“My” Philosophy of Money

Some people would probably scratch their head as to why in the world I’m writing something about a philosophy of money as part of the series of article on starting a business. Well, the reason and I don’t want to sound critical, is that I find the views of some of my friends regarding money as quite “disturbing”. Business revolves around money and if one has an “unsupportive” view of money, I don’t see how the individual is going to profit in business. One of the most vivid conversations I have with a college friend of mine is about the “correct” level of profit. He started out the conversation by criticizing his cousin for being too greedy to the extent of being usurious. His cousin is assembling AVRs or automatic voltage regulators and he heard him saying that his cousin is earning a 150% mark up. To me at that time, he seems to be condemning his cousin as immoral (he is such a religious guy by the way) because his cousin is too indifferent to the consumer by “over” charging them. To him, the “appropriate” level of mark up is 5% and 10% is pushing the limit already. All along as I was listening to him, I was both puzzled and shocked. Puzzled, because I didn’t see anything patently wrong about the 150% mark up and shocked is that how could he be thinking something like it in the first place? Apparently, his religious tenets is against the practice of usury and in medieval times, such teaching often arouse mass hostilities against the merchant class for their indifference to the plight of their fellow men. Years later, in my various conversations with friends, I found out that a lot of them and not only my particular friend hold some “disturbing” views about money. They either didn’t fully understand money or have entirely a lack of understanding about money. They have a love – hate relationship about money. Some viewed money as evil while others viewed them as a necessary evil. When I started thinking about writing business articles, I immediately thought of making a statement about money through sharing my own philosophy of money since money is of critical importance in business not only due to the fact that business revolves around money but money is also a powerful motivator especially for ones who went to business to accumulate wealth or earn a living. In fact, money could be for some the only motivator in business. Here are some of the beliefs on money that I hold, and I wish to stress that this view is mine alone. I don’t intend to convince anyone to adopt my belief nor would I hold out that mine is the “right” one. My intention here is for everybody who read this to seriously think and evaluate about his or her own philosophy of money and whether that philosophy could “support” their bid in business.

1. The “correct” level of profit or mark – up. Honestly speaking, there is no correct level of profit or mark – up. As a consumer, we maybe incensed with the exorbitant prices and the huge mark – up that businesses charge us but from the business perspective, mark – up and profits are “dictated” by the market, which in this case, competitors and buyers (there are other of course but we’ll get to that in the latter articles) as predicted by the laws of economics. In a seller’s market wherein demand outstrips supply, prices generally goes up. This is acceptable since sellers incur additional cost and expenses just to increase output to meet the huge demand from buyers. However, there are instances when price hikes are more than justifiable, i.e., the increases more than compensate the additional costs. In this case, to me, I still felt that it is acceptable since buyers are generally “willing” and “able” to pay for the price being charged because they “needed” or “wanted” it. However, I would find it morally reprehensible in instances when staple commodities like rice are being raised beyond the capacity of the majority of buyers. Another justification for raising price levels and charging huge mark – ups during a seller’s market, is that the favorable market condition don’t last. Sooner or later, the market would shift. Either prices run too high that people stop buying because it doesn’t meet their value expectation anymore or that the huge profit potential has attracted several new entrants into the industry introducing new capacities and thereby increasing the supply beyond the current demand and thus, crowding the market, which force these new players to compete on price to stay alive. In such situations where the supply outstrips the demand, the market becomes a buyer’s market and buyers hold all the bargaining power against the businesses in a particular industry. In such scenarios, buyers wouldn’t “remember” nor would they “express” gratitude to a firm that didn’t raise their prices during the boom market by rewarding their continued patronage. On the contrary, buyers would be enticed by the lower price offered by competitors even if the said competitor is “heartless” during the boom years. Sometimes, the prices are so unbelievably low that it is already unprofitable and unrewarding to the business owner. In this scenario, the firm that didn’t charge “enough” during the boom years would find it hard pressed to sustain their operations in this crisis time because they didn’t have sufficient cash or profit cushion to tide them over until the next market upturn. It is like storing food before the long harsh winter. If you didn’t store enough, you won’t last the winter. Another justification for the outrageous mark – ups is how would we justify the price of luxury brands or some products like appliance, which have huge mark – ups on their own? I mean if the cost of a watch is only this much, how one would justify paying say like 100 times its cost? The answer is simple, we’re paying for the status symbol attach with the possession of such brand however vain it seems. And people, could be very vain. The principle here is that people are “willing” to pay for what they need and want regardless how much profit you make as long as there is no affordable “alternative” (which is where competition comes in). Therefore, don’t worry about “usurious” mark – ups.
