Let's talk money

Hello World,

Firstly, thanks for taking the time to visit my blog. I have been thinking about starting to write...but you know how this stuff usually works 😋

Now that I finally have some time dedicated for this, here's not a bit but a few bytes about me (Note: Please take a moment to appreciate the good humor here). As you might have already figured out, I'm a tech geek, currently living in the San Fransisco Bay Area. I am also an Indian, born and raised in Mumbai and trying to improve the world one bit at a time (Ok, no more bit humor). I recently (May' 2017) graduated from University of Pennsylvania and I love writing code and talking about exciting opportunities and business ideas ( of course, not just talking 😎)

This post will majorly focus on explaining the rationale behind why everyone should try to understand fundamental economics. I will also share some of the resources that I have explored until now. Again, this post is not at all meant to be a one-stop destination to become an economics guru, but it is just meant to give you guys a feel of what you might be missing out on if you haven't explored the world of economics yet.

When I started to learn about economics and finance, I had a lot of fundamental questions that needed to be answered. I'll put a few of them here, and try to answer them for you today.
- Is money like energy? Can it be created or destroyed, unlike energy? If the total amount of money in the market is never constant (it can certainly be printed), why can we just not eliminate poverty?
This is as simple as this:
Imagine you're going to the StarWars Premier and there is only 1 ticket left. Your Dad gave you some cash to go watch the movie. As soon as you step out of your car, you jump to the ticket window and you get to watch it.
Now imagine, just when you were getting out of the car, your brother also gets out of his car (yes, daddy doesn't differentiate) and you both compete to get the ticket.
The fundamental problem here is the amount of resources the theater has to offer. If it has only 1 ticket to sell,  it doesn't matter if a thousand people are willing to buy it (well it actually does, because it will push up the price of the ticket due to the demand-supply principle). So in the end, the theater owner will sell it to the person who is willing to pay more. This implies that one of you ended up paying more for the ticket and the underlying value of the money that your Dad gave you essentially decreased.
Now imagine Dad is the government, you and your brother are citizens. Government prints and distributes money to you and your brother but it doesn't realize that the amount of resources (goods and services) the country has to offer haven't increased. This causes inflation which causes a decrease in the 'real' value associated with the money that's printed.
While it sounds like a simple concept to understand, Zimbabwe faced hyperinflation due to this.

- Can it ever be bad to save money?
Certainly not if you save a moderate amount of money regularly. But the situation can get tricky if all of a sudden people start saving a good percentage of the money they make. It can be bad for some people in short-term and some people in long term. This is quite counter-intuitive but let's see why. Imagine you're a software engineer and you like buying clothes. Imagine your neighbor works in a factory that manufactures clothes which uses your software for all tracking and data analytics purposes. Now, imagine a fictitious marketplace where you are the producer of software and your neighbor consumes it. Your neighbor is a consumer of software and you produce it. You sell software on a subscription-based business model where whoever buys your software has to pay you an amount every year. Now, you stopped buying clothes (because you're a miser). Your neighbor's managers see that the demand for clothes is decreasing and they decide to lower the price. You still don't buy it. Eventually, nothing sells and he decides to lay off a lot of workers including your neighbor. You're still good because you've already made money for this year. Now eventually, when the license renewal time comes, your neighbor's company is almost shut (because of you, of course). They don't renew the license and you eventually go out of business. This is why recession occurs. So Yes, it can get bad for others and even you in long term, if you save a lot. Spending some money is always a good idea.
Just a tip: Usually to resolve this kind of an issue, the government decreases the taxes (to make people spend a bit more) or takes other measures to increase the spending power of people.

- Do I need to understand the financial jargon to understand how the economy is performing?
Not at all. This is as I see it, one of the biggest deterrents for people trying to learn about finance. After reading this post, if you are interested in reading more about the fundamentals economics and finance, you should definitely read:
- https://www.amazon.com/Little-History-Economics-Histories-ebook/dp/B06XDHTFTL (An excellent read for people trying to understand the thought process behind why the world of economics is the way it is)
- https://www.amazon.in/IIMA-Economics-Satish-Y-Deodhar/dp/8184001630/ref=sr_1_1?s=books&ie=UTF8&qid=1521952971&sr=1-1&keywords=day+to+day+economics+by+satish+y+deodhar (A nice understanding of how day to day economics works)
- https://www.amazon.com/Intelligent-Investor-Collins-Business-Essentials-ebook/dp/B000FC12C8/ref=sr_1_4?s=digital-text&ie=UTF8&qid=1521953159&sr=1-4&keywords=the+intelligent+investor (I haven't read this completely but it's a nice guide for people are willing to learn about investing)

- Why should you care about all this? 
- By learning about economics and finance, you can take hold of your financial life. You may decide to defer that task to an asset management company, but you will at least know if you really need to do that or is it something you would be interested in doing it yourself.
- Letting your money make "some" money for you is never a bad idea.
- It's always good to understand the real value of money you make. For instance, if the increase in the percentage of the amount you make and the increase in the percentage of inflation is the same, you are just having an illusion of making more money.
- It's good to understand how statements made by world leaders impact the stock market.
- Of course, you may not get hired as an Economist the next day after you learn about this, but you can be independent in understanding why the interest rates have been constantly increasing after every Federal Reserve meeting recently.
- This can help you in understanding the budget and the short and long-term impacts it might have on your day to day life.
- Apart from all this, it's definitely cool to brag about how you know that China has pegged its currency against the US dollar so that the relative currency fluctuations in the market do not have an effect on China's exports. (https://www.investopedia.com/articles/forex/030616/why-chinese-yuan-pegged.asp)

- This sounds good, but will I be able to make money by investing if I learn all this? If not, what am I doing it for?
I don't think there exists someone who can tell you if you will make money by investing if you learn all this, but you will certainly think twice before potentially losing it. It's quite tricky and also highly dependent on whims of millions of people to analyze stocks, but it usually pays off when you invest in a company you rationally believe in. "It will fluctuate" is what Benjamin Graham (known as the father of value investing, he influenced Warren Buffet) said when he was asked how will stock market perform. Discussing various forms of investing if somewhat out of scope for this post (and yes, I do not even know about what all stuff might be out there), but you can definitely comment if you want to know where to find such information. To conclude, I would say just do it to learn more and go from there (you're almost halfway there if you reached here 😀).

Thanks for reading, feel free to comment in case you find any errors or want to leave any feedback!!
- Chirag Mukesh Shah