If You Don't Understand Fiat Currency, You Don't Understand Money

Hey there. Real quick, before we jump into the episode, listen, if your earnings treadmill hasn't set you free yet, running faster won't either. Listen, hustle without principles just going to burn you out. So here's what I want for you. I want you to join me for my money machine experience. Live it is three free trainings. Deep dive into how to escape the treadmill and build a money machine that actually works for you. All right, Grab your spot here by going to moneymachinelive.com and I'll see you in the free training. You've heard the word inflation a hundred times. Maybe even notice that your paycheck doesn't seem to stretch like it used to, or the groceries seem to get more and more expensive every year. But what if I told you that the root of the problem isn't inflation itself? It's that you don't actually understand the money you're using? Here's what I mean. Because the truth is, no one tells you about this. Most people don't have a money problem. They have a fiat currency problem. And I'm Mel Abraham. I'm a cpa. I'm an entrepreneur. I'm an investor. But I've also walked the line to financial freedom and back a few times. And what changed the game for me was learning how money really works when the system is built on the belief instead of the backing. Okay, and this is what we're going to talk about today. This is building your money machine, where we help you master your money, eliminate financial stress so you can live a life of choice. Because earning more doesn't make you free, but a money machine does. And that freedom doesn't start with the next raise, the next paycheck, or the next client. It starts the moment we get your money to start working harder for you than you did for it. All right, think of this as a bit of financial education with a bit of sarcasm and a whole lot of heart. And like I said, I'm your host, Mel Abraham, and we're going to break it down for you. Exactly what is a free fiat currency? How it's become a global standard, why it's draining your wealth unless you know how to play the smart game. Okay, so stick around. You'll leave with a deeper understanding of money and a deeper understanding than more than 90% of the population. Plus the actionable steps to make your money, your assets, and your time work harder for you in a system that wasn't designed for your freedom. All right, if you're ready, let's go. Do this.

So if your money in your wallet is quietly losing value every single day, but no one ever taught you how or why, is that your fault? Nah, probably not. But the consequences though. Oh yeah, you gotta bear the consequences. And there's all kinds of theories that are flying around about this idea or this concept of fiat currency and it being a scam and shadow bankers pulling the strings and the Fed being financial Illuminati, all these things can. And I'm not here to chase conspiracies, I'm not here to deal with those kinds of things. What I am here to do is give you the real story about what fiat currency actually is, why we use it, what it costs us to use it, and how it shapes your income, your spending, your investments, your wealth. And so I want to be really clear that there is all kinds of opinions out there. I'm going to try to give you the historical path, what it does, how it impacts you, and you can look at those opinions on your own. Okay? But here's the deal. The first thing is this. What the heck is fiat currency? I mean, I know a Fiat, it's a car. How does it have anything to do with currency? It doesn't. Okay, but let's start with the basics because most people don't know this. Fiat currency is money that's issued by a government that isn't backed by any physical commodity. No gold, no silver, not even some secret vault of Gollum approved precious metals. See, it is a declaration, if you will. It is money simply because the government says so. Fiat literally means let it be done. Okay, so in this context it means this is money, use it or else. I mean, that's really what it comes down to. Every modern currency today, US Dollars, the Euros, the yen, the Aussie dollar, they're all fiat. Okay? They are there because they were declared by the government. Their value comes from three things. One, legal enforcement, okay? You have to use it to pay, pay your taxes. That's the form of payment that they accept. Two, collective trust. We all agree, we all agree to accept it and that there is an acceptance of it in circulation. And number three is momentum, because everyone else does. Okay? It's kind of like a group chat. Nobody knows why we're in it, but we all keep replying. Okay, that is the simplest way to look at it, is that fiat currency is declared by a government to be the currency. And, and so that's, that's the thing. Now how why did this change? Because we used to have this thing called the gold standard. And There was a time that this happened and it was, I call it the Nixon pivot. Okay? During President Nixon's term. We're going to talk about history here because I think it's important to understand the changes that came into effect. And they came into effect in 1971. So post World War II, what was happening is that we had the Bretton woods system. The US dollar was pegged to gold at $35 an ounce, okay? And other countries pegged their currencies to the dollar. And so it was simple and it was stable. And here's the kicker. The US started spending like a teenager with a stolen