Four principles of wealth creation

Focus is a decision

Naval Ravikant grew up in a deprived part of New York, an immigrant in a single parent family. Money was tight and he suffered many hardships. After school, for much of his childhood, he spent hours reading in a library, waiting for his mum to pick him up. Against the odds, he passed a test to get into a well respected school then went on to study economics and computing at college. He became a very successful entrepreneur and influential tech investor. Naval said, Everyone that ends up becoming an extreme winner in society starts off as a loser.

Naval Ravikant very successfully applied what Scott Galloway coined the Algebra of Wealth: Wealth = Focus + (Stoicism x Time x Diversification).

Focus

The time that leads to mastery is dependent on the intensity of our focus.
- Robert Greene

Determination and focus are the cornerstones of wealth creation. Long-term goals should be prioritised over immediate gratification. We need a vision of what we want to achieve then to be diligent. Our ability to focus strongly correlates with wealth generation and other success. Jony Ive said : Steve [Jobs] was the most remarkably focused person I've ever met. The value I create is orders of magnitude greater when focused versus not.

Stoicism

Stoicism is about absorbing the blows, not letting setbacks derail you and staying the course. - Scott Galloway

Determining what is and isn’t under our control helps focus our thinking and actions. Living below our means represents a clear path to financial freedom; only 3% of us do this. Salaries do not make us rich, spending habits do. Succeeding is a lot easier if people like and trust us so we should act accordingly. Temperance and discipline sound boring, but are hugely beneficial. In an age of abundance, our instincts can lead us astray. Holiday upgrades. Constantly checking share prices. Social media doomscrolling. All should be avoided. Investments help our financial security while consumption gives us short term dopamine rush.

Time

Trade money for time, not time for money. You’re going to run out of time first. - Naval Ravikant

Time is the most valuable and finite currency we have. It is a critical factor in building wealth. Einstein said, Compound interest is the eighth wonder of the world. He who understands it, earns it. Time allows investments to grow, debts to be paid off and financial plans to mature. Quick wins may be tempting, but patience and and long-term thinking are where real wealth comes from. 99% of Warren Buffett’s $135b net worth was accumulated after the age of 65. Much of this is due to the compound effect over time. Last week I invested in a S&P 500 index fund as a long term investment. I have not checked its price (honest).

Diversification

In your career, your investments and your learning, diversification is a hedge against the unknown. - Scott Galloway

Diversification reduces risk and provides a safety net. In a rapidly changing world, being adaptable and having multiple sources of income or different skills can significantly contribute to financial stability and growth. My corporate job provides financial stability, but will not make me rich as I’m trading my time for money. In my 20s, I bought my first house. Due to inflation and property upgrades, my current house is worth 40 times the first one. Also, I setup a company which may or not be worth a lot in the future. Thus, I have diversified by financial interests.

Other resources

How to Get Rich talk by Scott Galloway

How to Join the New Rich post by Phil Martin

How the Compound Effect Helps me post by Phil Martin

My LinkedIn profile features a picture of me intently reading the book How to Get Rich. I’m working on it. There’s still time (I think).

Have fun.

Phil…