The way in which all financial wealth is built, time immemorial is this:
Find a way to make money when you are not in the room.
This formula has never actually changed. All the traditional investments fit this definition. Property, Rents, Dividends, Interest, Equity and even creating a startup which becomes bigger than us. Essentially, we need to invent more than 24 hours in a day through the labour of others. We need revenue which is controlled rather than earned. We can build it, or buy it, either way can work. Some ways are faster than others. But if you want to generate money, then you need to bethink this maxim. It tells all about the financial future.
New book – The Great Fragmentation – out now!
The journey we are on is often associated with some goal at the end point. But what if the end point was now? What if we took a thought experiment and pretended the journey was unnecessary? Let’s do that and ask ourselves these two seemingly unrelated questions:
- How would you spend your time if you had 6 months to live?
- How would you spend your time if you were a billionaire?
I won’t try and answer these for you, but I’m reasonably certain you’ll find two things. Many of the answers overlap, and that many of the things cost very little money. In the end we remind ourselves that the ultimate asset is time.
Ok, I couldn’t resist to give personal answer here: I know I’d want to invest more time with my family, immediate and wider, and do those projects were the business model is fun and not financial. Oh, and all those billionaires we hear about…. they’re probably off on treks riding motorcycles across China. Something which requires very few zeros in a bank account.
While success is in the eye of the beholder, I heard an interesting fact recently about intelligence and financial independence. And that fact was that the vast majority of financially independent people have average or below average intelligence. We are talking here about raw intellectual capability. This would seem counter intuitive to everything we are taught to believe in school, the corporate world and life. That we have to be ‘smart’ to accumulate financial advantage. Turns out the opposite is true and social researchers put it down to one simple thing:
“People of average intelligence are not overly impressed with how clever they are.”
Sounds like a silly thing to say, but it gives average people like you and me a big advantage. It means that we know we have to work hard, and maybe even a bit harder. And it also means that we don’t think we know everything already and so we have on open mind to learn new things and methods.
Turns out that some of the key factors in the success equation are about being average.
In terms of financial wealth there is an equation which determines the amount money people acquire over their lifetime. And while monetary wealth is only a small part of living a life of great wealth (I prefer the 12 enduring riches) it is certainly worth knowing this equation and applying it to our daily economics. In a modern society a financial existence is unavoidable, and so it make sense to keep tis equation in mind. So here is the Wealth Equation:
(Income – Expenses) x Investment = Wealth
When we look at it like this in such simple terms, it reveal the current path we are on in the most immediate way. We know if we are spending too much. We know if we are not investing at all or in great enough quantity. What’s interesting is that the first element in the equation ‘income’ is not nearly as important as the second two. When we invest in a startup we are sacrificing the size of first number to go big on the investment multiple. Higher risk and higher reward. There are also many examples of people who became rich with low incomes, frugal spending habits and consistent long term investing. It’s all a game of risk tolerance, time and desired reward. One thing for sure is that wealth is impossible when expenses are greater than income. The important thing to know is which path we are chasing before we being the journey.
It’s good to remind ourselves of what we already know. One of these things is the really important stuff which our financial position has no influence on. Here’s my top 10 list.
- Being a good family member: Integrity, love, caring, effort, understanding and being able to listen have no price.
- Our fitness levels: Having a gym membership, or exercise equipment is not a requirement. Walk, run, push up. Move.
- Eating health foods: The healthiest foods are the cheapest. Fruit, vegetables, raw oats, milk, water.
- Being happy: We’ll be as happy as we chose to be, right now. I know plenty of rich miserable people.
- Education: Library cards are free, all libraries have internet access. University courses are now free.
- Enjoying who we work with: If we don’t like who we work with, we can leave. We are not trees. Our roots are not fixed in the ground. Walk on.
- Giving: Sharing what we are lucky enough to already have costs nothing. Whether it is a physical good, advice, or knowledge. At the time of giving there is no price.
- Friendship: The to and fro of sharing life with a friend is a pure gift.
- Faith: Not necessarily the religious type, but the ability to believe in something, anything which makes the future a place worth arriving at.
- Work: The joy that comes from doing. The willingness to put in effort now, because it’s worth doing, not because of the reward.
Why did I decide to write this blog post? Well, last friday I had lunch with a friend who I hadn’t seen in a while. During the lunch I got to thinking about how there was nowhere I’d rather be at that moment. That no amount of wealth would change how enjoyable it was, or create a desire to be elsewhere. That moment was in itself one which existed outside of our financial construct. Turns out, that most of the important things do.
… want to get rich so they don’t have to care about the company they work for, or the crappy project they are doing. Once they make bank they can do what really turns them on.
I used to be that guy.
Now I just do what really turns me on, and all of a sudden I don’t care so much about how many zeros are in my bank account.
My father once told me; “Regardless of how rich you are Steve, you can only eat 3 meals a day, lay your head on one pillow and enjoy the company of those around you. Money is an illusion. The art of becoming wealthy is actually knowing what it means.”
Needless to say my dad is the richest man I know.
So what we ought do, is not let the Industrial Complex redefine wealth on our behalf and make us live a life of postponing what we care about. Because once we can feed ourselves and have somewhere warm to live, the rest is in our minds.
Our view on success depends largely on our reference points. If we look up we see some of what we might hope for. If we look down, we see that our lot in life is not that bad.
There real danger is only looking one way. If we focus just on those above us, we may never be satisfied. We could turn into workalohics, forget to appreciate what we have achieved, or even worse, we could become jaded and jealous. If we focus just on those below us, we become satisfied, lazy, or simply accepting of our status quo.
If we look both ways it helps us to stay balanced and have perspective on what we have, versus what we’d like. And the last important thing to remember is to define ‘up’ carefully, and make sure it focuses on riches beyond the financial type.