On Thursday, my cousin James visited me at work, and we talked about how to survive in the current economic climate and everything else in between. He then asked me a good question: what are your plans for making more money? I gave him a muffled and incoherent answer.
But I later thought about it and decided to write a more appropriate answer. The better question really should be how do you build wealth? Is there a difference between building wealth and making money? Yes, Sirrr!
Making Money
Most of our thinking about success is linked to making money. Money is an exchange of value.To create value, we either go to school and acquire an education or learn a skill to trade for money. Alternatively, we can become a reseller or a manufacturer of a valuable product.
The mode of exchange here is to trade our time for money by providing a valuable service or product. And people have built great lives on this strategy. However, there is something wrong with this picture, most people have “average” lives. Yes, they work hard for so many years but are not as wealthy as they would like to be. How does such a thing happen? How do other people make millions and have different lives? Are we playing different games or are we playing the same game but in different ways? I think we are playing the same game, but we are playing it wrongly. We don’t understand the rules of Wealth.
In my opinion, we are all trying to make money and not build wealth. What then does it mean to build wealth?
Building Wealth
In his Book, The Almanack of Naval Ravikant, wealth is defined as “assets that earn money while you sleep”. Wealth is self-reinforcing. It does need any new inputs; it generates more money by itself. A classic example is investing in Index Funds, Government Bonds, or Bills. These assets are not linked to our time; they are independent of it.
He further argues you cannot be wealthy by renting your time. You cannot build wealth if your income is related to your time. As Josh Kaufman puts it “humans do not scale”. No matter how much you desire to work you need to sleep. You need to take a break to eat. We cannot work endlessly; we need to take a break. So, at some level, we need to separate our money from our time to build great wealth.
The Power of Scale
In The Millionaire Fastlane, MJ DeMarco says “To make Millions, you have to serve millions in scale, or a few in magnitude”. You’re only going to be as rich as the market you serve. If you’re a lawyer and your clientele is in the top 1% of wealthy people in the world, you earn differently. If you sell every product to the world like Amazon, you earn differently. The point is scale matters. The larger your pool of customers, the larger the money you make. However, we all cannot be lawyers or create the next Amazon, but we can use the power of the internet to scale.
In the digital world, you have small robots at your service. These robots can easily carry your message for little to no cost. For example, a YouTube video can be watched 100 million times at no extra cost to you. But as a lawyer or a doctor, you need to go to work.
It is much easier to scale and reach a wide range of audiences by selling digital products. A classic example is that of writing an eBook, writing a blog post, making YouTube videos, creating online courses, etc. In addition, as Naval points out, creating content doesn’t require permission. You don’t need to ask anyone if you can point your camera at yourself and upload. This has created a golden opportunity for creating wealth with very low entry but a huge payoff with its inherent ability to scale.
Making Money Work for You
The last ingredient to building wealth is making your money work for you. Money as seed capital has the ability to generate more. There is no better servant than money working for itself. It works for you day and night and never sleeps.
The greatest opportunity for you is to loan your money to the government or own a business as a stock. You can buy Government Bonds or Treasury Bills and become a creditor to the Government. Buying Index Funds is also a great option if you want to own stocks in a set and forget about it way.
As Naval Ravikant says “Seek Wealth, not Money or Status”. Seeking wealth requires a different way of thinking about making money. It requires us to separate our time from our money. To invest in businesses that scale and finally to make our money work for us.
Until next time wealth builders, let’s build wealth.
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