When it comes
to wealth, you probably immediately think of money. Money is indeed a type of
wealth, but it is not the only form of wealth. Money is only a low-level form
of wealth. If you put all your energy on pursuing this low-level form of
wealth, you will lose the opportunity to win other forms of wealth.
When it comes
to wealth, what do you think of? The top ten richest people in the world? Your relative
in Australia has a bigger house, a nicer car, and a cottage on the hill? Or the
billionaire CEO of your company? Professional athlete, musician or movie star?
Of course,
all of these people are "rich" from a financial standpoint.
But money
does not monopolize wealth. The definition of wealth is "a substantial
amount of valuable material property or resource", but looking at this
definition, money is not listed as the only valuable property or resource.
Which
resources you consider valuable is as important as the abundance of the
resources themselves. The key is to optimize for the right form of wealth.
Money
Money is the
simplest and most obvious form of wealth because it can be quantified.
How much is
your annual salary? $100,000.
How much is
your house? $500,000.
How much will
your child's college tuition cost? $50,000.
How much is your
portfolio worth? $250,000.
Forbes
magazine keeps track of the world's richest people in real time, so everyone
can see how much money the super rich have.
Because
monetary wealth is so easy to recognize, it becomes a point of comparison.
Money is the only form of wealth that makes you look at your neighbour and say
"I'm richer/poorer than him".
Money can
become a knee-jerk competition. Just like any other competition, we want to
beat our peers. Earn more money. Get more property. Indulge in more fun. Do whatever
it takes to win the game.
But there is
a point that is often overlooked. At a certain point, money can become an
attractive scoreboard, but a poor measure of wealth. Money has diminishing
returns.
This makes
sense if you stop and think about it. When income is low, extra money can make
a huge difference in the way you live. Paying rent will be easier. You will
have security. You can also afford to take a vacation or two.
However, as
your income continues to increase, you can buy a bigger house, better car,
better meals and better clothes, but that's it, you can't do anything new. You're
just paying more for a more luxurious rendition of your current lifestyle. If
you can pay your bills, spend your money on experiences, and save/invest the
rest, then you're doing pretty well. Everything else is icing on the cake.
There's
actually a nasty paradox associated with having a lot of wealth:
Some luxuries
won't make your life better, but losing them after experiencing them will
definitely make your life worse.
Some people
put money and wealth first, and are desperate to pursue money and wealth. The
biggest problem with this approach is the opportunity cost associated with it.
How many hours did it take to increase revenue from $250,000 to $500,000? What
about $1 million? What about $10 million? How much do you need to earn? What
other forms of wealth would you have to sacrifice to achieve that goal?
Is this really
the game you want to win?
Knowledge
Knowledge,
like money, is a cumulative form of wealth. However, unlike money, the
"knowledge" possessed by people is difficult to compare. A polyglot,
a chef, a world-class investor are all knowledgeable, but not in the same form.
Different
people have different ways of acquiring knowledge. Someone learned Spanish by
not being afraid to speak it, no matter how bad it was. Someone became a master
chef by trying a lot of disgusting recipes. Someone became a great athlete by
being a rookie for a long time, trying to make a big business, playing a
thousand games of chess, exchanging stories with others... all these can help
you accumulate more knowledge.
You gain
knowledge for working to develop your skills and expertise, and you earn money
for using those skills and expertise to help others.
But knowledge
is not just a tool used to create wealth, it is wealth itself.
Gaining
knowledge should not be viewed solely as a means to help you achieve other
goals. Knowledge is a worthy goal in itself.
Time
If money is
the most obvious form of wealth, time is its opposite. Time is an asset you
can't see. Time has no such things as expensive possessions and a good salary
to show off. Time is so indifferent that you hardly notice it.
If monetary
wealth is best shown through luxuries, the abundance of time is best shown
through nothingness.
Money and
wealth are shown to the world on scoreboards, but time is measured in an
hourglass that no one can see, not even you. As we earn more and more money,
monetary wealth increases but time becomes scarcer. When you are the poorest
financially, you are the one with the most time, but when we have the time, we
rarely notice.
We realize
the value of time only when it is almost running out.
In theory,
the currency has unlimited upside. The world's richest man, Elon Musk, is now
worth more than $200 billion. But one day, someone (maybe Musk!) could be worth
$500 billion, or even $1 trillion. There is nothing you can do about this possibility.
Time is just
the opposite. Our time is strictly limited, our money generally increases with
age, but our time decreases with age. You can't buy more time, and you never
know how much time you have left.
If wealth is
measured in increments of time, young people are richer than anyone. Of course
it would be great to have $100 billion. But if you're young, how many years are
you willing to sacrifice for Bezos' fortune?
Or how about
we turn the question around? How much do you think Bezos is willing to give to
trade places with someone like me who is 25 years old and will never become a billionaire?
