Categories
Money

Principles of Finance

We will discuss the principles of finance with a clear plan to financial success. We will give you a guide for how to get out of debt, save money and invest for retirement.

What are the Principles of Finance?

Better yet, what is “finance? It’s important that we define what we mean by the term finance first and then we can dive into the details of how to be successful at the principles of finance.

Investopedia.com defines finance as,

.. the process of budgeting, saving, investing, spending or otherwise overseeing the capital usage of an individual or group. -Investopedia.com

Individual vs. Group Finance

Managing money and learning the principles of finance can involve both individual (personal finance) and groups. In this article we address personal finance and how the individual manages money. But many of the ideas discussed here can carry over into group finance as well. Many of these finance ideas are indeed universal truths.

Establish Goals

The first step in learning the principles of finance should be to determine what your financial goals are and what you wish to accomplish. Where do you see yourself in 5, 10, 20 or even 30 years?

Write Down Your Goals

Money Management for Teens

If you want to be retired, living on a beach in Costa Rica in 20 years, then you need to write that down as part of your goals. We recommend creating a notebook, journal or even a spreadsheet where you list exactly what you have planned for the future. This serves two purposes. Writing down your goals makes what you want explicitly clear. It gives you a starting point and also provides you with the details that you will need to determine how you will reach your goals.

The second purpose of planning out your financial goals on paper (or electronically) is that you are signaling to the universe what you want. History has proven that the psychology of desire and intention is a powerful tool in accomplishing goals for mastering the principles of finance.

Review Your Goals Regularly

Once you’ve written down your goals for the principles of finance, you should return to the goals frequently to review them. Some people even find it helpful to place a copy of the written goals in a location near them where they see the goals daily, like on your bathroom mirror or near your workspace. It can also be helpful to visualize your goals through imagery. Is one of your goals to own a beach house? Place a picture of the beach house that you want on your wall. Again, the power of intention is great and tends to help you focus your energy on exactly what you want.

Create a Budget

Now that you have established your goals, it’s time to create a budget. Budgeting requires a great deal of self-discipline, so if you don’t follow your budget, then it can wreck your plans! When you create a budget, start by writing down in detail what your expenses are each month. Spreadsheets are great for budgeting, but not required. There are also budgeting apps to choose from that can be helpful. For now, you need to know where you spend your money. Provide as much detail as possible when listing your expenses. You may find it helpful to review past bank statements and receipts.

Family Wealth Management

Once you have an idea of where you spend your money each month, it’s time to take a hard look at your budget and cut some expenses. Many people find making cuts to spending a difficult task. But making cuts now will help you reach your financial goals quicker. Finally, creating a budget is a critical step toward mastering the principles of finance.

What Budget Items to Cut

When looking at expenses, determine what expenses are necessary and which are not. For example, purchases from the grocery store are typically necessary; eating out at restaurants is not necessary. In particular, focus on cutting things like cable bills, eating out, subscriptions to news/media, luxury items like spa packages, and the like. Pretend your income has been cut in half and you can only maintain budget items that are necessary to survive, like electricity, food, water, etc. This is an extreme measure, but cutting the unnecessary items from your budget now will make getting ahead in the future easier and more enjoyable. Cutting budget items down to core expenses will help you in your principles of finance.

Living Below Your Means

After cutting your expenses down to the bear minimum, you should be living below your means (hopefully). Unfortunately, living below your means is a philosophy that most people don’t follow these days. Living below your means requires that you spend less than what you make. For example, if your take home pay is $1,500 per month, then living below your means is only spending $1,000 per month.

The extra money that you have from living below your means will serve two purposes. At first the extra money will be used to pay down debts quickly. Getting ahead requires that all debt be paid off first. Secondly, after the debt has been paid off, you will then use the positive cash flow to fund your emergency fund, savings and investments. Each of these is part of your net worth and the buffer between you and poverty. The more you can grow your savings and investment, the simpler and easier life gets.

Pay Off All Debts

Before you can start saving money and master the principles of finance, you must pay off all debts. Now that you’ve established your budget, cut personal spending to the bare minimum. You will take extra money that you have leftover in your budget and use it to pay down debts. Create a list or accounting of your debts, the corresponding balances and interest rates that you maintain. Use this information to help you keep track of your progress as you pay down debts.

