Basics of Economics are essential for everyone. It helps for starting a business, for retirement and for investing in real estate, stock market or other assets. Basics of Economics can change the way you see the world.
What is Basics Of Economics?
Basics of Economics are the main, simplest things of the economy that we need to get an understanding of how our all lives are driven by the economy around us.
Firstly, our economy, thus the quality of our lives is driven by the long-term and short-term debt cycles. We cannot change or avoid them, but we can take advantage of them. However, most people don’t even know that debt cycles exist and don’t want to read about them.
Secondly, the difference between currency and real money must be understood, because all currencies lost against the real money – gold and silver. History proves it. With the current economic situation, we head to a new currency restart.
Thirdly, exist many different assets that could be used for investing and wealth-building purposes. These assets include real estate, stocks, CFDs, ETFs, options, gold and silver and others. Nowadays, it is easier than ever to start investing and building your wealth.
But the most important thing required to start is economic education.
First of all, economics is not a science about money, real estate, the stock market, investing, or how to become rich. However, it is essential for all of those above-mentioned things.
Economics is all about how to use scarce resources (like our time or building materials) in the best possible way to achieve the highest possible benefits. Scare resources always have a price and we have to use them in the most appropriate way to achieve the highest efficiency and benefits.
In short, microeconomics analyzes the economy in the individual market while macroeconomics analyzes the entire economy. We will not go into details here. For most of us, the basics of economics are more than enough.
In my opinion, it is always better to start with macroeconomics because it brings more value to you in the long-term than microeconomics.
However, both of them are important to know and understand where one is more important for investing purposes (macroeconomics) and another one for businesses (microeconomics).
Why everyone hate economics?
The word “economics” for most people sounds like the most horrible word. If you start to mention just something in this direction they mostly answer:
“I am not interested”
In fact, this is what around 95% of people I met have said.
And I have nothing against that.
On the other hand, the basics of economics can change your life forever. You will apply your knowledge in everyday life when buying or selling something – apartment, car, and so on.
Everything is indeed quite simple, but everyone presents it in a complicated way. Without proper examples and explanations.
Don’t wait and start today to understand how functions economy, money, taxes, business and investing. Find a few examples where the economy helps below.
Basics of economics will help you make better decisions buying real estate
Nowadays everyone wants to own an apartment and this is great. The price of the house is highly dependent on economic debt cycles. By knowing this you can buy your real estate cheap while it is cheap and sell it when it is expensive.
Higher debt levels produce higher price swings of various assets in economic cycles.
Currently (start of 2020), real estate prices around the world are very high. This is because we are at the end of the short-term debt cycle. The prices of real estate will start to decrease because a recession is about to come.
After the recession, it will make sense to buy a real-estate because it will be cheap. The new cycle will start.
In some years, when housing prices will be up again, you can simply sell it for a higher price than you paid.
It is also good to understand taxes a little bit because you can find some tax incentives that might help you.
In fact, economic cycles repeat themselves for hundreds of years and they will continue so.
If you are interested to learn more about cycles in economics, I would suggest for you to check this post – Debt Cycles and How They Work.
Use real estate to benefit from economic cycles
Basics of economics are especially important to know for people who want to start the real estate business.
The real estate business combines nicely together with low-interest rates. Have you seen current central bank interest rates? They are at 0%. However, the banks must still earn some money so they can offer you credit with only a few percents of the interest rate. Smart people call credit nowadays free money because the interest rates are very low.
If you take credit in proper time (after a recession, when interest rates and housing prices at their lowest) to buy a real estate, you made a good deal. Over time, the price of your real estate will grow faster than the interest rates. Moreover, real estate generates cash flow each month.
In short, you can use the credit to buy real estate, the price of your real estate will increase fast and then you will sell it. Afterward, you give back the credit to the bank. In the end, you still have all that cash flow that was coming each month plus the difference between buying and selling price.
I know that it might sound too good to be true, but believe me, many people are doing this by simply knowing that there are cycles in the economy and by using them to their advance.
Basics of economics broaden your understanding
Most importantly, the basics of economics help you to interpret the world and various events differently. You will have your own opinion on various financial events around the globe.
For example, people who don’t know anything about economics can say, that the US trade war with China is bad. However, when you look at this situation with some economic knowledge, you understand that this trade war can make some short-term problems, but for the long-term, this is good for the US economy.
By knowing something about the economy, new topics to discuss with other people will appear. You will notice, for example, that some of your colleagues or friends do invest, day trade or follow the stock market. You simply didn’t know this because you were never interested in that.
Some of your friends probably read books about the economy and try to understand how the economy, taxes or other important things work. However, they do not share their knowledge with you, because they know that you have no interest in it.
Simple, basic understanding of the economy can make you so many new friends that you have never imagined. Furthermore, new topics to talk about and discuss will appear. In fact, some of those friends or colleagues might be your next business partners or might help you in another way.
With the basics of economics, banks will not scam you anymore
Talking about banks, exist multiple instances where banks can scam you. Firstly, with retirement funds. Secondly, with interest rates on your credit.
Do you remember your last conversation in the bank when they offered you start saving your money for your retirement? I am sure you do and I am also sure that some people simply signed it after the banker washed their brain for 20 minutes with the facts of how awesome this opportunity is.