Maybe all of them. He has pledged to invest billions of dollars in life
extension technology.
We tend to be
unaware of the presence of oxygen when it’s plentiful, but when it’s scarce we
desperately want more, and our sense of time does the same. Once the money is
spent, you can earn it again. When your time runs out, it's game over.
Opportunity
cost is everything, how much is your hourglass worth?
Health
Health is the
cousin of time. Like time, health is seldom thought of when one is healthy. When
we are young, we tend to have a lot of health. So we eat and drink, never
exercise, it's okay, you're young. We will rejuvenate quickly no matter what.
For example,
in college, no matter how hard you mess with your body, you'll probably be
fine.
But decisions
have compound effects.
In finance,
compound interest is a powerful force. Someone who invests an extra $200 a
month may not see a difference in the early years, but after 30 years they
could be hundreds of thousands of dollars more than someone else.
The clock
keeps ticking.
But the power
of compound interest is not limited to finance. In fact, its most valuable
application is in health.
Inattentiveness
to your health when you are young may not notice any effects early on, but as
you get older, taking a laissez-faire approach to your well-being can be
disastrous. What you eat starts to matter more and more. Whether or not you
exercise starts to matter more and more.
As you age,
your complexion darkens, your metabolism slows, and underlying health problems
become more serious. At this point, the decisions you've made about your health
start to snowball.
Like time, we
rarely think about it when we have it. But what about when you lose it? Health
will become the only thing you can think about. There is a saying that goes,
"A healthy person has a thousand wishes, but a sick person has only one
wish."
And that
patient rarely gets his wish.
When you're
broke but healthy, you have countless options. What's the point if you're rich
but bedridden? What's the use of having a billion dollars if you have nothing
to enjoy?
Relationship
If you lack
relationships, all other forms of wealth become irrelevant. What's the use of
asking for the money if there's no one to share it with you? Of course, you can
go all the way to darkness on the road of single material enjoyment, but this
will not bring you a sense of satisfaction.
The value of
time and health depends on your ability to spend time with the people you care
about. Otherwise, you're wasting your unscheduled schedule and capable body on
frivolous distractions.
It's good to
have a lot of knowledge, but it's best to share that knowledge with others. The
only difference between a master and a hermit is whether there are students or
not.
Humans are
social animals, and relationships are vital to our psyche. We need people who
can laugh and cry together. People were able to share their dreams, stories and
fears. You can fall in love and suffer the baptism of falling out of love. Can
create new memories. You can drive 1000 kilometers on a road trip together,
across the east coast of the United States.
Every little
thing we do comes back to relationships.
The greatest
value of health is that it gives you choice.
A life rich
in all other respects but devoid of relationships can be at best empty and at
worst depressing. What's the point of having the world if there's no one to
share it with? If it means living in one's castle, do you really want to be
king of that castle?
Experience
"The
purpose of life is to experience something that you will be nostalgic for
later."
I generally
agree with this view. Life is about a 90-year period of experience defined by
various other smaller experiences. We are fortunate to live in a time when
experiences are readily available, more accessible than ever.
You can
travel anywhere in the world in 24 hours for less than $1,000. From learning a
foreign language to learning exotic recipes, you can learn anything on the
internet. For the first time ever, we can literally do anything.
If wealth is
for consumption, what better way to spend your wealth of money, wealth of time,
wealth of knowledge, wealth of health, wealth of relationships than doing cool
things with people you care about?
At the end of
the day, our experiences are all we have.
Experiences
are our chances to cash in other forms of wealth for something memorable.
Some
experiences cost money, but the most valuable experiences are not defined by
price tags. I don't remember how much it cost to visit Tromsø, Norway. But what
about seeing the Northern Lights? Priceless.
An evening
spent with cold beer, loud music, a roaring fire and surrounded by friends is
priceless.
Going on road
trips across the American West with my best friend was priceless.
Of all the
trade-offs a person can make, you will never regret exchanging financial wealth
for experiential wealth. But what about missing out on experiences because
you're "too busy at work"? It's hardly worth it.
As a
resource, money is unlimited, but experiences, like time, are finite.
How often do you
have dinner with your grandparents? What about going on a ski trip with your
best friend? How many times have you had the chance to visit a new country on a
whim? What about learning a new skill you've always been interested in?
Communicating
with Argentines in their native language is invaluable.
Money is best
used to fund the experiences you want. Go try something fun. The kind that
lights a fire in your heart.
Imagine if
you spent 40 years maximizing your lower forms of wealth (money) at the expense
of minimizing some higher form of wealth (experiences), and waited until your
twilight years to recapture the experiences you had missed, it is only in vain.
Our goal
should be to have a lot of money and a rich life experience.
When you come
to the end of your life, would you rather be able to fondly recall the good
times you spent with the people you cared about, or would you be satisfied that
you didn't "waste time and money" on these "trivial"
pursuits ?
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