The Money game
What is money
Money in its truest purest form represents value,and act as medium of exchange and a store of value(savings).
However in modern times money is bumped around by speculation and reckless governments and their manipulations often creates incentives against holding large sums of money in cash over long time periods.
Its also imperative to observe the difference between having money and being wealthy (which is the _ability_ to make money).
However in modern times money is bumped around by speculation and reckless governments and their manipulations often creates incentives against holding large sums of money in cash over long time periods.
Its also imperative to observe the difference between having money and being wealthy (which is the _ability_ to make money).
Is Money the Root of all Evil?
"So you think that money is the root of all evil?" said Francisco d'Anconia.
"Have you ever asked what is the root of money? Money is a tool of exchange, which can't exist unless there are goods produced and men able to produce them. Money is the material shape of the principle that men who wish to deal with one another must deal by trade and give value for value.
Money is not the tool of the moochers, who claim your product by tears, or of the looters, who take it from you by force. Money is made possible only by the men who produce. Is this what you consider evil?"
- Quoted from Ayn Rand's book Atlas Shrugged.
"Have you ever asked what is the root of money? Money is a tool of exchange, which can't exist unless there are goods produced and men able to produce them. Money is the material shape of the principle that men who wish to deal with one another must deal by trade and give value for value.
Money is not the tool of the moochers, who claim your product by tears, or of the looters, who take it from you by force. Money is made possible only by the men who produce. Is this what you consider evil?"
- Quoted from Ayn Rand's book Atlas Shrugged.
There are only two (legitimate) ways of becoming rich
1) Creating and Delivering Value
Wealth comes from value. Money is simply a temporary reflection of value.
Value is a universal concept that can always be translated into money.
The reverse is not fully true: Money can either be squandered or be translated into new value.
Thus the essence of having money comes from having value.
Instead of focusing on trying to make more money, put your time and energy into CREATING and DELIVERING real value. Find a way to give people what they want and/or need.
The keywords here are CREATE and DELIVER.
Creating value means expressing your unique talents and skills in a way that can potentially benefit others.
Delivering value means ensuring that other people are actually receiving and benefiting from the value you’ve created.
Finally and most importantly, you need to ensure that you actually get paid in relation to the value you bring.
Value is a universal concept that can always be translated into money.
The reverse is not fully true: Money can either be squandered or be translated into new value.
Thus the essence of having money comes from having value.
Instead of focusing on trying to make more money, put your time and energy into CREATING and DELIVERING real value. Find a way to give people what they want and/or need.
The keywords here are CREATE and DELIVER.
Creating value means expressing your unique talents and skills in a way that can potentially benefit others.
Delivering value means ensuring that other people are actually receiving and benefiting from the value you’ve created.
Finally and most importantly, you need to ensure that you actually get paid in relation to the value you bring.
2) Recognise Value that others Overlook and Unlock Value Gaps
Sometimes the public at large or the specific owner of an asset does not recognise the true value of it.
This creates a gap between Perceived value and Actual value, which can be exploited.
At other times the game is related to risk, with most people having an exaggerated perception of risk associated with something, and you have found a way to either assess the risk more realistically, or to reduce it substantially. This creates an opportunity for value that you can unlock, and pocket.
Sometimes value can be created or unlocked by repackaging,repurposing, bundling or unbundling of assets.
At other times the game is related to risk, with most people having an exaggerated perception of risk associated with something, and you have found a way to either assess the risk more realistically, or to reduce it substantially. This creates an opportunity for value that you can unlock, and pocket.
Sometimes value can be created or unlocked by repackaging,repurposing, bundling or unbundling of assets.
Translating wealth building concepts into your everyday life
(A) Employees (i.e You have a job)
You provide value in the form of time and expertise to your employer. In return you are paid a salary
which is generally in line with the value given. However your employer, as a Business ADD further value to
this value that you've contributed - and therefore makes a good profit on top of what they pay you (as it rightly deserves).
To become well off as an employee you should:
- Invest in your education, skills and experience to increase future earnings potential
- Get your company to become increasingly dependant on you.
