Wealth Building Formula:
Output = Value x Leverage
Output = Wealth
Value = Specialized Knowledge
Leverage = Time x Money x People x Technology
Variable descriptions:
Value
Specialized Knowledge = You need specialized knowledge that can be monetized into a product/company or ability to create a product/company that sells at a low price to a lot of people OR a large price for a few people. A combination of specialized knowledge tends to be an effective approach to developing unique products/companies.
Sam Altman interview with Elon Musk
Examples:
- You know how to use a combination of materials to create the best feeling t-shirt.
- Creating a great looking electric vehicle with a network of fast battery chargers
- Motivational speaker
- Brain surgeon that specializes in a specific technique and trains other surgeons or up and coming surgeons
Leverage
Time = Your time is finite. Everyone only has 24 hours a day. Time is limited and very valuable but it doesn’t scale well. You might be able to work 18 hours a day for a couple years but eventually, you’ll burn out and your productivity (physical and mental health) decreases. When you don’t have money, time is all you have so you have to use more of it in the beginning to increase your money supply.
Money = Money is much more scalable. There is no foreseeable upper limit to wealth and it can be used interchangeably with your time. Instead of you performing a specific task, you can pay someone else to do a better job than you can do.
People = If you want to increase your ability to create, you need to learn how to work with people effectively. Leadership and management of people create massive leverage.
Technology = Use or create technology to increase your level of productivity. This could be software or hardware.
Naval Ravikant Twitter Rant on Wealth building.
Wealth Building Philosophy:
- Have a long time preference – Don’t focus on activities that have immediate gratification. Focus on things that have higher long-term benefits. I.e. watching tv after work rather than investing your time learning skills to build a business. Eating the donut rather than working out. Saving money rather than spending it on outlandish luxury goods.
- Decide that you are going to be wealthy – Determine the level of wealth and time frame of your wealth creation. Your amount and time preference will determine your wealth creation strategy. If you want to be a billionaire in 5 years, you wouldn’t work a job full time only. You’d decide to start a startup with the potential to be worth a billion dollars. If you just want to have 1 million in the bank account in 40 years, you’d work a stable job and invest in your 401k plan.
- Limited Association – Associate yourself with the crowd of people that have the wealth and values you desire. It’s said that you are your 10 friends.
- Focus on generating more income than you spend. It’s more important to create more wealth than try to skimp on everything to save money.
- Live below your means – Don’t spend money that you don’t need to. Use the money to enjoy but know every dollar spent means you aren’t investing it in passive investments or your business.
- Time is more important than money. Use your money to free up your time so you can devote it to areas that have a higher return on time investment.
- Focus on where your strengths lie – Outsource your weaknesses to others.
- Read and learn a lot – Consume books and other resources that increase your odds of creating a successful business or investments.
- Take care of your health – Taking care of your health by eating well, sleeping well, exercise, and positive social interactions increase your ability to make better decisions, function better, and live longer.
- Find something at the intersection of what you love to do and what the market will pay for – Finding something you love will allow you to create your best work and sustainably work at it for long periods of time. It also needs to be a passion either a few people pay massive fortunes for OR millions/billions of people are willing to buy at an affordable price point.
- The quickest path to fortunes is being a business owner – There are many ways to make money and to develop wealth. The fastest is becoming your own boss.
- Develop grit – Develop perseverance and determination in face of challenges. You will inevitably encounter challenges in your business, investments, fame, or rapid career ascension and grit is the key element that will keep you in the race.