What is Wealth?
With a post title like that I could get really esoteric, but today instead I’d like to concentrate on what Chip Conley would call an Emotional Equation.
Focus x Stoicism x Time x Diversification = Wealth
This comes courtesy of Professor Scott Galloway in his latest newsletter, called “The Algebra of Wealth“. In his well thought out piece, he gives a financially focussed definition of wealth (“Rich is having passive income greater than your burn”) to frame his thoughts. I am passionate about education in the area of personal finance, so do highly recommend reading this piece, Professor Galloway is similarly passionate about helping us all learn how to build wealth to create that financial independence, something that is actually quite simple to do over time once we demystify it.
Now, the formula above could readily be applied to many non-financial definitions of wealth. That is what brought me to share the article with you, more than anything.
Let me then take his four elements of that equation to muse on Wealth in a non-financial way.
Reframing Wealth, first of all, let’s start with Professor Galloway’s focus on building up sufficient passive income (over time) to meet our needs. As he outlines in the article, his father has retirement income of $48,000, yet as he only spends $40,000 and is happy with the life that supports, by Scott’s definition he is wealthy.
So, a basic point here is to ensure you have enough financial wherewithal between “active income” (being paid for work you do) and “passive income” (income generated from your assets that you don’t need to work to generate).
This may not be as simple to consider as it seems, as one area oft overlooked is to get really clear about what we need as opposed to what we want.
For example, let’s say that, over decades, you have built up equity in your home. If you decided to buy a bigger, more expensive one, you will need income every month to pay off the mortgage needed for that house plus to cover the running costs of a big place. However, if, say, you downsize in size and location where your equity can buy a smaller house without a mortgage, you automatically need less income to meet your needs (perhaps like Professor Galloway’s father does, as I doubt $40,000 supports a lifestyle in LaJolla which includes paying the mortgage on a house in that area!). Effectively by living in a smaller, less expensive house you have made it easier for yourself to be “rich”.
I raise this example as I know many people who keep expanding their “burn rate” without really thinking too much beyond what their peer group does, rather than considering what will meet their real need and make them happy.
Ah, so now we get into wealth in non-financial terms, in what we need, what we want, what makes us happy, content.
This starts out with some introspection on who we are and what we want from life for ourselves and to contribute to others.
Now, assume you have this, so then let’s look again at the formula:
Focus x Stoicism x Time x Diversification = Wealth
A few immediate thoughts of my own on each:
Focus
- Once you are clear on who you are and what you want, stay focussed on this and be disciplined with it. If it is about learning new skills, then make the time for it. If it is about the types of people that help you grow, that align with you, or simply it could be that make you laugh, bring you joy, then spend time and energy with them and be focussed enough to spend less time (or cut out altogether) those who don’t. As Marie Kondo might put it, “does it bring you joy?”. If not, eliminate it. Declutter your life.
Stoicism
- Stoicism is closely linked to being clear on who you are and to focus. It can simply be put as being unaffected by anything outside your control, or, as Frankl put it: ““Everything can be taken from a man but one thing: the last of the human freedoms—to choose one’s attitude in any given set of circumstances, to choose one’s own way.”
Time
- As Charlie Munger is fond of saying, compound interest is the eight wonder of the world. For more on that in a financial wealth sense, again read the article from Prof Galloway. in another sense, I am someone who often used to love to move fast, to get what I wanted quickly. Over my life I have come to recognise that there is no hurry, in fact, there is often a greater sense of wellbeing and, well wealth, from “getting rich slowly”, and oh, again I mean rich beyond money. For me, paradoxically, being patient also allows me to be happier in each moment along the way. I remember an old distinction between being a traveller and a tourist: “it is about the journey, not the destination”. Just as in this midwinter of February we see the days getting longer by four minutes per day, the long summer evenings slowly and patiently getting closer, I can take joy in recognising the length of each day as that time passes.
Diversification
- A term almost always used around financial investment, yet equally valid in bringing you riches and wealth in other forms, as long as you remain focussed and take your time. Last year in June I began a weekly show, WhatComesNextLive. As of the date of writing this, I have now had 31 guests on the show. An unintended consequence of this has been that this is creating some “alumni” connections between guests, who come from often wildly diverse backgrounds yet are linked by having come on the show to talk about “What Comes Next” around the theme of #OpenLeaderhip. Also, for me and what makes me feel “rich”, every single time I host a guest on the show I get an immense feeling of gratitude at how rich my life is that this is part of it, to benefit from the wisdom and abundance of all of these people.
Scott summarise his advice in the article to:
Focus on what matters. Be a Stoic in the face of temptation. Use Time to your advantage. Diversify your investments.
However you are looking at wealth, this advice remains relevant and wise. I hope you take some time to introspect on what wealth means to you, then perhaps take those four elements and make some notes for yourself to act as your guide. Oh, and read Scott’s article, why don’t you? 😉