If you are young and just starting out, hopefully your debts are minimal. Having minimal or no debt when you begin your journey toward wealth creation is a huge advantage. Paying off debt can take years and a great deal of sacrifice. So, if you have little or no debt, congratulations! For the rest of us, it’s time to get to work paying off debt.  

Work Extra to Pay Down Debt Faster

Everyday Habits Of The Average Millionaire

How do you quickly pay off debt? One of the recommendations made by finance guru Dave Ramsey is to take on a second job. Deliver pizzas, wait tables or pick up an extra shift at your job to earn extra money. Taking on extra work is a temporary measure so it doesn’t really matter what you do. The point is to bring in more money quickly to pay off your debt and be debt-free. Just make sure you’ve truly minimized your expenses first!

The Shocking Truth About Saving Money

According to a December 2019 article by GoBankingRates, approximately 70% of Americans have less than $1,000 in savings!

This is a shocking statistic that shows how access to credit cards and lending have dominated our society. Unfortunately, Americans have adopted the idea that borrowing money for most things is normal. Yet, just a few generations ago in the early 20th century, people learned the hard way during the Great Depression that borrowing can lead to financial ruin. Having no savings puts you in a dangerous financial place.

Make Saving a Habit

Saving is a habit that can be learned over time and simply requires discipline. Become determined to reach your financial goals. Your personal determination to win at the money game will help you develop the discipline to save.

In addition, develop good habits of saving money. In the classic personal finance book, “The Richest Man in Babylon” by George Clason, the author implores the reader to set aside at least 10% of your earnings. This is a great rule of thumb for saving and investing because removing only a fraction of your income each month will likely not even be noticed or missed. Yet, this small amount of money is the seed needed to grow wealth.

Create an Emergency Fund

The first thing to do when you have paid off debt is to start saving for an emergency. Many people think that saving for an emergency is not necessary, until life proves them wrong and an unexpected event happens. Unfortunately, we all have emergencies during life: job loss, medical issues, natural disasters, home repairs, car problems, etc. Life is expensive and it pays to be prepared.

At a minimum, you want to have at least $1,000 in your emergency fund. In reality, your emergency fund should cover 3-6 months of expenses. For most people this number should probably be between $5,000 – $20,000. Keep in mind that in the worst case scenario you want to be able to pay all your bills and eat for 3-6 months, in the event that you lose your job.

Invest 10-15% of Income

Once you’ve fully funded your emergency fund, you can start investing. And if you have made it this far, then congratulations! You are ahead of the pack and well on your way to wealth building.

As stated previously, we recommend that you invest 10-15% of your income monthly. The earlier that you get started saving and investing, the better off you will be in the long run. In fact, the most powerful tool that will be working for you during investing is compounding interest, and it works like magic. How do you turn $1,000 into $62,000? The answer may be simpler than you think.

The Magic of Compounding Interest.

Day Trading Options

Here’s an example of how compounding interest works for an investor: you invest $1,000 into an investment fund (let’s assume it’s stocks, for simplicity) that earns 5% per year. You begin to contribute $50 each month for 20 years. After 20 years, compounding interest will have earned you approximately $62,000! Don’t believe me? Check out the handy compound interest calculator below and enter in your own numbers.

The US Securities and Exchange Commission (SEC) has a created a free compounding interest calculator for you. The calculator can help you determine future outcomes with your money and determine how much you need to contribute each month to reach your financial goals over time. It’s a power investment tool and it’s free.

So, You Are an Investor – Now What?

Now you must continue to earn money to fund your investments, and more importantly, protect what you have.

According to Warren Buffet, one of the most famous investors of all time, the most important rules of investing are:

Rule No. 1: Never lose money.

Rule No. 2: Never forget rule No. 1.

Intelligent investors diversify their holdings. They typically don’t just invest in one thing; they spread their money around in different asset classes, such as stocks, bonds, real estate, commodities like gold/silver, bitcoin, cash, etc. Investments go up and down in natural cycles. You don’t want to put all of your eggs in one basket, so to speak. Take Warren Buffet’s advice: Never lose money. Protect your investments.

Surround Yourself with Professionals

Investing is a complicated activity that requires expertise and fiduciary commitment. We recommend that you surround yourself with a team of experts that you trust with your money. Expert advice that you will likely need will be in fields such as investing, taxes and legal services. Finding experts to manage your money costs money, but it can save you time, headaches and ultimately pay you back. For example, you may spend several hundred dollars working with a CPA who specializes in tax law, but they may be able to help you minimize your tax burden on your investments, ultimately a net savings in the long term.

