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Seek wealth, not money or status. Wealth is having assets that earn while you sleep. Money is how we transfer time and wealth. Status is your place in the social hierarchy.
Naval
Let’s talk about wealth, shall we? Naval’s viral tweetstorm from 2018 is a great guide to kickstart the discussion. And not just wealth, I want to discuss the connection between wealth generation and time.
WEALTH & MONEY
Seek wealth, not money or status. Money is how you transfer time and wealth. So what does it mean?
Money is essentially the social credit and debit of other people’s time. It is something that society has agreed to pay you for the amount of work you have done in the past or the work that is expected from you in the future in return for your time. It is only a means of exchange of wealth that we collectively as a civilization have agreed to accept.
While wealth on the other hand can even be money in the bank that is being reinvested into other assets. It can be a business. It can be a house that you have bought and is bringing rent money. A YouTube channel.
The purpose of wealth is freedom. And we shouldn’t be confusing money with wealth.
“Wealth is the thing you want. Wealth is assets that earn while you sleep; it’s the factory of robots cranking out things. Wealth is the computer program running at night that’s serving other customers. Wealth is money in the bank that is reinvested into other assets and businesses.”
Naval
Income is not your wealth. It can be a route to wealth creation. But the income you generate i.e. your wages is related to the amount of output you create. It won’t earn while you sleep. The assets you buy from that income might.
WEALTH & TIME
The important part of wealth creation is the concept of time. I work in the corporate world and so do most of my friends. So I will be speaking from that limited worldview.
We essentially rent out our time to generate money. The time rented is utilized by businesses to develop and grow. The businesses are generating wealth but are we?
Let’s take a step back in time during the industrial revolution. A worker clocked into work in the factory. He worked for 12 hours and clocked out. The factory owners paid him for the 12 hours of work through cash. The worker essentially rented out time and the factory owners paid him in the present for the time he had rented out in the past.
The output generated by the worker will generate wealth for the factory owners but in most cases, won’t generate it for the worker himself. The factory owner’s total output will be an aggregation of rented time collectively given by all its workers while the worker’s output is only the 12 hours of work. Does that make sense?
We today function similarly, plus the labor laws, of course. The workweek is 40 hours and we get paid for the 40 hours of work completed. The businesses we work for are generating wealth in terms of our rented-out time. But are we?
INPUT (TIME) & OUTPUT (WEALTH)
You, as an employee or a worker, are valued for the output you create. Even a high-paying job will only pay you for the output you create. Output is related to your input and the input is based on time rented.
No business is stupid enough to pay you more than what your output deserves. Why? Because they are running a business and profitability is the end goal.
Remember Karl Marx? In his manifesto, he described this in more detail. His manifesto gets a bad rep because of communism but if you read it with an open mind it has some important points.
The first section of the Manifesto, Bourgeois and Proletarians, talks about how in capitalism, the industrial working class, or proletariat, engage in class struggle against the owners of the means of production, the bourgeoisie.
The bourgeoisie constantly exploits the proletariat for its labour power, creating profit for themselves and accumulating capital (or wealth).
I understand this is just a part of the manifesto and it goes all in about an impending social revolution when the proletariat understands their true potential and takes over their true place in the society. But the above paragraph explains an important point. The business owners will try to make a profit for themselves through necessary means. While the working class can only rent out time to generate output. That’s how capitalism works!
Now time is called the great equalizer for a reason. There is a limit to the input you can put in physically and as such, there will always be a limit to the output you generate.
Sure, you’ve watched all the productivity videos posted by Ali Abdaal and function at 3x by being ultra-productive. But there is a ceiling to the output generated. And if there is a ceiling to the output generated, you won’t be creating wealth.
“Workers work hard enough to not be fired, and owners pay just enough so that workers won’t quit.”
Robert T. Kiyosaki (Rich Dad, Poor Dad)
BREAKING THE WEALTH & TIME CONNECTION
The best way to create wealth is to disconnect the output from the time rented. You need assets that earn while you sleep.
As Warren Buffett says (I still can’t find the source where he said this), “If you don’t find a way to make money while you sleep, you will work until you die.”
So how do you break the wealth and time connection? Use your generated income to build sources of wealth.
INVESTING
The easiest one is saving and investing the money. When you buy stocks, you are buying a business. As the business grows, so does your wealth. And this happens while you sleep.
If you’re not comfortable buying individual stocks, invest in the entire indices. As India’s economy grows, so will your wealth.
It could also mean investing in property. Once you own a piece of land, it can generate money and grow in its value, while you sleep.
And finally, it could mean investing in yourself. Upskilling. Learning how to code, reading more, educating – the more you gain knowledge, the more creative your ideas will be. You can use these ideas to start businesses.
I have an entire podcast dedicated to growing your wealth through investing, check that out!
BUSINESS OR SECONDARY INCOME SOURCE
The podcast was a nice segue to discuss the second way you can generate wealth. Starting a business or a side income source.
Businesses generate income while you sleep. Once your product is out in the market, all sales generated will add to your wealth. The product needs to be easily replicable by you without additional effort. It could be a design you created once and sold multiple times. Jack Butcher created his entire online brand based on this idea.
Or it could be a website generating revenue. I wrote a few articles on the best speakeasy bars in NYC almost a year ago now. I still get traffic on that article even though I haven’t touched it ever since.
The Internet provides you with infinite leverage. All the podcasts, YouTube channels, online classes, and online stores are businesses where you create content once and sell it multiple times. They are also called passive income sources (my podcast episode on the same).
Think about it – you spend time creating some content and publishing it online. The content, if linked to an income source (ads or sponsors), will generate wealth for the rest of your life without you adding any additional input to that piece of content. You are breaking the connection between income and time, thus generating wealth.
In addition, internet businesses or passive income sources are really good in the sense that the first video you create will take the same amount of time as the 100th video you create. However, the wealth generated from the videos will differ significantly. It will grow exponentially as the subscriber or view count grows. As such your input time remains constant while your wealth keeps increasing.
Until you can compensate for yourself, you will always be salaried based on what others deem your value is or the market average for your job. If you do a business, you will be able to pay yourself, and thus generate wealth.
I think most Gujaratis intuitively know this. It’s a lesson my mom taught me as a kid – dhando karvanu. Always start a business.
Here is Mohnish Pabrai’s, founder of Pabrai Funds, story on how he started his business while doing a full-time job.
Now, I understand the skeptics will be wondering if we are actually breaking the time and wealth generation connection through business or passive income sources. I agree, there is a lot of input work required to start and maintain a business. But as you employ people or increase buyers, your personal wealth and time connection will be broken. It will take time but you will get there. The input and output generated will be disconnected.
If you want to build wealth, spend time on the supply side.
Jack Butcher
To summarise, wealth is not money. Use your existing income and time as levers to generate wealth. Unless you find a way to disconnect the input and output generated, you won’t be able to generate wealth. Investing is one of the easiest ways to create wealth and starting a business will help you spend time on the supply side rather than just being a consumer.
As parting thoughts, think if you are actually generating wealth or playing status games?