- Invest as much as you can, but in GOOD investments. If you don't know what GOOD investments are, you need to invest in your financial education. I cannot recommend Rich Dad's "Increase your financial IQ", enough.
Put money into investments before you even pay your bills.
As someone that has made the transition between employement and business before, I have found one simple answer. The business owner makes so much more money than the employee, because the business owner had to use so much more determination and wits to get to where he is. In the end its all fair.
An employee can also plan to escape the rat race, and become B,C,or D.
To become well off as an employee you should:
- Invest in your education, skills and experience to increase future earnings potential
- Get your company to become increasingly dependant on you.
- Invest as much as you can, but in GOOD investments. If you don't know what GOOD investments are, you need to invest in your financial education. I cannot recommend Rich Dad's "Increase your financial IQ", enough.
Put money into investments before you even pay your bills.
If you are an employee don't gripe about how much money the company makes and how little it pays you.
You are there by choice - no one is holding a gun to your head and telling you that you MUST work there.
ULTIMATELY: Renegotiate your remuneration or leave.
ULTIMATELY: Renegotiate your remuneration or leave.
As someone that has made the transition between employement and business before, I have found one simple answer. The business owner makes so much more money than the employee, because the business owner had to use so much more determination and wits to get to where he is. In the end its all fair.
An employee can also plan to escape the rat race, and become B,C,or D.
(B) Business Owners
Your purpose is find ways to create value where there was none before by spotting and exploiting opportunities.
An opportunity is nothing else than something that someone needs, wants or could benefit from.
1. Creating better/different products adds value by increasing consumer choice.
2. Delivering Services, creates value by giving people the choice to swap money for time (They pay you, and you do the time consuming things for them), or apply specialised knowledge that they don't have - so they don't have to take the time to learn it themselves. (I pay laywers, accountants/financial advisors etc... because I don't have the time to become an expert in everything)
3. Reselling someone else's products creates value by:
- Crossing geographical distances, bringing goods to convenient places.
- Exposes people to products that they need by improved presentation and marketing.
- Bundle and combine products in useful ways,increase selection, or provide advice.
- Bulk buying reduces the input cost, allowing you to pass on some of the cost reduction.
- Keeping stock allows people the ability to get stuff whenever they want without having to store it themselves (and locking up their cash).
To launch into your own business you should
1. Learn as much as you can about the business that you want to create
2. Save up enough money to not need a salary for 12 months. (and/or make life-style sacrifices)
3. Consider whether you need the help of investors that will not only provide capital but advice also.
Most people don't have the discipline for 2. Doing 2 proves that you are serious. A handful of people also become succesful by launching their business "on the side" whilst keeping the day job running for income.
1. Creating better/different products adds value by increasing consumer choice.
2. Delivering Services, creates value by giving people the choice to swap money for time (They pay you, and you do the time consuming things for them), or apply specialised knowledge that they don't have - so they don't have to take the time to learn it themselves. (I pay laywers, accountants/financial advisors etc... because I don't have the time to become an expert in everything)
3. Reselling someone else's products creates value by:
- Crossing geographical distances, bringing goods to convenient places.
- Exposes people to products that they need by improved presentation and marketing.
- Bundle and combine products in useful ways,increase selection, or provide advice.
- Bulk buying reduces the input cost, allowing you to pass on some of the cost reduction.
- Keeping stock allows people the ability to get stuff whenever they want without having to store it themselves (and locking up their cash).
To launch into your own business you should
1. Learn as much as you can about the business that you want to create
2. Save up enough money to not need a salary for 12 months. (and/or make life-style sacrifices)
3. Consider whether you need the help of investors that will not only provide capital but advice also.
Most people don't have the discipline for 2. Doing 2 proves that you are serious. A handful of people also become succesful by launching their business "on the side" whilst keeping the day job running for income.
(C) Investors
1. You take winning ideas, and to make them reality by providing the capital, and in return take
a share of future profits.