Due Diligence: Beware of Salesmen

Spend some time finding the best professionals in your area. Check for online reviews of experts in the investment, tax and legal fields. Ask friends or family for references or recommendations. Beware of “experts” who promise too much or don’t have the correct training or certification. It’s important to know that there are many “investment advisors” out there who are nothing more than salesmen who may be steering you toward investments that are not in your best interest. Exhaustive due diligence is a must when acquiring professional assistance.

Final Notes: Investment Maintenance

Continue to monitor your investments at least quarterly. During market cycles your investments will gain and lose value; but overall, you should see gains in the long term. If you have a concern, don’t hesitate to contact your team and ask questions. You can always change team members out if things are not going as you planned. Remember: you are the boss!

Continue to monitor your credit score and credit history. Unless you are a millionaire, credit score matters. If you decide to re-finance in the future, buy property or even use credit to buy a car, you want to know that your credit is good. Having good credit determines your interest rate and directly affects your payments. Monitor for fraud as well.

Improve Your Ability to Earn Money

It is recommended that you improve your earning power over time. Increasing your annual earnings speeds up your ability to grow your net worth and overall wealth. Earning power can be improved by promotions at your job, adding a side hustle job or by starting a new business. This is optional and is based on your level of ambition.

Are you interested in reading more about personal finance from the industry leaders? Check out our post detailing The Best Investing Books of All Time!

Wrap Up of Principles of Finance

Hopefully this article has helped you better understand the steps required to master the principles of finance. Establishing goals and implementing a plan with consistent budgeting and saving is the key to any successful financial goals.

Read More:

Value Investing Books

Best Gold Coins to Buy

Goldmine Stocks

How Much Savings You Should Have at 40

Wealth Building Cornerstones

Real Estate Market Predictions

Why Saving Money is Important

Disclaimer:

It is important to note that Piggy Bank Coins does not provide financial advice. We don’t endorse or recommend any financial investments. Instead, we provide information for educational purposes to those seeking knowledge regarding personal finance. However, in the spirit of transparency, note that the author is an investor in cryptocurrencies, precious metals and some equities.

In addition, The Federal Trade Commission (FTC) requires that Piggy Bank Coins disclose to readers that we may receive commissions when you click our links and make purchases. However, this does not impact our reviews and comparisons. Moreover, we try our best to keep things fair and balanced, in order to help you make the best choice for you.

Categories
Gold & Silver

Best Gold Bars To Buy

Our picks of the best gold bars to buy, five reasons to buy gold bars, the history of gold and where to find gold dealers.

Wondering where the best gold bars to buy are? Find out the answers to your gold questions, such as:

  • Why you should buy gold bars and coins
  • History of gold
  • Best gold coins to buy
  • Best gold bars to buy
  • Gold coin dealers and coin shops

Why Buy Gold Bars?

First, buying gold bars means you are buying something that you can hold in your hand. This may not seem important to you now, but it may be critical in the future. Cash can be destroyed and loses value. In addition, stocks go up and down in price. In addition, Banks and businesses fail every day. Living things, such as livestock and farm crops die. However, threats such as these do not impact gold.

Five Reasons to Buy Gold Bars:

  1. Store of value. National currencies (even the U.S. Dollar) come and go. But Gold has been around for thousands of years as real money. 
  2. Liquid asset. Large cities throughout the world trade gold and silver on a daily basis.
  3. Tangible asset. You can hold gold coins in your hand or put them in your safe. No waiting for the bank to open to get them. No worrying about destruction by fire or a hacker.
  4. It is a hedge against inflation. Silver tends to thrive during a crisis. Investors tend to jump into silver when stocks go lower.
  5. Privacy. No other asset offers privacy like a gold coin. A transaction in gold between you and another person is truly a private affair.

Gold in Your Portfolio

It is common to hold anywhere from 5-10% of your investment portfolio in gold. In fact, some very larger international portfolios hold approximately 30% of their assets in gold.

History of Gold

Circa around 4,000-6,000 years ago, gold was first used as a commodity and as a money . Then, approximately 4,500 years ago, the people of Mesopotamia made jewelry from gold. Some historians believe that the use of gold is much older. Cultures such as the Egyptians used gold for purposes such as to decorate walls, burial sites and masks of cultures such as the Egyptians, the Greeks and the Romans.

