How You’ve Lost 30% Of Your Wealth But Didn’t Know It (Or, Why You Should Learn About Currencies & Exchange Rates)

The other day I was chatting with a friend about his time in Brazil. He lived there for 2 years and had a blast.

Interested to see what it would cost to return there, he looked up the exchange rate of Brazilian reals to US dollars today. The rate was BRL 1.57 to USD 1. (That’s 1.57 Brazilian reals for 1 US dollar).

He was shocked.

The Appreciation of Brazilian Currency Versus US Dollars

You see, since this man had been traveling abroad, he had understood the significance of exchange rates between the US and other countries. When he arrived to Brazil a few years ago, the exchange rate was around 2.4 to 1 (or 2.4 Brazilian reals for 1 US Dollar). This means that he has lost 30% of his wealth in terms of Brazil.

Do the math: If he had $1000 USD to spend on his trip, when he first went that would be R$2400 (Brazilian reals). If he went back today, those exact same $1000 US dollars would be R$1500 reals. This a tremendous decrease in purchasing power.

The decrease in purchasing power would have been obvious to him if he had continued to live in Brazil, as he would continue to exchange US dollars for reals. But, since he had moved on to other countries in South America, he was not aware of the dramatically decreasing exchange rate.

The latest exchange rate in the country he was going to was what attracted his attention– and, truth be told, it had decreased as well– but it didn’t hit as close to home as the Brazilian exchange rate because he really loved living in Brazil.

USD / BRL Exchange Rate May 2003 - May 2011. Notice any trend?

This Affects You Big Time

Especially if you plan to travel, it is incredibly important to follow currency exchange rates, and further, to understand what is happening on a macroeconomic scale. You need to know how far your money will go in certain countries, and you need to know if you are losing out by keeping your money in only one currency (the proverbial “all your eggs in one basket”).

You see, many people have no earthly idea how to manage their money properly, and even fewer understand the phenomenon of currency devaluation. Regrettably, this affects their lifestyle without them even knowing, and has massive implications for their long-term prosperity.

Truth be told, it doesn’t take a lot of work to understand currencies, and I’m not suggesting you have to become an expert. It’s just that you have to actually care about your own affairs.

I don’t know about you, but I would definitely care if I came home one day to find that someone had just stolen over 30% of the things in my house… or that some cyber-thief had just robbed me of thousands of dollars… Wouldn’t you care?

That’s why it is important to understand currencies, especially if you have your savings denominated in dollars right now.

Consider An Even Longer-Term View

Consider that in 2003, the exchange rate of Brazilian reals to US dollars stood at 3.7 to 1.

In other words, it’s dropped 3.7 to 1.57 in 8 years!!!

Do you realize how much that means the dollar has been devalued relative to the Brazilian real?? Do you realize how much wealth you have lost if you would love to live in Brazil but have your money in US dollars?? Do you realize what this means if you ever want to travel to Brazil??

And I haven’t even started talking about inflation within the United States yet. All I am talking about is the exchange rate of the dollar relative to other currencies. Something massive is going on.

Another Example: Thailand

Take Thailand, a favorite spot for expats, location independent entrepreneurs, and US retirees. The exchange rate in the fall of 2005 was about 41 Thai bacht to 1 US Dollar. The exchange rate now is about 30 to 1. This means that, all things being equal, you have lost 25% of your wealth in terms of Thailand if your wealth is in dollars.

This means less money to live. Less money for rent. Less money for food. Less money for your own health care. Less money for your business. Less money to travel. Less money to give to loved ones.

It means less opportunity.

To make it hit home even more, consider that if you had got off your ass and traveled 10 years ago, you could have afforded much more in your destination. That’s another reason why it’s important to do things now that 10 years from now you wish you would have done.

What You Need To Do

So, pick a country you are interested in in… Brazil? Chile? Colombia? Singapore?

Have a look at their exchange rate chart over the past 10 years and see what the story is. There are more than a few factors that go into a currency rate, but certain blatant trends will become clear to you if you just look at the exchange rate history.

The important part to get you to start THINKING about how you handle your money in today’s global world. If your country is not doing things you like, by all means move it or change it to a currency you believe in. If you don’t, you may see your personal wealth decline, your life options diminished, and your travels more limited.

A country can only protect a weak currency for so long… what’s the status of the currency in your country?

Published August 28, 2011

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  • John Paul Grant

    Yeah this is something I have been meaning to learn … cheers buddy

    • Ryan

      Thanks man! Great job on your latest post btw.

  • Anonymous

    Nice post man, seriously really nice!  Totally different then a lot of post going around right now, good insight.  Write stuff likes this man! :)

  • Anonymous

    Nice post man, seriously really nice!  Totally different then a lot of post going around right now, good insight.  Write stuff likes this man! :)

    • Ryan

      Haha. You got it, sir.

  • Anonymous

    Nice post man, seriously really nice!  Totally different then a lot of post going around right now, good insight.  Write stuff likes this man! :)

  • Anonymous

    Nice post man, seriously really nice!  Totally different then a lot of post going around right now, good insight.  Write stuff likes this man! :)

  • mauricio

    Your analysis was very good. I agree with you. 

    • Ryan


  • Ryan

    Great point. All the more reason to pay attention to this stuff!

  • Ryan

    Hmmm… If you’re talking across two currencies, then yes. But within a single country devaluation of the currency results in higher prices, i.e. it takes more of the currency to buy something. Stay tuned as I am going to write more on this.

  • Maverick Traveler

    I wonder who this man is, do I know him?

    • Ryan

      I don’t know, I know him through @guyfromguyana:twitter

  • Maverick Traveler

    And if he could’ve predicted the 2000 stock market crash and shorted all the stocks, he could’ve gained too.

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