Even if you have a degree in your chosen field you probably didn’t learn how to make money or build wealth in school. Since we use money for nearly everything we do that seems like a pretty serious gap in our education system. Money or the lack of it in our lives will affect us more than anyone else so it is really up to us to get the “how to” information on this. Without that information it is like trying to compete in sports without knowing the rules of the game or having the proper equipment. If you are missing out on the “game” please allow me the pleasure of getting you up to speed.
Money is made by exchange. I am not talking about the printing of money or the minting of coins, but the gaining of money here, which is what really matters in our financial lives. We gain or obtain money by making exchanges. At the simplest level when two people come together and one has money and the other one has something or some service the first person wants we have the potential for such an exchange. The next step is a little communicating, you can’t exchange things if people don’t know they exist and you are willing to trade. Then we have negotiating. You have to agree on the amount of money to exchange for possession of the goods or to receive the service. We can also have terms, such as a guarantee or setting a time for delivery of the goods or service. There you have it, someone made money.
Let’s go over that again. You have something you want to exchange. That thing could be something material: a knife, a boat, a plate or a car, but it could also be some service: cooking your meals, cleaning your house, playing music or painting your house. Material things we often call goods and things you do we call services, but don’t let that confuse you, if you have services you offer, then those are your goods. Let’s keep it simple.
Next we have to communicate we have something to exchange, we have to make an offer. This happens all the time and we are pretty much flooded with offers in the forms of commercials. An offer can be an advertisement in the classified ad section of the newspaper or a radio or television commercial, but it can also be a sign in your yard that your house is for sale or just mentioning in a casual conversation you have something you want to sell.
If the person is interested we then begin negotiations. Negotiations can be as simple and present as asking how much the person in front of you will take for the item or the seller saying what they want, but online auctions and estate auctions are forms of negotiations too.
So now we come to the question, “If money is made by exchange then what can I exchange for money?” We could answer that with individual items and soon become overwhelmed. Cars, boats, hamburgers, radios, jewelry, pickles, socks and shoe strings are just some of the countless items we could exchange, but thinking of it in this way can quickly overwhelm us. There is another way to look at it. I divide it up into six categories when I teach this.
The six categories I use when I teach this are:
1. What you can do
2. What you have on hand
3. What you can get
4. What you know
5. A lie
6. A promise
Can you flip a hamburger? Can you drive a car? Can you paint a house? Those are some things you can do for money.
Do you have an extra car in the drive way? Furniture you want to replace? Some old jewelry you don’t wear? These are things on hand you could exchange for money.
Could you get water bottles and take them to the park? Could you buy a box of sunglasses to sell on a corner? Could you buy hotdogs and buns to sell in your food cart? These are things you can get to sell for money.
Can you teach a child how to tie their shoes? Can you explain to someone the best way to change their car battery? Can you tell someone the stock category is most likely to go up this year? These are things you know and can exchange for money.
Can you tell someone if they will pay you now you will bring them something you don’t have and can’t get? Can you borrow something you say you will return and then pawn it? These things are lying for money and we call it fraud.
Can you sell someone the promise that you won’t sell your home to anyone else for three months while they raise the money to buy it? Can you promise you will pay someone back and borrow money through what we call a promissory note? There are just some of the things you can promise to do or not do and exchange that promise for money.
There you have it, the basics on making money. Money is made by exchange, you can think of it as trading for money. Selling has so many bad ideas and feelings attached to it I often tell people to just think of this as trading for money. You can also think of the things you exchange as countless items or services, but it is more manageable and helpful to think of this in categories. It doesn’t matter if it is in the back yard, a car dealership or online, this is how it is done.