Making money versus Wealth Creation
By Charles Goodwin
Not knowing or understanding the difference between the terms “making or earning money” and “creating wealth” is one of the primary reasons why many people fail financially in life.
‘Ah, but aren’t they one and the same?’ Stephen asked over coffee. ‘After all, once I’ve received the $1,000 for a job that I have performed, my wealth has gone up by $1,000.00 has it not?’
‘That depends. What do you intend to do with the $1,000.00?’ I replied.
‘I haven’t considered that yet. My credit card payment is due. I have bills to pay, food to buy – I might take in a movie or two. You know, the usual – as you know - life must go on.’
‘So what actual material gain from that $1,000.00 will you expect to have in say two weeks from now?’
‘Probably zero – but of course by then, I’ll get more money in to replace it.’
‘Probably zero. Mmm. Then surely you can see that there exists a difference between “making or earning money” and “creating wealth”. You have made a $1,000.00 but by your own admittance your wealth total will not go up by even one dollar.’
Stephen shrugged. ‘What is a guy supposed to do then. I work six days a week. I earn heaps. But the pile dwindles as soon as I earn it.’
‘Change your mind set.’
‘Change my mind set?’
‘Yes – exactly Sir. Become a part time wealth creator. Tell me Stephen, what are you good at. What do you love doing?’
‘Old classic racing bikes. I’ve become an amateur expert on all the old brands; frames, saddles, handle bars, gears… I absolutely live for them with a passion – but it’s only a hobby. I could never make a living out of them.’
‘No you won’t make a living out of classic racing bikes but I can show you how you can become a millionaire from them.’
‘If you could do that Charles, I’d love you for the rest of my life!’
‘Right, let’s start by understanding the first fundamental of wealth creation. Imagine I have in my possession an early but famous Italian racing bike. I have no idea of brands and values so give me a ball park figure on what this bike might be worth?’
‘I have a particular brand in mind – let’s say $2,000.00,’ prompted Steven.
‘Are you confident you can get $2000.00 for it?’ I asked.
‘Oh yes, any day of the week.’
‘Ok, if this bike is the only asset I have – what is my wealth total?’
‘Obviously $2,000.00,’ replied Stephen.
‘Correct – but what if I had originally paid $4,000.00? Is my current wealth total $2,000.00 or $4,000.00?’
‘If it’s only worth $2,000.00 your wealth total must be $2,000.00.’
‘Exactly Stephen. Now tomorrow you see at an auction the exact same bike and you win it for $500.00. Is your wealth total $500.00 or $2,000.00?’
The penny dropped. Stephen grinned. ‘$2,000.00 of course – and I’ve just increased my wealth by $1,500.00!’
‘Exactly Sir. You have created wealth equaling $1,500.00 the moment you won the auction. Now what I want you to do – is do an inventory of the bikes and frames and parts that you own and assign to them a price that you can readily sell them at. That total becomes the total for your new part time Wealth Creation Program. Begin selling these items via the bike clubs, Ebay etc and as you sell them, start looking for bargains. You and I both know they are out there in abundance. You know what to look for. The average punter like me would not know a bargain in a racing bike if I tripped over it.’
‘Charles it would be so easy. I could make a fortune.’
‘No. Don’t use the term ‘make a fortune’. Remember you are now a wealth creator. You will be increasing your wealth total astronomically. I want you to promise me that every cent you make on the sales you re-invest back into your wealth program.’
‘Oh I can assure you I will. I love buying bikes.’
Stephen isn’t his real name. But this is a true story. As luck would have it, his very first auction purchase was a racing bike that he purchased for just $100.00. To everyone at the auction that day it was just a funny looking old bike. He sold the same bike within only 10 days for $1,700.00. He purchased several more bikes with the $1,700.00 and dramatically increased his wealth total to over $5,500.00. He was off and the sky was now his limit.
I wonder if he will love me for the rest of his life?
What ever the commodity, the principles remain the same. Start with what you know, then branch out. Today a push bike – tomorrow maybe even an aircraft carrier! Now that would be a challenge.