Money is a common topic of news and of conversation. It is a principle stock in trade for politics and even for sports. People seem to enjoy wealth. Woody Allen, claims that rich is better than poor, if only for financial reasons.
Why is it that so few people understand the idea?
Go to the beginning and you will find that money came into being so people could trade more effectively. Fish don’t keep long, so if you want my fish but have nothing that I want, I will lose. Money steps in to solve the problem. I trade my fish for money and some other day I trade my money for something I want. Money becomes a way to store the value of my fish.
The important element is the trade. I trade my skill and effort for money and later trade the money for someone else’s skill and effort. Money is actually worthless by itself. Trading makes it valuable.
The idea of barter provides the clue of how to be rich. Provide more value than you consume. What you do not consume is wealth.
Once you understand where wealth comes from, you notice that you acquire wealth by contributing to society. Use your time, your skill and the use of your money or other property. If many people want what you have to offer, you can get more money. Scarcity adds value. If what you provide is required, like food or medicine, you are assured of a market for as long as you can provide at a reasonable price. High prices encourage competitors.
The key to wealth is productivity, creativity, and effort. We call the delivery of those values, “earning money”. You provide value equal to the money received. If you provide less you must eventually lower your price or customers, employers, tenants, or borrowers will look elsewhere.
“Earning Money” is different from “Getting Money”
There are no shortages of ways to get money and some people contribute their time skill and effort to go that route. Greece is busily doing it now. Their choice is borrow. My guess is that borrow will soon become beg. Likely followed by steal.
People sometimes repackage businesses or debt instruments and increase their price. The package is little different from the components so the question of adding value in packaging is a difficult one to assess. Based on the meltdown in 2007-2008, it could be reasonable to assume that eventually that added price evaporates.
Getting money is nice but it is unmanageable. It relies on one fact not in evidence. The money must be there for you to get. You need to ask where it comes from in the beginning and how likely that source will continue to produce.
The manageable wealth building choice is the one that provides skill, attitude and effort. Learn how to do something that people want, possibly need and can pay for. The more the demand, and the more the skill required, and the more rare, the more will be the price. More money for given effort.
Small advantages pay large. The skill set for an elite basketball player is not greatly more than an average player. If you can make 40% of your three-point shots while I can make just 25%, your pay will be great deal more than the difference would indicate. Probably an infinite percentage more because I may not find a job at my skill level.
You earn money by trading value so it behooves you to develop skill and the willingness to apply it. Getting money for nothing is unreliable because someone else must use their time and skill to create the money and get nothing for that effort. Don’t count on that condition to work forever.
Earning money is more reliable than getting money.
Don Shaughnessy is a retired partner in an international public accounting firm and is now with The Protectors Group, a large personal insurance, employee benefits and investment agency in Peterborough Ontario.