Gold for Trading and Exchange

Circa 1500 B.C., gold was the official currency of exchange for merchants and traders in Egypt. Shortly thereafter, gold began to take hold as the superior trading currency throughout the world. Mining for gold becomes a major industry world-wide. Europe and Asia begin using gold coins for payment.

Gold Standard Dollars

Fast forward to the birth of the United States. First, in 1792, the United States passed the Coinage Act.The Coinage Act requires that silver and gold are the new standard for currency valuation. The Act defines the U.S. Dollar as equivalent to 24.75 grams of gold and 371.25 grams of silver. Next, the paper currency printed in the United States was officially backed and redeemable in silver and gold.

Once again, fast forward again, approximately 180 years. First, in 1968, the U.S. Government removed gold from backing the Dollar. Then in 1971, the price of the U.S. Dollar was devalued. Then, US Currency was no longer convertible to gold. As a result, gold does not back the American Dollar any longer.

The Beauty and Utility of Gold

Humans have long believed that gold jewelry and coins were things of beauty. For instance, women and men have donned gold jewelry for as long as we have kept track of history. Moreover, from a physical perspective, gold is malleable and easily altered to make jewelry, coins or even thin gold sheets. Scientifically, gold is non-reactive and non-corrosive, both of which are highly desirable characteristics. Gold is even safe to use in the human body. For example, dentists have used gold for years to repair teeth. In conclusion, gold has many uses.

Best Gold Coins to Buy

Best Gold Coins to Buy

Now that you understand the history and significance of gold and why buying real gold coins is important, let’s explore the best gold bars to buy.

There are four important one-ounce gold coins that are important to buy. The four recommended gold coins are:

  • American Eagles
  • South African Krugerrands 
  • Canadian Maples
  • Austrian Philharmonic

The aforementioned coins are the finest gold coins available. The respected governments of each country oversee the minting and distribution of these fine gold coins. All four of these coins are well-known and recognized world-wide. As a result, gold coin buyers and sellers hold these four coins in high regard.

Best Gold Bars to Buy

If you have more money to buy gold and don’t want to have stacks of coins lying around, then buying gold bullion or gold bars is an option. Gold bars have a few options that make them desirable when compared to gold coins. Gold bars take up less storage space than a comparable Dollar value of coins. In addition, bullion bars have lower premiums compared to gold coins. And gold bars come in varying sizes from one gram up to 400 ounces.

Smaller to medium size bars are recommended for several reasons. Large gold bars are not very divisible. For example, how do you pay for dinner with a 400-ounce gold bar (currently valued around $800,000)? In addition, larger gold bars require assay when exchanging and there is also a higher rate of counterfeiting with large bullion bars.

Gold Coin Dealers and Coin Shops

When buying and selling gold coins, you have several options. The first option is to search for reputable coin dealers near where you live. To start, ask friends or look online for reviews of the local shops that buy and sell gold coins. Next, visit several coin dealers or coin shops in your area and get to know who they are and what they offer. Find a dealer who you enjoy dealing with and who is knowledgeable about gold and silver coins. Finally, ask questions, like how they determine gold spot price or how their fees are determined. Get comfortable with whom you are dealing and get to know them.

Wrap Up: Best Gold Bars to Buy

Hopefully you now understand the reasons investors buy gold coins and bullion. In addition, you may now have a better understanding of the best gold bars to buy and why to buy gold. Gold has stood the test of time and will be around much longer. It is the oldest, real money you can own.

Want to learn more about how to invest? Check out The Best Investing Books of All Time.

Read More:

Best Silver Coins to Buy

The Cheapest Way to Buy Silver

Wealth Building Cornerstones

Best Investing Books of All Time

How to Become a Millionaire from Nothing

How Much Savings You Should Have at 40

Disclaimer:

It is important to note that Piggy Bank Coins does not provide financial advice. We don’t endorse or recommend any financial investments. Instead, we provide information for educational purposes to those seeking knowledge regarding personal finance. However, in the spirit of transparency, note that the author is an investor in cryptocurrencies, precious metals and some equities.

In addition, The Federal Trade Commission (FTC) requires that Piggy Bank Coins disclose to readers that we may receive commissions when you click our links and make purchases. However, this does not impact our reviews and comparisons. Moreover, we try our best to keep things fair and balanced, in order to help you make the best choice for you.