credit card. Bottom line, war in Vietnam, social programs, the dollar bills were flying, but the gold to back them, not so much. See, other countries got suspicious and started asking and saying, yeah, well, take the gold instead of your paper. Thanks. Okay? That's what they were looking for. And the US was about to run out, so it was something that needed to be solved because we were going beyond the amount of gold that was available. So, so on August 15, 1971, President Nixon went on TV and basically said, we're not giving you gold anymore. The dollar stands on its own. So in a statement, took a gold standard currency and converted to a fiat standard. That moment, known as the Nixon Shock, is effectively what ended it all and flipped the world into a pure fiat system. Suddenly, the US dollar wasn't redeemable for anything. It was just the dollar. Okay, because we said so. And the rest of the world, well, they followed suit. Gold was out, trust was in. That was the game. Now that's the transition. 1971. What are the pros? What are the perils? What are the power moves? What are the things? So was it a disaster? A miracle? Somewh. What does that mean? Well, let's just talk about, well, what is good about fiat? I think the first thing is that it, it gives us flexibility in a crisis. Now, there's pros and cons to that, but think about in 2008, during and during COVID governments could actually print money, drop interest rates, keep economies from tanking. They had the ability to adjust and manipulate, if you will, the, the economies and some of the, the levers that will drive economic growth under the gold standard. That would have been like trying to do brain surgery with oven mitts on. You couldn't do it because, because you were tied to the gold and there was a limited amount of gold in, in the vaults. That's all we had. The second good thing about fiat is scalability. Economies grow Populations expand. If the money was tied to gold, we'd constantly be running out. Fiat allows the money supply to keep up with economic growth and population expansion. Okay. And number three, I think is that it's much cheaper to manage. You don't need armored trucks hauling gold around. You certainly don't. You just have a central bank with a laptop and a few people on a caffeine addiction and they're running the whole system. Okay. And so that's some of the pros. What's risky about it though. And I think that there are some risks with it and we've experienced them and we continue to experience them. And the first is this. Inflation is literally baked in. More dollars equals higher prices. They print money. Inflation goes up. US inflation has averaged around 3% annually. Okay. That means that $100 today loses about one third of its power every decade. Every decade it's one third less powerful. Okay? So inflation is, is baked in. The second thing I think is, is risky about it is savers are actually punished because of that. A savings account at a 1% interest rate with a 3% inflation, that's a slow financial death. Okay. This is why we talk about the fact that to beat inflation we need to be in inflation protected types of investments. We'll talk more about what to do later on in this session. But I think that the most important thing to realize is that savers in an inflationary time or in a fiat currency environment are not going to get ahead. Not going to get ahead. And number three, the rich get richer. See, because when new money enters the system, it flows to banks, Wall street and asset market makers first. Okay. It inflates the assets and unfortunately it doesn't seem to inflate the wages at the same level. So prices and values are going up. And we've experienced it. Housing has gone up. Okay, but wages aren't keeping keeping pace. Okay. Number four, I think that, and this is huge, I think trust is fragile. You know, you have no goal backing the system, which means that there is literally no safety net. We're relying on the word of the people, of the governments. And if people stop believing in a system, it can literally collapse like fast. If you're not, if you don't believe that, just ask Zimbabwe, because that's kind of what happened there. So here's what, what most people will, will ask, so what do I do with this? What, what are my next money moves? And I think that depends on where you are in your financial journey. And, and we'll talk about that. But this is exactly why I created something called the, the Financial Freedom Zone Quiz. And what it allows you to do. It's, it's totally free. It's a free quiz that takes 90 seconds, two minutes to do. But you go in, you, you answer some questions, it'll tell you where you are in your financial freedom journey. It'll also tell you the characteristics of that zone. It'll tell you what you need to focus on and what your next steps are to move towards financial freedom. And, and so you can, we'll hook it up for you here. But you can go to your financialfreedomquiz.com to get access to it. Right? No fluff, no jargon, just clarity and all that stuff. So, all right, so let's go back to this because now that we kind of talked a little bit about the risks and the positives of it, let's just talk about how fiat kind of messes with your life. I mean, like it or not, here's the deal. It messes with your life, it magnifies your life. It does a lot of things when we do this because fiat money affects your actual money. Let's talk about your income first. See, if inflation at 4%.