2. Never mix business with charity but this doesn’t mean that one doesn’t have to be charitable. Business is an entity and have a legal personality, i.e., it is treated like a person with rights in a court of law but it is not human and hence, businesses aren’t capable of piety or pity but the people who ran the businesses are human and they do. Never use business as the vehicle to provide charity instead, give out charity on a personal basis to an institution or better, set – up your own charitable institutions. Most often, I’ve encountered people who charged a buyer an exorbitant price for their product and turn their face next to a needy person and gave the same product for free. Nothing wrong here really except that buyers generally feels they’re being “used”. It seems to them that they are subsidizing the poor folks but the credit goes to the business owners. If would be better if the business owners give the “needy” person money out of their pockets. On a larger scale, I find corporate philanthropy seriously flawed especially publicly listed ones. Unless approve by the stockholders, corporate philanthropy is simply using other people’s money for charity, which in the process reduces the expected dividends an investor could get from the stock. If a CEO wants to show his compassionate side, give out his own money and not other people’s money entrusted to him. The investors didn’t appoint him to be their Chief Charity Officer (they don’t need one anyway, they could do that job superbly) but their CEO in charge of maximizing the value of their holdings.
3. One can be a spend rift or very charitable in real life but when it comes to business, penny pinching is an absolute necessity. Again, always separate the personal life and the business. In business, the concern is about profit and if unwanted and unnecessary spending eats into profit, it must be “controlled”.
4. Money isn’t evil neither is the insatiable human want but rather the means humans deploy to satisfy their wants. Money is an inanimate object. It isn’t valuable at all. It becomes valuable because we make it so. Corollary to this idea, money is means of exchange, a measure of value. In some ancient civilizations, because of the scarcity of precious metals, these civilizations resort to using other objects of value and in relative abundance as a means of exchange like shells and pearls. If we disregard money, as we know it now, we will always seek something else as an alternative medium of exchange. Probably, instead of paper money we would be talking about how much shells or clams we had in our bank accounts and most predictingly, there will be individuals who would pull all stops to “hoard” all the seashells and clams in the world.
5. Money is a means to an end and not an end by itself. The moment when one treats money as an end, he inevitably becomes a slave of money. Again, money is a medium of exchange, a means to buy what you want, what you value the most. Keep it that way! You can’t literally eat money, wear money, or shelter in money but you can use money to buy food to eat, clothes to wear, or house to live. P.T. Barnum once said that, “money is a terrible master but an excellent slave”. The trick here is to assert your “independence” from money by having a “healthy” conception of it and utilize it for an end.
6. In life, money isn’t important. Or that money can’t buy you everything. Oh yeah, indeed! To me, money couldn’t buy anything and there are things that money couldn’t buy (come to think of it, isn’t it stupid to buy something that is supposedly “free”). However, money does buy 80% if not 99% of everything and that is good enough for me. I’m not making a pun on an old saying but rather I want to set the facts straight. We grew up watching TV and in the process, we are brainwashed into believing that the definition of an ideal life is a happy family living in a nice house in a respectable and peaceful neighborhood in suburbia with a big screen TV and a satellite dish and drives around town in a nice car and kids going to a private school. All of this cost money. Unless, one would think that happiness or an ideal life is living in a shanty the size of a room on top of “Smokey Mountain” and eats twice a day with each meal, a small cup of rice with vinegar or pansit canton. In the latter case, money wouldn’t be important.
7. This is my favorite. How many times you hear Filipinos say these words, “When you’re dead, you can’t bring all your money to heaven”. I so hate the people who peddle this line over and over again. For one (forgive me for being sarcastic), if money were important in heaven (because it would seem to be so for one to aspire to bring all his wealth to heaven), can I buy my indefinite stay here on Earth? Besides, what they wanted me to do? Earn my money by breaking my back and give all of it to them? Subsidize their indolence? I earn money not because I wanted to bring it to heaven but because I’m going to use them to buy something I want and if I can’t spend it all, I’m going to hand it over to my offspring in order for them to have a good life. Sometimes, this quotes along with the previous quotes are used as a means to force people to be charitable but charity should be given by freewill and not by threat. Furthermore, the quotes are also meant to “balance” ones material life and spiritual life and soothe the spirit. It has that effect when it is repeated from time to time but if repeat it indefinitely, it becomes an excuse for not pushing oneself to it’s maximum profit potential. It becomes a retardant per se. The principle I’m suggesting here is that don’t “limit” yourself because of what other people say.
