“You had said that you saw no difference between economic and political power, between the power of money and the power of guns… You are learning the difference now.” ~Galt’s Speech, For the New Intellectual
In my first chapter, I told you that YOU, the individual, are the most important part of the financial genome. Then we started the Financial Genome Project with you working and earning a salary, and some of the salary taxes taken out. We spent the last several chapters discussing the various types of expenses you will have. In the following several chapters, we’ll start to look at how we exert influence in the financial genome. We’ll really dig into Individual Economic Power.
We can exert influence by having power and by how much wealth we have. The more we understand about the financial genome, the greater the power we can have and/or the greater wealth we can amass. The good news is that you can control the influence you have on the financial genome. The bad news is that others can exert their influence on you.
WHAT IS INFLUENCE?
I consider influence as the ability to impact other people in the financial genome. We do this by our daily interactions in our roles as laborers, consumers, savers, investors, and with the power our occupations and positions give us.
The entire financial genome is designed by humans. We created the rules, the laws, and the systems. It’s a giant, complex system built on trust, reinforced by the consequences of not following these rules and laws. We give a single person an insane amount of economic power over hundreds, thousands, and millions of people. If the system were to collapse, that person would not have any true power. As money becomes completely digital, we rely on financial databases keeping track of, to many of us, an invisible financial ledger. It’s a complete system of trust.
Power and wealth are not always mutually exclusive. I think Showtime’s “Billions” captures the difference perfectly. One person has immense power as the Attorney General, but he is not necessarily rich; the other person has immense wealth as a hedge fund manager. People with power can exert influence on the financial genome by passing laws and changing systems and processes. People with wealth can generate more wealth at a faster pace than the less wealthy, just because that’s how our system is designed. Ever hear the saying, “it takes money to make money?” This wealth can be used to influence those in power.
People in power can exert influence on you. We give family members, peers, bosses, employers, businesses, CEOs, and politicians the ability to positively or negatively influence us. The intent of this website is to give you insight on how others have power over you and how they can impact your place in the financial genome.
The most extreme example is the economic power the United States Federal Reserve Chairman has. The Federal Reserve’s mission is to “foster the stability, integrity, and efficiency of the nation’s monetary, financial, and payment systems so as to promote optimal macroeconomic performance.” The Federal Reserve’s weapon of choice is decreasing and increasing interest rates. The smallest fractional change in the US’ interest rates can cause ripple effects across the entire world. The Chairman is usually not a wealthy person, relative to corporate wealth; yet, same may argue the Chairman is the most powerful person in the world.
We see the power of wealth everyday. People with money live different lives than people without money. The more money someone has, the more influence they may have on others. An extreme example of wealth is when Warren Buffett invested $5B in Goldman Sachs in 2008, convincing America that the economy was still stable. Another recent example is LeBron James’ investment into a school program he calls iPromise in Akron, Ohio.
Power and wealth have the ability to create and destroy. The more power and/or wealth you have, the more you can influence others. In most developed countries, the financial systems reward those with money and power with more money and power. The good news is, if you understand how these systems work, you can get power and wealth in the same way. Understanding how the financial system works is the first step and is my primary goal of this website.
SO, WHAT DOES THIS HAVE TO DO WITH ME?
No matter how little power or money you may think you have, YOU STILL CAN POSITIVELY INFLUENCE OTHERS. Every dollar you spend or save is a vote on what you feel is important in the financial genome, and in your circle of influence. Each dollar you save gets you closer to financial freedom and retirement. Each dollar you spend is either consumed immediately, purchases a depreciating asset, or an appreciating asset.
Purchases like entertainment and travel are consumed immediately. You receive nothing tangible in return for the exchange of your money. You receive intangibles like memories and stress relief though. Purchases like cars and clothes are depreciating assets. You receive assets but they immediately depreciate, and for the most part, you can never resell them for more than you bought them for. Purchases like houses and rental properties can appreciate. If bought at the right time, these assets can be sold at a greater price than what you bought them for, thus increasing your wealth.
We discussed the economic multiplier in many different chapters, but we’ll cover it in more detail here. An economic multiplier is when there’s a greater output than the original amount spent. In simpler words, when you spend money, it multiplies and has a greater effect throughout the financial genome. This is one of the reasons why local businesses and your friends and family doing Multi-Level Marketing (MLM) businesses become overbearing when you choose to spend your money at a major store.
The multiplier is felt more for a local business or family member’s MLM. When you buy something from a major store, your purchase is just one of millions or billions of sales, for a local business it could be the only sale it receives that day. Local businesses and MLM operators feel the loss greater as well. Unfortunately, MLMs like Pampered Chef, Scentsy, and Younique, offer goods that are more expensive than the major stores.
This is where you get to vote with your dollars. This is where your power, and your wealth, exert influence on others. If you buy a $2 wax candle at Wal-Mart, then you’re voting for bigger corporations with lower-cost goods. If you buy the same wax candle for $8 from a friend with the MLM, Scentsy, then you’re voting to support your friend for a higher-priced good. It’s a difficult choice.
For most of us, the influence we have on others disperses and grows weaker as it travels through the financial genome. Where you decide to shop has a bigger influence on local businesses than it does on major corporations. Amazon has had a negative influence on local businesses, but has provided us with cheaper goods and convenience. We have voted for Amazon’s dominance over local businesses with the money we spend.
It’s the same with voting in elections. Your vote has a big impact on your city elections, but it lessens as you vote on county, state, and federal elections. Citizens are authorized to contribute $2,700 to a single candidate’s campaign. This $2,700 means a lot more to a town’s mayoral election than it does to the U.S. Presidential election.
In the previous chapters, we went through the most common expenses that consume our income. If you haven’t already contributed, read the Variable Expense chapter and add an expense you’d like discussed. In the next several chapters, we’re going to explore each expense in greater detail. We’re going to unravel and explore all the connections you have with each expense.
In some cases, you’ll have the ability to influence others with your power and income, and in some cases, you’ll have barely any influence. For example, gas is a common expense for many people living in a developed country. Gas is a homogenous commodity. This is when the product is indistinguishable from other supplies, and we usually buy the cheapest product available. There is almost no brand loyalty, and as such, gas companies usually rely on rewards program to lure customers in. Refer to my Rewards and Referrals chapter for more information.
It’s in the small details where I believe we can find the best personal finance lessons, and use positively use our influence. It’s also in these small details where we can protect ourselves against others that may exert negative influence on us. I look forward to the next several chapters, and I hope you do too.