Categories
Money

How Much is a Dollar Worth?

These days, most married couples have to work at a job to earn a living. Most of these couples would tell you that if they didn’t both work, life would be a struggle to make ends meet. However, it didn’t used to be this way. In the mid-20th century, it was common for one spouse to stay home while the other one went off to work each day. We will examine how much is a dollar worth and compare prices of 1960 to 2020. We will also look at purchasing power, inflation and answer the question, “how much is a dollar worth?”

What is purchasing power?

“Purchasing power is the value of a currency expressed in terms of the amount of goods or services that one unit of money can buy. Purchasing power is important because, all else being equal, inflation decreases the amount of goods or services you would be able to purchase.” Investopedia

Currency Inflation

One thing that significantly affects inflation and purchasing power is money printing. When the US Treasury and the Federal Reserve Bank coordinate to print large amounts of money, it causes inflation. Inflation is simply an increase in the money supply. The bigger the money supply, the less the money in your wallet is worth. Moreover, inflation is a hidden tax. As a result, money you have in your bank account loses purchasing power when money is printed by the government. To fully understand the question, “how much is a dollar worth?” you must understand inflation.

On March 23, 2020, it was announced that the US Government would be giving out stimulus checks to Americans. In addition, they planned to give money and loans to businesses hurt by the COVID-19 epidemic. Almost overnight, approximately $2 Trillion in loans and grants were printed out of thin air. As a result, the internet went viral in creating money printing memes. One of those memes was the now infamous “money printer go brrrr” meme.

Consumer Price Index

According to the US Bureau of Labor Statistics, the consumer price index has increased 1.3% in the past 12 months (before seasonal adjustment).

“The Consumer Price Index (CPI) is a measure of the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services. Indexes are available for the U.S. and various geographic areas. Average price data for select utility, automotive fuel, and food items are also available.” -The US Bureau of Labor Statistics, Definition of Consumer Price Index (CPI)

A consumer price index value of 1.3% seems reasonable for 2019-2020. If inflation or the CPI were only 1% per year, that means that in 100 years one US Dollar would lose about half its purchasing power. For example, $100 in 1960 would only purchase $50 worth of goods in 2020. However, real inflation for items we buy every day is much higher. In addition, we’ll soon see what the real inflation values are, and they are not pretty. As you can see, how much is a dollar worth was much different in the past compared with today.

Inflation Calculator

The US Dollar Has Declined in Purchasing Power Since 1913; The Stated CPI Does Not Reflect Real Price Increases

In addition, the US Bureau of Labor Statistics provides a handy Inflation Calculator. Using their calculator, you can estimate what purchasing power (based upon inflation) is today compared with years past. For example, $10 in 1960 is equal to $88.71 today. That means that in the 60 years prior to 2020, the dollar has suffered 887% inflation over time. How much is a dollar worth has changed a lot over time.

Since the Federal Reserve Bank was formed in 1913, the dollar has been in steady decline. The dollar’s purchasing power has decreased dramatically since 1913. Using the US Bureau of Labor Statistics CPI calculator, the US Dollar has lost approximately 96% of its purchasing power since 1913. This is an alarming statistic. But this doesn’t does not tell us how much is a dollar worth.

How Much is a Dollar Worth?

Food Prices Have Lower Inflation Values; Housing Prices Have Increased Dramatically Since 1960

To fully understand how much is a dollar worth, let’s look at some specific examples of prices in 1960.

According the website 1960s Flashback, in 1960 one US Dollar could purchase:

  • 25 first-class stamps for $1
  • slightly more than 3 gallons of gas for $1
  • nearly 2 dozen eggs for $1
  • 2 gallons of milk for $1

The price of a new home in 1960 was approximately $16,500. According to The Ascent, a family home costs $280,600 in the year 2020. This is a 1700% increase in home prices from 1960.

Using the US Bureau of Labor Statistics provides a handy Inflation Calculator, we can see that the US Dollar has become weaker. On average, goods and services are (on average) 887% more expensive today, compared with 1960. A US Dollar today has lost approximately 89% of its purchasing power since 1960.

