could really do without that need. The underlying problem there is that as we become more affluent, wants become needs. This isn’t a new problem.

What those wants are has changed, but the problem remains.  In the days of the Roman empire, things like Oranges were considered a luxury.  They didn’t have the ability to transport them as quickly as we can now.  Because they were unable to get them somewhere quickly, they would spoil in all but a few cases.  The elites of the time were affluent enough that they could afford to dedicate a whole team of chariots and riders to move the Oranges from the orchard to their homes as quickly as was possible in the times.  Today, oranges are a bit more commonplace.  And, as such, aren’t nearly the luxury that they were to ancient civilizations.  The same is true for many different commodities.

Without money

And so, we can be said to be equivalent of a Roman elitist.  But, even as we are equal in many ways when we compare our access to certain things, we are not equal in socio-economic standing.  We aren’t elitists.  We’re the modern day equivalent, in that way, of your average, everyday Roman.  Just as the elite Romans had their scarce commodities, the elites of our society have theirs.  Bentleys, Mansions, Lear Jets, and Caviar just to name a few.

One of the hazards of harnessing our personal finances is that we may begin to loosen our own self-made restrictions and some of our wants might become needs.  Sure, a private jet would be nice.  I want a private jet.  I certainly don’t need one, though.  But, what if my prowess with personal finance (stop laughing) causes me to become more wealthy than I could possibly imagine.  As it becomes easier and easier for me to get that jet without breaking the bank, it also becomes easier and easier for that want to morph into a need.

A jet is a bit of an extreme example.  But, apply the same concept to one of the things that you want now.  Here’s a perfect example from my own financial adventures.  About 7 years ago, shortly after my wife and I became engaged, we decided that we needed to move from the apartment we were in and into something that was a little bit more pet friendly.  If you’ve ever tried to have a 100+ pound dog in a one bedroom apartment, you know what I’m talking about.  Initially, we were talking about finding a house to rent that allowed pets.  However, the more we looked at it, the more we discussed buying a house.  We wanted to buy a house.  But, as we looked at houses to rent, we convinced ourselves that we needed a house.  And we bought one.  Now, 7-ish years later, we want to move into a bigger house to make room for our two children and a dog.  We certainly don’t need a bigger house.  But we want one.  As we get a better handle on our finances, it’s very possible that what we want now will become a need if we let it.

I won’t say whether that will be a bad thing or not.  Some would argue that if we don’t truly need the bigger house, we shouldn’t buy it.  Others will say that if we have saved up and can afford it, we should go for it.  That’s not the point of this article though.  What is the point?

Awareness.  One of the most important factors in your personal finance journey will be how aware you are of your situation.  Being aware enough to understand what you can and cannot afford as well as what is and isn’t a need will be a determining factor in where your finances end up when you are ready to retire.  Moreover, being oblivious to your situation isn’t an excuse.  Be responsible for your situation.  Learn how to fix your mistakes.  And become aware of your situation so that you can make educated choices for your financial welfare.

Image Credit: Without money by Toban Black, on Flickr

The Role of Optimized Trade in the Worlds Economy

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First, let’s get the basics out of the way. From the World English Dictionary, we get this definition of Optimize:

2. ( tr ) to plan or carry out (an economic activity) with maximum efficiency

The world is a big place.  There are billions of people that live in various places all around it.  Heck, even at the poles.  What is the role of trade, and, more specifically, the role of optimized trade in the world economy?  A couple of days ago we spoke about isolationism and the stagnation that could occur after an isolationist stance is taken for a long enough time.  The specific example was that eventually the supply and demand would reach an equilibrium.  In truth, an equalized supply and demand trade system is a fully optimized trade system.

In our every day lives, we buy things that are made all around the world.  In fact, it seems that we buy more foreign made items than we do domestic ones.  Why?  The common answer is that it’s cheaper to make these things in foreign countries than it is to make them here.  Why is it cheaper?  Because the trade to and from those countries has become optimized to the point that it’s so efficient that the costs of freighting those items here is still cheaper than making them here.

Freight ShipMaking trade routes more efficient through optimization reduces costs for trade along those routes.  Many of the things that we have today wouldn’t be available to us if we hadn’t optimized the trade routes here.  Consider oranges.  They don’t grow up here in the northern plains.  The only way to get them is to import them from someplace like Florida or California.  If the trade routes between Florida and the northern plains hadn’t been optimized by the invention (and use) of the combustion engine and, later, the invention of the federal highway system, it would make oranges too expensive to ship way up here.  The oranges would either rot on the way here, or the added expense of keeping the oranges from spoiling on the way here would be cost prohibitive.  But, because that trade route has been optimized to a greater degree, it’s possible for me to go to the local grocery store and buy oranges that were grown in Florida for nearly the same price as I would for produce that was grown here.

Optimized trade has a grand role in the worlds economy.  The more optimized the trade becomes the more likely it will be that things will be made in so many more places around the globe.  It will become easier to get authentic items, rather than semi-authentic items made here.  Eventually, when the trade has become optimized fully, a stagnant period will occur.  That scenario is impossible to imagine right now, because there are so many parts of the world that have no access to optimized trade.  We call them 3rd world countries.  They are so far removed from the optimized trade that many of the things that you and I in our 1st world society take for granted are mere dreams for them.  A fully optimized trade system would eliminate that.  Who knows, maybe someone will invent the transporter and we’ll have instant transfer of freight.  Imagine the possibilities!

Image Credit: Freight Ship by SpammT, on Flickr