This is a fundamental question that can help anyone understand the importance of this topic about money. Life might seem simpler if it were common to barter within your local community, right? Wouldn’t that be a logical idea? For example, “I could give you the entire crop of oranges from one of my trees, and in return, you replace my broken roof tiles.”
In practice, however, this system runs into three major problems in a modern, specialised economy. Money solves all of them elegantly.
In economic terms, this is known as the “double coincidence of wants.”
Let’s explain it with a simple example. Imagine you are a farmer and urgently need a mechanic to repair your machines so you can harvest your crops. You offer the mechanic 100 kg of grain. However, the mechanic has no use for grain and no way to process it.
For the trade to work, you would now need to find a third person who wants your grain and owns something the mechanic needs.
Money solves this problem. It acts as a medium of exchange that everyone accepts. You sell the grain for money, and the mechanic accepts the money because he knows he can use it to buy whatever he wants.
Barter goods are often impractical:
Divisibility: If you own a cow but only want to buy a pair of socks, you cannot easily “divide” the cow without destroying its value (and its life).
Durability: If you trade food (for example, fish), your wealth literally shrinks day by day because the goods spoil.
Money solves this problem. It is almost infinitely divisible (pounds and pence, euros and cents) and serves as a store of value. A £50 note in your drawer does not rot and will still be £50 in a year’s time (ignoring inflation for the moment).
How many eggs is a used bicycle worth? How many haircuts equal a piano? Without a common standard, we would need to memorise millions of exchange rates between every possible product.
Money solves this problem. It is a universal unit of account. It gives everything a comparable price. We can instantly see whether an apple is cheap or expensive compared to a car.
In a globalised world where you consume services that are not physically tangible (such as software subscriptions or cloud storage), bartering would be completely impractical.
So your thinking should be "How Can I Make One Million Dollars"...
In short: money is the “language” that allows complete strangers to cooperate without having to trust each other or own the same goods.
This is where money starts to feel almost “magical.” The word “fiat” comes from Latin and means “let it be.” Fiat money (such as the euro or the US dollar) has no intrinsic value like gold or silver. It is essentially printed paper or numbers in a computer system.
The reason you can still buy bread with it rests on three solid pillars.
The most important factor is trust. We all trust that we will still be able to exchange euros for goods tomorrow.
The government declares the euro as legal tender, meaning it must be accepted to settle debts.
In addition, the government requires taxes to be paid in euros. This forces every citizen and company to earn and hold euros, creating permanent demand.
For money to retain its value, it must not be available in unlimited quantities. If everyone had a perfect money printer in their basement, its value would immediately fall to zero.
The central bank controls the money supply, with price stability as its main objective. By adjusting interest rates, it influences how much money circulates in the economy. When interest rates are high, borrowing becomes more expensive and the money supply grows more slowly.
In the past, gold in a vault served as the backing. Today, the euro is backed by the entire economic output of the eurozone.
Money is essentially a “voucher” for the goods and services a society produces. As long as cars are built, software is developed, and bread is baked, money has value because it can be exchanged for these things.
So far, we have focused on understanding money, why it is necessary, and why it is stable. Now we move on to a key question: how much money do I actually have available? This is what we call cash flow.
Think of cash flow like a video game or level system. It’s not about how many items you have stored, but how much energy you gain every second to keep playing.
Many people confuse wealth (what you own, such as an expensive phone) with cash flow (what you can spend each month).
This includes all money coming into your account or wallet, such as pocket money, birthday gifts from relatives, or income from your job.
This includes everything leaving your account: subscriptions like Spotify or Netflix, mobile phone bills, everyday purchases, household costs, insurance, or rent.
Cash flow is what remains after subtracting outflows from inflows.
Positive cash flow: You have more money at the end of the month than at the beginning. You are getting “richer” and can save or treat yourself.
Negative cash flow: You spend more than you earn. You either use savings or go into debt.
Imagine you have £500 in savings (your assets).
If you spend £50 each month but only earn £20, your cash flow is –£30.
Eventually, the £500 will be gone. The “game” is over.
The real goal in life (and in personal finance) is positive cash flow. People with strong positive cash flow are financially relaxed, regardless of their current account balance, because new money keeps coming in.
Rule of thumb: Assets are the water in the pool. Cash flow is the hose filling it – or the leak draining it.
To calculate your cash flow, you need to understand a few basic terms.
List all reliable net income (after taxes and deductions):
Salary or wages (main income)
Side jobs or freelance income
Child benefits or parental benefits
Pensions or government support
Rental income or investment income (if regular)
These costs are usually contractual and change little month to month:
Rent or mortgage payments
Utilities, electricity, gas/heating
Car insurance and vehicle tax
Leasing payments
Insurance policies
Mobile phone contract
Internet and landline
TV licence
Gym membership
Streaming services (Netflix, Spotify)
This is where you have the most control:
Groceries and toiletries
Fuel or public transport
Leisure and dining out
Shopping (clothes, electronics, hobbies)
Health and personal care
Many plans fail not because of rent, but because of expenses that “suddenly” appear.
Annual or quarterly payments (divide by 12 and save monthly)
Maintenance and repairs
Gifts (birthdays and holidays)
Holidays (save monthly even if you travel once a year)
Tip for beginners: the 50–30–20 rule
50% for essentials
30% for personal wants
20% for saving and debt reduction
Always review the last 12 months of bank statements to uncover hidden fixed costs.
This is one of the most unpleasant aspects of money because it is not immediately visible. Your balance stays the same, but your purchasing power shrinks.
The reason is inflation.
Inflation means rising prices. When prices increase, you can buy less with the same amount of money.
Example: If an ice cream costs €1.50 today and inflation is 5%, it will cost about €1.58 next year.
Your money has not disappeared, but it has become weaker.
There are two main reasons:
Demand inflation: Many people want the same product, pushing prices up.
Cost inflation: Production becomes more expensive due to rising energy or material costs.
In the past, savings accounts paid interest. The key formula is:
Interest rate – inflation = real return
If you earn 3% interest but inflation is 5%, you still lose 2% in real terms.
With long-term inflation of just 3%, money loses about half its value in roughly 35 years.
Your €100 bill still says €100, but it only feels like €80 used to.
To preserve value, your money must be invested so that returns exceed inflation. One of the most practical approaches is investing in assets such as shares or ETFs, which represent ownership in companies that can raise prices and profits over time.