The Millionaire Mindset #6 – A Guide To Wealth
Hello dear reader and welcome to the sixth post of the millionaire mindset series. This blog post focuses on how wealth and money are created according to Naval Ravikant’s wisdom shared on The Almanack Of Naval Ravikant — A Guide To Wealth and Happiness book, created and edited by Eric Jorgenson.
But, before I continue, let me recall all the previous posts written so far for this series:
- The Money Blueprint — What it is and why is so important to attract wealth?
- Wealth Principles — A comparison of how the rich VS the poor think.
- Millionaire Common Traits — Let The Millionaire Next Door show you how millionaires are made.
- Money Personality Types — Learn what are the common money personality types and how they influence your money-related decisions.
- Build Good Habits — Wealth is built through consistency. Good habits will help you to succeed.
It’s only once in a while that I read a life-changing book. Last year was Atomic Habits by James Clear, this one was The Almanack Of Naval Ravikant. I’ve read this book twice, first back in August 2021, when I decided I needed to take notes and transform them into a blog post, and the second one in December before publishing this post.
This book has changed the way I see wealth and money and helped me to make the decision to start learning web development and crypto. It’s divided into two sections. The first part talks about wealth, and the second relates to happiness. I highly recommend reading it all, it’s free to download (although I would encourage you to donate). This post only covers the content that called to me in the first section of the book — a guide to wealth.
Can’t wait to read more? I know that feeling well! So, without further ado, let’s get it started!
Table of Contents
Understand How Wealth Is Created
Getting rich is about knowing what to do, who to do it with, and when to do it. It is much more about understanding than purely hard work.
Making money is not a thing you do – it’s a skill you learn.
If you don’t know yet what you should work on, the most important thing is to figure it out. You should not grind at a lot of hard work until you figure out what you should be working on.
Naval came up with the principles in his tweetstorm:
How to Get Rich (without getting lucky):— Naval (@naval) May 31, 2018
What’s the difference between wealth and money?
Money is how we transfer wealth. Money is social credits. It is the ability to have credits and debits of other people’s time.
Wealth is the thing you want. Wealth is assets that earn while you sleep. Wealth is the factory, the robots, cranking out things. Wealth is the computer program that’s running at night, serving other customers. Wealth is even money in the bank that is being reinvested into other assets, and into other businesses.
If you want to be wealthy, you want to figure out which one of those things you can provide for society that it does not yet know how to get, but it will want and providing it is natural to you, within your skillset, and within your capabilities.
Then, you have to figure out how to scale it because if you only build one, that’s not enough. You’ve got to build thousands, or hundreds of thousands, or millions, or billions of them so everybody can have one.
Find And Build Specific Knowledge
Specific knowledge is found much more by pursuing your innate talents, your genuine curiosity, and your passion. Specific knowledge is almost baked into your personality and your identity. It’s not by going to school for whatever is the hottest job; it’s not by going into whatever field investors say is the hottest.
Very often, specific knowledge is at the edge of knowledge. It’s also stuff that’s only now being figured out, or is really hard to figure out.
The internet enables any niche interest, as long as you’re the best person at it, to scale out. And the great news is because every human is different, everyone is the best at something— being themselves.
If you are fundamentally building and marketing something that is an extension of who you are, no one can compete with you on that.
Basic arithmetic and numeracy are way more important in life than doing calculus.
Knowing how to be persuasive when speaking is far more significant than being an expert digital marketer or click optimizer.
Foundations are key. It’s much better to be at 9/10 or 10/10 on foundations than to try and get super deep into things.
You do need to be deep in something because otherwise you’ll be a mile wide and an inch deep, and you won’t get what you want out of life.
You can only achieve mastery in one or two things. It’s usually things you’re obsessed with.
Play Long-Term Games With Long-Term People
All the returns in life, whether in wealth, relationships, or knowledge, come from compound interest.
Compound interest is a very powerful concept. Compound interest applies to more than just compounding capital. Compounding in business relationships is also very important.
Compound interest happens in your reputation. If you have a sterling reputation, and you keep building it for decades upon decades, people will notice. Your reputation will literally end up being thousands or tens of thousands of times more valuable than somebody else who was very talented but is not keeping the compound interest in reputation going.
When you find the right thing to do, when you find the right people to work with, invest deeply. Sticking with it for decades is really how you make the big returns in your relationships and in your money.
99 percent of effort in your life is wasted, and only 1 percent is useful.
When you find the 1 percent of your discipline which will not be wasted, which you’ll be able to invest in for the rest of your life and has meaning to you—go all-in and forget about the rest.
Take On Accountability
To get rich, you need leverage. Leverage comes in labor, comes in capital, or it can come through code or media. But most of these, like labor and capital, people have to give to you. For labor, somebody has to follow you. For capital, somebody has to give you money, assets to manage, or machines.