Can You Purchase a Home with One Year’s Salary? In 1960 You Could

In Mike Maloney’s video series, “Hidden Secrets of Money: Episode 6”, he discusses the wealth distribution cycle. As an example, Mr. Maloney displays his father’s 1955 tax return. His father was an auto parts store manager in Salem, Oregon during this time. He earned approximately $9,600 per year. -“Hidden Secrets of Money: Episode 6” by Mike Maloney of GoldSilver.com

What’s interesting is the average home cost during this time period in comparison with his salary. According to US Census Bureau data, the median price for a single-family home in Oregon ranged between $6,800 in 1950 and $10,500 in 1960. Moreover, his father’s annual salary was almost equal to the median home price during this time. Now, consider the average salary today and the price of homes. In contrast, could you purchase a home with your annual salary? Clearly things have changed and Americans are becoming poorer when we compare how much is a dollar worth.

What Can We Expect Regarding Future Prices?

The past is never a good indicator for what may occur in the future. However, in this case it seems clear that how much is a dollar worth may also point to future results. We can expect more inflation in the United States and expect the US Dollar to be weaker in purchasing power over time.

A discussion on how the dollar became the world reserve currency, the history of the US Dollar. In addition, we discuss the difference between real money and fiat currency.

US Dollar History

The Continental Congress issued the first United States paper money in 1775, one year prior to the Declaration of Independence. The purpose of the money issuance was to assist with military expenses. The currency lost value. As a result, citizens of the US stopped using the currency.

On July 6, 1785 the Continental Congress officially adopted the dollar as official legal tender, beginning the official US Dollar history. The Continental Congress was a confederation of delegates who acted as representatives of citizens of the American Thirteen Colonies.

Coinage Act of 1792

On April 2, 1792, the US Congress passed the Coinage Act . The official name of the Act is, “An act establishing a mint, and regulating the Coins of the United States.”

The Coinage Act of 1792 established the US Mint and the US Dollar. The US Silver Dollar became the official unit of money for transactions in the United States. The Silver Dollar was subdivided into several denominations: one cent (penny), five cents (nickel), ten cents (dime), quarter-dollar (quarter), etc.

Silver or gold made up each coin, except for the penny. Additionally, it is significant to note that the US One-Dollar bill note did not appear until 1876. This was approximately 100 years after the US Continental Congress approved the first US currency.

During the Civil War, Dollars were called “Greenbacks.” The term was coined because the notes were colored green. In 1869, the US government established a centralized money printing system. As a result, money printed was known as United States Notes. The Greenback played an important and well-known part in US Dollar history.

Intrinsic Value

During early US Dollar History, money was backed by silver and gold. It’s interesting to note that silver and gold are commodity metals that have an intrinsic value, whether in the form of a coin, a bar, jewelry, etc. More than one hundred years later in 1876, the US Government started printing currency on paper. Yet, paper money has no intrinsic or real value.

Federal Reserve Note

In the United States, currency is called “Federal Reserve Notes.” The term is equivalent to “cash” or “money.” It can also be called “banknotes.”

In fact, if you look at a Dollar Bill, it reads, “Federal Reserve Note” at the top. Next, the Federal Reserve Act of 1913, which established the Federal Reserve Bank, also authorized the issuance of the US Dollar Federal Reserve Notes. Obviously, the Federal Reserve Bank plays a critical role in the US Dollar history. Finally, banknotes are legal tender. These notes are the official currency used in the United States. In 1914, the first Federal Reserve Note was issued.

In 1913, the Federal Reserve Bank was established. At the time, existing law required the exchange of currency for gold. However, in 1933, it was illegal to own gold coins. In addition, Federal Reserve Notes were not supported by gold. Later, Americans had to use Federal Reserve Notes. There was no other option to pay debts, except to use the official currency.

Bretton Woods System

In July 1944, a gathering of over 700 delegates from around the world took place in Bretton Woods, New Hampshire. United Nations Monetary and Financial Conference was its official name. The purpose of the meeting was to improve the economy. In addition, the conference established a world banking system, including the International Monetary Fund.

World Reserve Currency

Subsequent to World War II, the United States Dollar became the official world reserve currency. As a result, a critical chapter was written on US Dollar history. This forever shaped the future of the country. The impact of this change to global finance was significant and had long-lasting impacts on both US influence and power, as well as purchasing power outside the United States. A reserve currency is one where the central banks maintain a fixed exchange rate with a particular currency and their own currencies. In this case, the US Dollar became the reserve currency. As a result, this change played a vital role in the financial stability and prosperity that Americans enjoyed in the latter 20th century.

