Money Mechanics

Personal Finance

Money Mechanics

2nd June 2009

Have you ever sat down and really thought about what the whole financial system is about? Has it ever crossed your mind to get financially literate by doing your own research? If so, how far did you get before you gave up? The whole world of finance and money is enough to leave you with a banging headache. But why is this so? My answer to that is all those seemingly complex algorithms, numbers, charts etc. can really deter you especially if you are not the numbers kind of person. Well I was never a fan of maths or numbers, however something happened that forced me to learn. What was it?

Personal Finance I started off in the employment world with a good IT executive job, well paying and many perks. So I had cash to blow but it never crossed my mind to save or invest. When I did decide to save and invest I did what most people do. Hand your money over to some broker and trust them completely. Now brokers do a good job but what about those that take people's money and misuse it? Now I have met some folks in their retirement age that fell victim to Ponzi schemes at the hands of their investment brokers. I myself dealt with two unscrupulous characters in my business dealings. I ended up paying for goods and they got them for free. That cost me $80,000 but God has been good because my business still exists today and well those two are out of business.

So what does all this mean to you? Folks, you've got to start reading books and learning the ins and outs of finance and business and how money works. It's not exactly simple but it can be done. So let me explain the issue of Ponzi schemes here. Wikipedia defines Ponzi schemes as: "A Ponzi scheme is a fraudulent investment operation that pays returns to investors from their own money or money paid by subsequent investors rather than from any actual profit earned. The Ponzi scheme usually offers returns that other investments cannot guarantee in order to entice new investors, in the form of short-term returns that are either abnormally high or unusually consistent. The perpetuation of the returns that a Ponzi scheme advertises and pays requires an ever-increasing flow of money from investors in order to keep the scheme going."

Now my retired friends Kate and Jim were victims of a Ponzi scheme not so long ago. They have lost everything. They admit that they didn't take an active interest in finding out how money and investments work. If an investment broker promises you returns that are higher than everyone else, it is worth doing some homework. Speak to your banker, speak to financial experts, do some research on the internet and do not be afraid to question. If something seems to good to be true, it usually is. How's that for food for thought? Like any other field Money has it's own mechanics, rules and workings. If you are going to get ahead financially then you need to start taking an active interest in how you invest your money, how you spend your money an to whom you entrust it!

"A market is the combined behavior of thousands of people responding to information, misinformation and whim. " - Kenneth Chang

Comments (6):

Jeff Says: Actually with this whole recession I've learnt not to trust even the financial system itself so thanks for the reminder Kev, sorry about your friends | 06.02.2009 |

Kate Says: Hi there Kev well Jim and I are still fighting and trying to salvage something out of that fake investment scheme. I'm glad you are warning innocent and unsuspecting people out there | 06.02.2009 |

Dave Says: What I can't understand is that these investment bodies are supposed to be regulated so how is it that Ponzi schemes actually exist? | 06.02.2009 |

Kev Says: Well Dave it's a little more delicate than that. Free enterprise has something to do with it. These guys register legitimate businesses and appear to be legitimate, it's only after the scheme starts to crumble really that the truth comes out and usually to the detriment of many innocent citizens | 06.02.2009 |

Angie Says: I agree with Kev that free enterprise has its pros and cons. Remember the Madoff scandal of 2008? Even international hedge fund managers and bankers fell prey to his Ponzi scheme | 06.02.2009 |

Lewis Says: Quite scary that bankers fall prey to such schemes. So Kev has a point that at the end of the day it's up to the individual to know what they are doing | 06.02.2009 |

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