Is going at 4%, but your raise is at 2%, you just got a pay cut, okay? And so one of the challenges in this is to make sure that our income is keeping, at least keeping up with inflation. I want your income to grow faster than inflation, because if it's not, then what's happening is every step, inflation's going up. It's like going up four steps and you only step up. Your income goes up two steps. You're falling behind each and every day. And over time, that compounds over time. What that means is that your lifestyle is shrinking in absolute dollars. You might look at it and say, well, I'm making more in absolute dollars. But those dollars can't purchase the, the same amount and therefore your lifestyle shrinks. And that's what we're feeling, that's what people are feeling in that situation, okay? It also affects your spending. Things like rents, groceries, we're feeling it. They go up. The dollar stretches like a cheap pair of yoga pants, okay? And not in a good way. It's just become harder and harder because, because of what's going on now, it's not just inflation. It's literally your time being devalued in the process. And so, so when you look at income and spending having, having a baked in inflationary fiat currency, it, it isn't without an impact on Your everyday life. Money in, money out. The basic equation of building wealth. So we, when it comes to building wealth, how does it affect our investments? Because now we, we need, need to understand what that is. Because. Let's talk about it. There's something called real returns and there's something called nominal returns. And you'll hear people say this all the time, and, and people get tripped up on it, but let's just talk about what nominal returns are. Nominal returns are what they state. It's what's on paper. Okay? So when it says that you made 10%, that's what they say you made. The real return is what is left after inflation takes its bite out. So if you earn 5% on an investment, but inflation is 4%, your nominal return is 5%. Inflation 4%, your real return is 1%. The 5 minus the 4. So ask yourself, is your money actually growing or is it just running on a treadmill? The fact of the matter is, is that we need real returns in order to know that after inflation, we're still getting ahead. Okay, that's, that's where you start to look at. They may say, well, on average markets have returned 10%. Well, nominally they might have returned 10%. Real returns might be more 8%, 7%. But you want to understand that there is a difference between the stated return and the real return that you experience in there. And what we want to look at is the real return, because that's going to tell us, am I getting ahead after the inflation tax comes in? Okay? So when it comes to your wealth, people who own assets will win this game. Real estate, stocks, businesses, equities, okay? Because most of those assets will outpace inflation in the long term. So even the, even the, the real returns are going to be positive. Now, the people holding cash, they're bleeding value slowly and then suddenly they're, they're in trouble. Okay? So what we need to do is make sure that our dollars are put to work for us in a way that surpasses inflation and keeps you ahead so you can win the game. Now, that doesn't mean that every dollar should be working. It's why when we did the wealth priority ladder, the bottom rungs of the wealth priority ladder are all about building an unshakable foundation. Because there will be money dollars, if you will, that are there to grow and build your wealth, to give you the freedom to build the money machine, if you will. But there'll also be dollars that are there to protect it, to make sure that it doesn't get beaten up. Or it doesn't get destroyed if the market drops or we have a down cycle or anything by you having to liquidate when it's at a loss. That's why we have the peace of mind fund, the emergency fund and all those things in place, is to make sure that's there to protect it. So a lot of people say, I don't want anything in cash if that's the case. The problem is that the cash that you put aside for emergencies, for the peace of mind was not there to protect, to build wealth. It was there to protect your wealth. So you gotta make sure that you're deploying the dollars in a way that is based on what they are meant to do. And if we put everything into the market, if we put everything into assets, real estate, stocks and businesses and we have nothing liquid, if there's a downturn, if there's a health issue, if there's a problem, where do you go? You go into debt and that becomes a never ending spiral of danger. And I don't want that. And so that's why the bottom rungs of the wealth priority ladder say, hey, let's get a good foundation in place first. But know that the majority of your assets, if you truly want to get ahead, are going to be in wealth building assets and equities, real estate stocks. Okay, real story. Think about this. $100,000 in a savings account in 1990 has lost over 50% of its purchasing power. 