Wealth

There are only a few people who are classically rich in our society — millionaires and so on — in relation to the size of humanity. The goal for most people is to become rich — to have a high bank balance, to have a great house, et cetera — but they are playing the wrong game. For every millionaire out there, there’s perhaps hundreds of thousands of people who never attained that level of wealth. Naval Ravikant, co-founder of AngelList and prolific investor, has written and spoken extensively about how to generate wealth and the importance of ethical wealth creation. I was thinking about the notion of wealth in depth earlier today, and I started to realize just how important it is to focus on wealth, not being rich.

I do not want to be rich. When people ask me questions about my salary or how much I want to earn, I always state that I am not interested in being a rich person. The truth is that many people think that I am crazy for not focusing on becoming rich — they see it as a gateway to a better life — but I have come to realize that true happiness is not derived from the amount of money in your bank account. Indeed, there are many economists and scientists who have came to the conclusion that past a certain point, the amount you earn has little influence on your happiness. But aside from economics and science, I think that focusing on becoming rich is the wrong goal. Rather, we should be focused on becoming wealthy.

What is Wealth and Why Does it Matter?

What is wealth? Wealth is everything in your life that accumulates positively over time — the assets that earn while you sleep, according to Naval. Money, on the other hand, is about the paper notes — well, more realistically digital balances now — that you hold in your life. Wealth is everything that you have that is generating value for you over time, without you having to get involved. Wealth is the business that you have that continues to run while you sleep. Wealth is the happiness you derive from working with great people. Wealth is the earnings from the book you wrote a year ago that help you cover your costs. Money sits in an account; wealth is always earning for you.

We should be focused on wealth because wealth is what earns us freedom. Indeed, there are so many resources available about financial management because the people that produce that content know that finances are a major burden in our life. You should want wealth because it helps you become free. If you are wealthy, you don’t have to wake up at 6am and go to your 9-5 job. If you are wealthy, you don’t have to work every hour of the day to cover all of the costs that you incur each month. If you are wealthy, you can spend more of your time on passion projects — in a larger sense, you can pursue more projects related to personal fulfillment.

When we have wealth, we no longer need to worry about most of the things which cause us trouble. We don’t have to think about working in a job we do not enjoy, because we have pursued a path toward working in a job that we love. Wealth is difficult to attain because everyone wants to be wealthy. Everyone wants to stop worrying about their bad jobs. Everyone wants to be able to focus more on their passions — reading, painting, listening to classical music, et cetera. Financial freedom provides us with the ability to do more of what we love. We can be more of a non-conformist because we have a financial safety net, and pursue more ambitious ideas knowing that our finances are covered.

Compounding Assets

One way of thinking about wealth is to focus on building assets that accumulate over time. This is built on the concept of compound interest — over time, your assets will appreciate in value. Successful people have reached a level of success because they have focused on doing small things continuously in pursuit of building assets that compound. This can come in the form of starting a business; over time, if you work hard, your equity may appreciate in value and compound. Or it can be about writing a book or pursuing a side project; if you work hard, you will earn money continuously over time. Or it can be about developing good relationships with others; as you spend more time with people, your relationships will get stronger and a new level of trust will be achieved. Rich people are focused on earning money, but that is the wrong goal. The main difference between a rich person and a wealthy person is that when a rich person earns a certain amount of money, they will stop — they have achieved their goal. Wealthy people are focused on long-term wealth creation, and developing assets that compound over time — the goal is wealth, not a certain balance.

It is worth noting that accumulating wealth doesn’t matter if you have not been ethical in the process. If you have become successful at the cost of some personal relationships, then you will not be able to benefit from the compounding nature of those benefits. Ethics are critical because they allow you to develop long-term relationships built on trust, which can be very useful to you in the future. Many people who focus on becoming rich are willing to do so at the cost of their ethics, but they only get so far. Wealthy people often get ahead because they are not willing to compromise their integrity for a short-term gain — they are playing the long-term game. Indeed, being ethical can be very difficult, especially in situations where money is on the line. But wealth is not derived from money, it is derived from being financially free.

Focus on Internal Goals

I think one large part of being wealthy is about focusing on internal goals rather than external goals. Oftentimes, money is an external goal — we want to show other people how much we have by purchasing new assets. Status is an external goal too which produces no wealth — we want other people to think of us as important. Wealth cannot be built by focusing on what other people want in every situation. Even if it could be, it would not be worth it. Warren Buffett attributes some of his success to his “inner scorecard” — the values and principles that he wanted to cultivate that mattered to him. He was not interested in how other people saw him; he only cared about how he saw himself, and whether he was acting in accordance with his principles. Having strong principles compounds over time — people will see you as more virtuous and you will be able to be more ethical — and thus makes it easier to accumulate wealth.

People aiming to become wealthy will always be seen by at least one person as crazy. As aforementioned, many people cannot comprehend why I am not interested in earning more money than I am right now. The truth is that I could likely earn more, but I would have to compromise my integrity and would suffer the burden of having more money than I need to live my life. I often try to explain this to other people, but many others are destined to continue to see me as crazy. It is often those who do not have wealth that criticize those who either have wealth or are on a journey to become wealthy. People focused on status — politicians, sportspeople, et cetera — are always focused on how they can improve their social standing in the hierarchy in which they operate. They cannot understand wealth creation because they are playing a different game — they will ignore people who are not trying to also pursue status. Status plays a critical role in our society — we need to know who is in charge in many situations. But status games are not sustainable over the long-term, and so we should focus solely on seeing ourselves as wealthy rather than giving in to outside pressure.

Being wealthy, as aforementioned, is a very difficult goal to achieve. But a good first step is to start building assets that accumulate over time. Build new relationships with great people, get a new job that provides you with more autonomy if that is possible, write a book, start a business, or do something else that will compound over time. As time goes by, these assets will start earning for you even while you sleep — you don’t have to do anything to become more wealthy, so you can then focus on all of the passion projects you want to pursue. Wealth is a long-term game as well. Nobody has ever became wealthy over night — indeed, over night success stories are greatly exaggerated. You need to give assets time to earn and give yourself time to develop new assets that will allow you to earn even more. The goal in life should not be to attain money or status or a strong image, it should be to become wealthy — be financially free, have strong principles, and focus on your inner scorecard.

Focus on internal goals. Accumulate wealth. Aim to become financially independent.