8. The money you receive in business is not all yours, what is yours is only a small fraction thereof. Too many times, I see people spending everything they got from their business. Splurging in buying a new car or house. Bear in mind that for every peso one got from business, a major portion goes to pay the suppliers, a sizeable part goes to pay for the labor rendered by your employees and God forbids, taxes to a corrupt government, whatever remains after deducting everything is your share. In effect, a business owner is just a custodian of the money that a buyer pays for his suppliers and employees. The only time when one affords to splurge is when one accumulates “enough” of his share.
9. Business is the only other way that one could use money to “buy” more money. Another way is to invest in an “interest” bearing financial instrument (which includes stocks). Unless, of course, you could print your own money. Businessmen perform a noble function in society. We are in effect the “legal” Robinhood in a society. Because we redistribute the wealth we created. We sell a valuable product or services and receive cash in return and pay them to our suppliers and employees, which in turn they spread it elsewhere. It very much different from the ancient times when aristocratic land owners hoarded all the gold in their warehouses because they don’t need to buy anything nor pay anyone. They get free service from their serfs and slaves. This precipitated the collapse of money economy as gold circulation becomes scarce. With business, we stimulate activity and circulate the money and in the process spread the wealth, of course, we get to keep some of them.
10. Another often heard phrase I got is “if I got this much money, I could last a life time.” My driver always repeats this “wish” every time he bets on lotto. My standard answer to him is yes, the money you’ve won although considerable could last you for a lifetime provided that you lived exactly the same way as before. That is, take public transport, live in the dilapidated house, eat 3 simple meals and day etc. If he spends like less than 100 pesos a day currently, then winning a million pesos would last him 10,000 days or 28 years assuming we ignore inflation. But that is not the case, more often than not, people would change their lifestyle the moment they receive a huge windfall. They would buy a jeep, move in a new house, and eat more than usual. After this, they would wish for more money thinking that it would again last a lifetime but just they think it would, they buy a Japanese car, then a luxury car, and ultimately, a super luxury car or a bigger house, then a mansion, then an even bigger mansion, then a second house and so on and so forth. There is no end to human want and just when one thinks that there is nothing else to spend, guess what? There is something to spend for. There is no end to spending. Therefore, there is no such thing as “enough” money to last a lifetime.
11. My mother kept on repeating this line for quite sometime now and I felt that this is a universal truth. According to her, “if the sons and grandsons aren’t ‘capable’, no amount of inheritance would suffice to last them a lifetime because it would eventually be used up somehow and sometime; if the sons and grandsons are ‘capable’, even if there aren’t left a penny by their forbearers, they could always find a way to rise from their station”. Money can always be earned and that the greatest inheritance one would get is not money but the family value, skills, and life’s wisdom. Lack of wealth is no hindrance at all!
12. This one is also my favorite. How would someone who is already a billionaire keep on amassing wealth? A few years back, Lucio Tan gave an interview to the Philippine Star(?). When asked about why he is buying PAL, he answered, “It is because of his desire to help the country and he feels challenged”. He then went on to say that earning an extra billion doesn’t enable him to eat one more hamburger or one more fried chicken than his appetite would allow but he stills wanted to earn the “extra” billion because he feels challenged. I read something like that in “The Book on CEO’s Wisdom”. An American CEO once said that money is no longer important to him because he has so much already. He keeps earning money because that is how he keeps the score (Apparently, the guy is a subscriber of the Power School of Management, for the only people who keeps a “score” are the people who believes that business is a game). When an individual starts from a relatively poor economic station, earning an extra buck would enable him to eat more and better but there will come a point wherein the individual would reach his limit and earning extra would be “immaterial” already (though there are always ways to spend it). Motivation becomes less of money and more of the “vision” thing. However, in business, money is still important even though one may not “need” it anymore. Hence, some ‘well – to – do individuals motivate themselves by keeping a score using money as the points. However, by viewing money as a score, there is a sense of detachment from the real value of money, i.e., money is just a number on a piece of paper and nothing more. It is no longer a means of exchange or a measure of value. Troubling it may sound but nonetheless I find it useful in motivating an individual no longer in need of money to further earn money from business.
I still have a few more viewpoints on money but these are the essential ones that I have. Again, I would like to emphasize that this strictly my view and I’m not implying it’s the “correct” one but rather to point out the necessity of having a personal philosophy of money, one that could “legitimize” and “encourage” the accumulation of wealth. I’m ending this article with another quote from Warren Buffet, the world’s greatest investor and second richest man after Bill Gates, according to him, the secret to success is “to be greedy when others are fearful and be fearful when others are greedy”. And if I may add, to be greedy is not a sin.