So to get these things, you have to build credibility, and you have to do it under your own name as much as possible, which is risky.
Clear accountability is important. Without accountability, you don’t have incentives. Without accountability, you can’t build credibility. But you take risks. You risk failure. You risk humiliation. You risk failure under your own name.
The risk here would be you would probably be the last one to get your capital back out. You’d be the last one to get paid for your time. The time that you put in, the capital you put into the company, these are at risk.
Realize that in modern society, the downside risk is not that large. Even personal bankruptcy can wipe the debts clean in good ecosystems.
There’s not really that much to fear in terms of failure, and so people should take on a lot more accountability than they do.
Embrace accountability and take business risks under your own name. Society will reward you with responsibility, equity, and leverage.
Build Or Buy Equity In A Business
If you are paid for renting out your time, even lawyers and doctors, you can make some money, but you’re not going to make the money that gives you financial freedom. You’re not going to have passive income where a business is earning for you while you are on vacation.
Without ownership, your inputs are very closely tied to your outputs.
Without ownership, when you’re sleeping, you’re not earning. When you’re retired, you’re not earning. When you’re on vacation, you’re not earning. And you can’t earn non-linearly.
You have to work up to the point where you can own equity in a business. You could own equity as a small shareholder, where you bought stock. You could also own it as an owner, where you started the company. Ownership is really important.
Everybody who really makes money at some point owns a piece of a product, a business, or some IP.
The real wealth is created by starting your own companies or even by investing. In an investment firm, they’re buying equity. These are the routes to wealth. It doesn’t come through the hours.
If you don’t own a piece of a business, you don’t have a path towards financial freedom.
Find A Position Of Leverage
Following your genuine intellectual curiosity is a better foundation for a career than following whatever is making money right now.
If it entertains you now but will bore you someday, it’s a distraction. Keep looking.
If someone can train other people how to do something, then they can replace you. If they can replace you, then they don’t have to pay you a lot. You want to know how to do something other people don’t know how to do at the time period when those skills are in demand.
You get rewarded by society for giving it what it wants and doesn’t know how to get elsewhere. A lot of people think you can go to school and study for how to make money, but the reality is, there’s no skill called “business.”
Think about what product or service society wants but does not yet know how to get. You want to become the person who delivers it and delivers it at scale. That is really the challenge of how to make money.
You are waiting for your moment when something emerges in the world, they need a skill set, and you’re uniquely qualified. You build your brand in the meantime on Twitter, on YouTube, and by giving away free work. You make a name for yourself, and you take some risk in the process. When it is time to move on the opportunity, you can do so with leverage—the maximum leverage possible.
There are three broad classes of leverage:
One form of leverage is labor—other humans working for you.
Money is good as a form of leverage. It means every time you make a decision, you multiply it with money. Capital is a trickier form of leverage to use. If you get good at managing capital, you can manage more and more capital much more easily than you can manage more and more people.
The final form of leverage is: “products with no marginal cost of replication.”
This includes books, media, movies, and code. Code is probably the most powerful form of permissionless leverage. All you need is a computer—you don’t need anyone’s permission.
We live in an age of leverage. As a worker, you want to be as leveraged as possible, so you have a huge impact without as much time or physical effort.
A leveraged worker can out-produce a non-leveraged worker by a factor of one thousand or ten thousand. With a leveraged worker, judgment is far more important than how much time they put in or how hard they work.
What you want in life is to be in control of your time. You want to get into a leveraged job where you control your own time, and you’re tracked on the outputs. If you do something incredible to move the needle on the business, they have to pay you. Especially if they don’t know how you did it because it’s innate to your obsession or your skill or your innate abilities, they’re going to have to keep paying you to do it.
Tools and leverage create this disconnection between inputs and outputs. The higher the creativity component of a profession, the more likely it is to have disconnected inputs and outputs. If you’re looking at professions where your inputs and your outputs are highly connected, it’s going to be very hard to create wealth and make wealth for yourself in that process.
Learn to sell, learn to build. If you can do both, you will be unstoppable.
Stay out of things that could cause you to lose all of your capital, all of your savings. Don’t gamble everything on one go. Instead, take rationally optimistic bets with big upsides.
“Earn with your mind, not your time.”
Get Paid For Your Judgment
Judgment—especially demonstrated judgment, with high accountability and a clear track record—is critical.
Just from being marginally better, like running a quarter mile a fraction of a second faster, some people get paid a lot more—orders of magnitude more.
Leverage magnifies those differences even more. Being at the extreme in your art is very important in the age of leverage
We waste our time with short-term thinking and busywork. Warren Buffett spends a year deciding and a day acting. That act lasts decades.