As world reserve currency holder, the United States was required to redeem US Dollars for gold. Additionally, after World War II, the United States was one of the largest holders of gold bullion in the world. As a result, world reserve currency status for the US Dollar seemed like a natural fit. Unfortunately, in 1971, deficit spending by the US and an excess of paper money caused countries to increase the demand for gold. In response, the US Dollar history changed forever and the Dollar was no longer on the gold standard. This meant that gold would no longer back the Dollar.

Countries Using the US Dollar

“Five US Territories and seven sovereign nations use the US Dollar as their official currency.” –Investopedia

The territories include Puerto Rico, Guam, the US Virgin Islands, Northern Mariana Islands and American Samoa.

In addition, the following countries utilize the US Dollar:

British Virgin Islands and the British Turks and Caicos Islands.

Countries throughout the world that use the US Dollar as a surrogate or a proxy for their own currency include:

Panama, Zimbabwe, Cambodia, Ecuador, the Bahamas, El Salvador, Nicaragua, Timor-Leste, Micronesia, Palau, Marshall Islands, Bahamas, Barbados, St. Kitts and Nevis, Costa Rica, Belize, Myanmar, Caribbean Territories and Liberia.

Fiat Currency

It’s important to understand what fiat currency is and the difference between real money and fiat currency. Gold and silver do not act to back fiat currencies. Fiat currency is a promissory note from a government. As a result, fiat currencies frequently fall prey to high inflation, devaluation and ultimately failure. They typically have no intrinsic value. Unfortunately, most modern currencies are fiat currencies.

Why Fiat Currency is Popular?

Central Banks, such as the Federal Reserve Bank of the United States, can increase the money supply and increase fractional reserve banking by printing more fiat currency. As a result, these central banks can use the power of interest rate change and money printing to manipulate entire economies. Although the central banks have good intentions, their meddling with the economic system can wreak havoc on the economy and cause distortions in markets. Often, altering interest rates and printing money simply delays the problem, requiring bigger solutions later.

Real Money

Merriam-Webster Dictionary defines “money” as,

“Something generally accepted as a medium of exchange, a measure of value, or a means of payment: such as officially coined or stamped metal currency, money of account or paper money.” –Merriam Webster Dictionary

Is the US Dollar Real Money or Fiat Currency?

A currency not backed by gold or silver is not real money. Unfortunately, government promises do not meet the criteria. Fiat currency is simply a legal tender paper note that the government requires everyone to use for payments. By definition, fiat currency is incontrovertible to gold or silver.

On the other hand, real money must have the backing of valuable or tangible assets. For example, tangible commodities such as gold and silver have supported currency. In addition, money backed by gold and silver has a value tied directly to the value of the silver or gold asset. As a result, real money is inherently stronger than fiat currency. As a result, it is not easily manipulated. Real money is also resistant to inflationary forces. Real money is sound money.

Future of the US Dollar

It is unclear what the future holds for the US Dollar in the long-term. The US Dollar remains as the world reserve currency; however, it’s role in this position may be for a limited time. Unfortunately, gold and silver do not support the Dollar. Yet, the strong US economy support its world reserve currency status. Financial analysts believe that so long as the US economy is strong, the US Dollar will remain strong. However, US debt and trade deficits continue to grow, putting pressure on the US monetary system.

Want to learn more about money and the Federal Reserve Banking System? Check out G. Edward Griffin’s “The Creature From Jekyll Island.”

If you want to learn about the history of money, check out Mike Maloney’s free “Hidden Secrets of Money” video series. It’s a goldmine of information that can help you better understand money and where the world stands today financially. Highly recommended!

Wrap Up: How Much is a Dollar Worth?

As you can see, answering the question, “how much is a dollar worth?” was significantly different in the past compared with today. Clearly, inflation has had a significant impact on prices over the past 100 years. The purchasing power of the US Dollar has declined significantly over that period.

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Disclaimer:

It is important to note that Piggy Bank Coins does not provide financial advice. We don’t endorse or recommend any financial investments. Instead, we provide information for educational purposes to those seeking knowledge regarding personal finance. However, in the spirit of transparency, note that the author is an investor in cryptocurrencies, precious metals and some equities.

In addition, The Federal Trade Commission (FTC) requires that Piggy Bank Coins disclose to readers that we may receive commissions when you click our links and make purchases. However, this does not impact our reviews and comparisons. We try our best to keep things fair and balanced, in order to help you make the best choice for you.