50%. That means that same hundred thousand dollars could buy only $50,000 of something today. Okay? But if you invested that in the S and P index fund, you'd literally be a millionaire. Okay, same dollars, just playing a different game. And I think that's the thing that most people don't understand. We just have to understand the money game and know where we're playing it. So what can you do? And what can you do starting today? Because this isn't about doom. This is about decisions. This is about how to make the fiat system work for you. Okay? And I always think in terms of this, and here's how you start. The first thing is to always think in terms of real dollars. Ask yourself, after inflation, am I actually ahead? If not, we need to make some adjustments. So the first thing is to make sure that your thinking is around real dollars. The second is to look at and say, don't let cash be your strategy. Yes. Keep an emergency fund. Yes. Keep a peace of mind. Follow the wealth priority ladder. Chapter 12 of my book, building your money machine. Okay? But if all your money is sitting in savings. It's quietly evaporating. In fact, here's an example. $5,000 put away over 40 years. $5,000 put away Over 40 years in an S&P 500 fund netting an 8% return will turn into a million and a half dollars in 40 years. The same amount, $5,000 over 40 years. $200,000 put away in a 2% savings account will only be 300,000. You cannot save your way to wealth. You have to invest your way to wealth. You have to be on the field playing. But you also need to have some liquidity. The emergency fund, peace of mind fund the sinking funds for short term needs on the side to protect it and to give you that access. But don't let cash be your strategy. Number three, invest in inflation fighting assets, real estate, equities, commodities, tips, treasury, inflation protected securities. Okay? Make sure that you are invested because on average those things have outpaced inflation. In the long term, know that you're looking at things from a long term view. Number four, use fixed rate debt in a smart way. Okay? You borrow at today's dollars, but you pay in tomorrow's cheaper dollars. Okay? Inflation can work for you when you play it that way. So if I'm going to borrow, I want it at a fixed rate and I'm going to pay it back with less valuable dollars over time. But let me be clear, I'm not giving you permission to just go borrowing money. I don't like debt. I want you to use debt strategically to build your wealth and create cash flow, not to finance a lifestyle. So let me be clear on that. I don't want you to to think that I'm saying something different. Number five, stay alert, stay aware to policy shifts. Watch the Fed, watch the interest rate trends, Watch my show. Stay with me because I'm gonna tell you what's going on, okay? What's the government spending? We have deficit spending. There's only a couple ways that we're gonna get out of this thing and that is we're gonna borrow more, going to print more money which could cause inflation. Are we going to cut programs? I mean, there's no other ways to do it that's going to have an impact on inflation, on our currency, on our environment, all of it. So pay attention to it, okay? And if you're not sure, well, how does this affect, Let me know, let's have a conversation about it. Because these things there aren't just headlines. They're literally shaping your wallet. They're literally shaping your wallet, okay? And number six, I'm going to tell you to go take the Financial Freedom Zone quiz just so you understand where you are, what phase of the journey you're in. You get your phase, you understand the focus, you understand your next moves. And you can do that by going to your financial freedomquiz.com. it's totally free. Might as well get the guidance. Keep on doing it. Okay, so here's the truth. Fiat currency, it isn't broken. It's designed this way. And many of us didn't understand that. And unless you understand it, you're always going to wonder, why are you working harder and saving more, but feeling like you're not getting anywhere? But now you're not in the dark anymore. You've got the lens, you've got the data, you've got the map. So you know what to do, you know what's happening. Okay. And that's the game that I think is being played. Fiat currency. Yeah, there's a whole lot of theories about conspiracies and government control and all that stuff. Don't want to get into it. I wanted to give you the facts. I wanted to give you the elements of it. I wanted to give you the things that actually directly impact you. And if you want to go down those little dark alleys, that's on you. Okay, because I have. All right, but the bottom line is this is what's going on. That's what fiat currency is. Why does it affect your income, your spending, your investing, and ultimately your freedom? I hope that this helps. I hope this gives you a little more perspective and I'd love to hear from you what your thoughts are and what you're thinking and what you've experienced. Okay? So do me a favor, leave me a comment below. At the same time, while you're there, give me a thumbs up and a subscribe. All right, let's stay on this journey because I, I want to light the path to financial freedom for a million families, and I want one of them to be you. All right? So until I get a chance to see in, in another show, another episode or on the road and your path to financial freedom. As I always say, always, always strive to live a life that outlives you. And I'll see you in the next one. Thank you for listening to the Affluent Entrepreneur show with me, your host, Mel Abraham. If you want to achieve financial liberation to create an affluent lifestyle, join me in the Affluent Entrepreneur Facebook group now by going to melabraham.com group and I'll see you there.

And that's it for this episode of Building YOUR Money Machine, where we help you learn how to master your money, eliminate financial stress, and live a life of choice. If you found this valuable or helpful to you, here's what I'd love for you to do. If you do me a favor, go to Apple, Apple Podcast, or wherever you're listening to this podcast and rate and review the show. It helps us tremendously to keep us at the top of the list so we can continue to get this information and this message out to people. Because I truly believe that financial freedom is your birthright, and I want to help each and every one of you claim it. Thanks so much.