Have you ever thought, what exactly is it? What exactly do the banks offer? Do I really need it? Can I simply put aside some money each month and invest it on my own?
In some situations, these saving opportunities offered by the banks can be advantageous for some people. I have nothing against them. In my own personal opinion, it is always better to research a little bit and find it out what exactly they offer.
In fact, by spending one evening on research what exactly banks offer and how to properly invest or save for retirement you can change how your retirement will look like. And the basics of economics will only help you while researching.
Nowadays it is more important than ever to understand the threats to your future. In most leading economies like the US, China, Japan and Europe population ages very fast. There are more old people than young. This is the first time in history.
People who will retire in 10-20 years can have no pensions or they will be so small that it will be impossible to survive from them. That is why people should focus attention on their future, which currently looks very blurry.
Exist one more situation where the banks can scam you by charging you much higher interest rates then they should. I saw this in reality.
Imagine the following situation: you go to the bank to take credit. You get credit, let’s say with 5% interest. The next day you visit your friends and somebody tells you that he or she took the same credit with only 3% interest. You call the bank and ask why is there a difference.
And the answer from the bank is:
“We set higher interest rates because you will always have a person in the bank to whom you can call and solve credit-related problems“.
Wait, what? I will have a person to whom I can call? For what reason? If there would be any credit-related problems, believe me, banks would call you without any responsible persons!
While this situation and especially explanation why they charge more can look stupid, the fact is, that bankers can easily understand if you know something about the economy or not. If you have no idea, for example, what interest rates are set by the central bank in your country, you have no idea what interest your bank should charge on a credit. They can choose almost any number and if it suits you, the bank is happy.
Unfortunately, most people without the basics of economics have no idea what interest rates are set by the central bank in their country.
With basics of economics you can start investing in Stocks, ETFs, Indices or Cryptocurrencies
Let’s be honest, you see those fancy stock charts around the screens and you don’t even think about them. But why not?
Because they are too complicated?
Because you think everyone loses in the stock market?
Well, with the basic understanding of economics you would have a better understanding of how the price of one or another asset might move in the long-term. It is important to mention, that I am talking about long-term investing, not short-term trading.
Yes, in the stock market everyone can lose and nowadays many people lose, especially with CFDs. But, you can position yourself in such a situation by diversifying your portfolio so that in the end you would still be on a winning side. Furthermore, you can understand when it is better to be in the stock market and when it is better to be more in precious metals, like gold and silver.
Some knowledge of economics is a must to understand various market movements. In short, the stock market is a gold mine, where you must have proper tools to start mining. These proper tools are economical knowledge.
Basics of economics helps you find the best business to start with little money
With the basics of economics, the planning of your business is much more consumer-oriented. For example, demography plays a huge role in our economy. With the help of demography, you can simply understand at what customers you should aim, what they usually buy and much more.
Basics of economics together with proper business niche ensure the highest profits and the best success in your business. Thus, you need lower starting capital and you can reach better overall business performance. All of this understanding comes simply from the basics of economics.
Don’t behave like the rich want
The rich want you to be educated enough to write, speak, work and spend your hard earned money. And that is it. You can choose to be so or evolve by learning.
Our capability to learn from text, speech and experience differentiate us from animals. We can learn and apply our knowledge in various fields.
However nowadays, instead of learning people prefer to scroll Facebook or Instagram, watch TV, and do other “important” things. The point is that everything is well planned by the rich and this is exactly what they want – uneducated people, who live in their own narrow world and produce zero problems.
This, people’s attention transfer from important things (economy, taxes, politics) to unimportant things was reported even in the Rome Empire 1800 years ago. And we do not learn from history and repeat the same mistakes.
P.S. Rome Empire collapsed.
Our educational system
Currently, our educational system is still the same as it was a hundred years ago. Look how everything changed around, but the education system didn’t. And there is a reason.
Our current education system was developed in such a way that it would create workers for industrialization. Because it was so successful, nobody wants to change it. Of course, there are people who would like to change it, but they simply can’t. They alone are not strong enough to change anything.
Have you noticed, all information about economics is always taught in the most complicated way, especially in schools and universities. Mostly, they teach you all of those fancy terms and other long expressions.
Instead, they could teach how to manage money and taxes. These things are important each month. But no, again, nobody wants you to know about money or taxes, because then you will not spend money on things that you don’t need.
It is the same with the taxes. If our system would teach us about taxes, we would know how to manage your purchases, investments and everyday life better so that we would have to pay less tax. You would also start to use various tax exemptions. In short, governments do not want this. In fact, huge corporations neither.
We all must learn at least the basics of economics because it becomes a must to survive. Currently, world central banks and governments are running out of tools to revive the economy after the next recession.
Unfortunately, when interest rates are at almost 0% while we have no recession and unemployment numbers are at their lowest, there are no more tools to revive the economy after recession except money printing. In fact, governments already started to print money.
To be honest with you, the next years will be very different from what we are used to seeing. There will be huge changes in the economy and many assets will lose their nominal value while the price of others will sky-rocket. These changes will bring the biggest opportunities in history for economically educated individuals.
I strongly suggest for you to prepare for this tough period by educating yourself. You can choose the right side before it is not too late.
Start educating yourself today.
Continue with next post: Debt Cycles – How They Work and How To Use Them