Prioritize And Focus
Value your time at an hourly rate, and ruthlessly spend to save time at that rate. You will never be worth more than you think you’re worth.
No one is going to value you more than you value yourself. You just have to set a very high personal hourly rate and you have to stick to it.
Always factor your time into every decision. How much time does it take? It’s going to take you an hour to get across town to get something. If you value yourself at one hundred dollars an hour, that’s basically throwing one hundred dollars out of your pocket. Are you going to do that?
If you can outsource something or not do something for less than your hourly rate, outsource it or don’t do it. If you can hire someone to do it for less than your hourly rate, hire them.
Set a very high hourly aspirational rate for yourself and stick to it. It should seem and feel absurdly high. If it doesn’t, it’s not high enough. Whatever you picked, my advice to you would be to raise it.
Being anti-wealth will prevent you from becoming wealthy, because you will not have the right mindset for it, you won’t have the right spirit, and you won’t be dealing with people on the right level. Be optimistic, be positive. It’s important. Optimists actually do better in the long run.
Wealth creation is an evolutionarily recent positive-sum game. Status is an old zero-sum game. Those attacking wealth creation are often just seeking status.
To win at a status game, you have to put somebody else down. That’s why you should avoid status games in your life—they make you into an angry, combative person. You’re always fighting to put other people down, to put yourself and the people you like up.
Status games are always going to exist. There’s no way around it, but realize most of the time, when you’re trying to create wealth and you’re getting attacked by someone else, they’re trying to increase their own status at your expense. They’re playing a different game. And it’s a worse game. It’s a zero-sum game instead of a positive-sum game.
Spend more time making the big decisions. There are basically three really big decisions you make in your early life: where you live, who you’re with, and what you do.
Find Work That Feels Like Play
Any end goal will just lead to another goal, lead to another goal. We just play games in life. When you grow up, you’re playing the school game, or you’re playing the social game. Then you’re playing the money game, and then you’re playing the status game. These games just have longer and longer and longer lived horizons. At some point, at least I believe, these are all just games. These are games where the outcome really stops mattering once you see through the game.
What you really want is freedom. You want freedom from your money problems, right? I think that’s okay. Once you can solve your money problems, either by lowering your lifestyle or by making enough money, you want to retire. Not retirement at sixty-five years old, sitting in a nursing home collecting a check retirement—it’s a different definition.
I’m always “working.” It looks like work to others, but it feels like play to me. And that’s how I know no one can compete with me on it. Because I’m just playing, for sixteen hours a day. If others want to compete with me, they’re going to work, and they’re going to lose because they’re not going to do it for sixteen hours a day, seven days a week.
The winners of any game are the people who are so addicted they continue playing even as the marginal utility from winning declines.
How To Get Lucky
Ways to get luck:
- Hope luck finds you.
- Hustle until you stumble into it.
- Prepare the mind and be sensitive to chances others miss.
- Become the best at what you do. Refine what you do until this is true. Opportunity will seek you out. Luck becomes your destiny.”
- Build your character in a certain way, then your character becomes your destiny.
One of the things I think is important to make money is having a reputation that makes people do deals through you.
If you are a trusted, reliable, high-integrity, long-term-thinking dealmaker, when other people want to do deals but don’t know how to do them in a trustworthy manner with strangers, they will literally approach you and give you a cut of the deal just because of the integrity and reputation you’ve built up.
Be a maker who makes something interesting people want. Show your craft, practice your craft, and the right people will eventually find you.
Great people have great outcomes. You just have to be patient.
Apply specific knowledge with leverage and eventually, you will get what you deserve.
Everybody wants to get rich immediately, but the world is an efficient place; immediate doesn’t work. You do have to put in the time. You do have to put in the hours, and so I think you have to put yourself in the position with the specific knowledge, with accountability, with leverage, with the authentic skill set you have, to be the best in the world at what you do.
You have to enjoy it and keep doing it, keep doing it, and keep doing it. Don’t keep track, and don’t keep count because if you do, you will run out of time.
Your real résumé is just a catalog of all your suffering. If I ask you to describe your real life to yourself, and you look back from your deathbed at the interesting things you’ve done, it’s all going to be around the sacrifices you made, the hard things you did.
I hope you enjoy reading this post, learned something new, and managed to inspire you or give you ideas. As usual, any comments are more than welcome.
- What do you think about Naval’s thinking of wealth creation? Do you think his insights are useful, or do you see wealth creation differently?
SUBSCRIBE TO BLOG VIA EMAIL
NET WORTH GOAL
PORTFOLIO GOAL (Dream)
FINANCIAL TOOLS I USE
Zero Commission Stock Investment Apps
(free share worth up to €/£100)
Index Funds Investing Accounts
(up to £50 bonus)
(no management fee for 1 year, Spain only)
(Get it for FREE)