2. You spot opportunities where markets/people have undervalued assets and buy them at a bargain. By doing this you provide value by giving people someone that they can sell to. (Distressed assets are distressed because no-one wants to buy them)
To become an investor, you need capital in some form such as money, or other assets against which money can be raised. You also need to really understand the art of investing - and most people that think they do, don't.
Before investing consider:
* Are you investing for the hope that you buy something that you will be reselling at a higher price in the future (such as a share or a property) - and that your profits will be due to market factors outside of your control, but that you believe your analysis of likely future events are probable.
* Are you investing for income, with assets that produce reliable income streams such as: Preference Shares, Money Market Account, Rental Property.
* Do you believe you understand the asset better than most other people that own the same kind of asset ?
(If you don't have an edge you cannot generate above average returns)
* Can you add value to the asset ? (e.g. improvements to a property that increase the sales price by more than what the improvements cost)
* What are the risks, the unexpected events that could influence my returns?
2. You spot opportunities where markets/people have undervalued assets and buy them at a bargain. By doing this you provide value by giving people someone that they can sell to. (Distressed assets are distressed because no-one wants to buy them)
To become an investor, you need capital in some form such as money, or other assets against which money can be raised. You also need to really understand the art of investing - and most people that think they do, don't.
Before investing consider:
* Are you investing for the hope that you buy something that you will be reselling at a higher price in the future (such as a share or a property) - and that your profits will be due to market factors outside of your control, but that you believe your analysis of likely future events are probable.
* Are you investing for income, with assets that produce reliable income streams such as: Preference Shares, Money Market Account, Rental Property.
* Do you believe you understand the asset better than most other people that own the same kind of asset ?
(If you don't have an edge you cannot generate above average returns)
* Can you add value to the asset ? (e.g. improvements to a property that increase the sales price by more than what the improvements cost)
* What are the risks, the unexpected events that could influence my returns?
(D) The lone wolf wheeler dealer
This is someone that may value a combination of freedom, time and money but doesn't have enough
capital to become a fulltime investor and live of investment income.
Many people have seriously mistaken fantasies of how doing "deals" work. While this takes a special breed of person, and someone that has some business background, I'll attempt to give a small tase here.
This person earns his living by
1. Cutting clever deals between different parties opportunistically (example: buy something and sell it at a higher price before taking delivery of the item)
2. Designing vehicles of passive income such as profit generating websites, or creating intellectual property such as a book/patent/music and receiving royalties.
And whatever scheme the lone wolf can cook up... and accepting that the majority of his schemes will fail, but that the occasional hits will make up for the failures. Also the understanding that "deal making" is a skill, and it improves with the number of deals done.
Also the lone wolf needs to have a reasonable bankroll of liquid cash to carry him through uncertain moments, and to give him the ability to be able to grab an opportunity when it arises. Usually something sells at a bargain price because of something at a SPECIFIC MOMENT OF TIME. If you don't have the money AT THAT MOMENT, you cannot take advantage of it.
Many people have seriously mistaken fantasies of how doing "deals" work. While this takes a special breed of person, and someone that has some business background, I'll attempt to give a small tase here.
This person earns his living by
1. Cutting clever deals between different parties opportunistically (example: buy something and sell it at a higher price before taking delivery of the item)
2. Designing vehicles of passive income such as profit generating websites, or creating intellectual property such as a book/patent/music and receiving royalties.
And whatever scheme the lone wolf can cook up... and accepting that the majority of his schemes will fail, but that the occasional hits will make up for the failures. Also the understanding that "deal making" is a skill, and it improves with the number of deals done.
Also the lone wolf needs to have a reasonable bankroll of liquid cash to carry him through uncertain moments, and to give him the ability to be able to grab an opportunity when it arises. Usually something sells at a bargain price because of something at a SPECIFIC MOMENT OF TIME. If you don't have the money AT THAT MOMENT, you cannot take advantage of it.
Additional Reading :
The Money Game
Anything on austrian economics
Atlas Shrugged
Rich Dad's Increase your financial IQ
Anything on austrian economics
Atlas Shrugged
Rich Dad's Increase your financial IQ
To post a comment: