Six Types of Wealth
Being rich isn't just a money thing.
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noun: An abundance of valuable material possessions or resources
What comes to mind when you think of wealth? A list of America's ten richest people? Your neighbor with the bigger house, nicer car, and mountain home in Aspen? The multimillionaire CEO of your company? The professional athlete, musician, or movie star?
Sure, all of these people are, in a financial sense, "wealthy."
But money doesn't have a monopoly on wealth. Wealth is defined as "an abundance of valuable material possessions or resources," but nowhere in this definition is money listed as the singular valuable possession or resource.
Which resources you consider valuable is just as important as the abundance of resources themselves. The key is optimizing for the right form of wealth.
Money is the simplest, most obvious form of wealth, because it can be quantified.
- How much is your salary? $100,000.
- How expensive was your house? $500,000.
- How much was your kid's college tuition? $50,000.
- How much is your portfolio worth? $250,000.
Forbes tracks the world's richest people in real-time, so everyone can see just how much money the uber-wealthy have. A hedonic scoreboard for a game that never ends.
Because monetary wealth is so visible, it becomes a point of comparison. Money is the only form of wealth that allows you to look at your neighbor and say "I am richer/poorer than him."
Subconsciously, money becomes a competition. Like any other competition, we want to beat our peers. Make more money. Acquire more possessions. Indulge in more pleasures. Anything to win the game.
What gets missed is that beyond a certain point, money is a seductive scoreboard but a poor measure of wealth. It has diminishing returns. We expect satisfaction from money to look something like this:
But in reality, it looks more like this:
Don’t believe me? A study by Purdue University determined that happiness derived from additional income flatlines after $105,000. That's not to say you won't be happier with $500,000 than with $105,000, but the extra happiness derived from every additional dollar falls to near zero. You have to really work to move the needle as your income increases past this critical point.
If you stop and think about it, it makes sense. Additional dollars have an outsized impact on your lifestyle when your income is lower. It becomes easier to pay rent. You have a safety net. You can afford a vacation or two.
However, as your income continues to scale up, you can buy bigger houses, nicer cars, fancier meals, and better clothes, but you can’t go anywhere or do anything new. You just spend additional money on more lavish renditions of your current lifestyle. If you can cover your bills, spend money on experiences, and save/invest the rest, you are in a great place. Everything else is extra.
There is actually a negative paradox associated with having extravagant amounts of wealth:
Some luxuries won't make your life any better, but losing them after having experienced them will certainly make your life worse. - Nassim Taleb
The biggest problem with pursuing monetary wealth over everything else is the opportunity cost associated with it. How many hours will it take to scale your income from $250k to $500k? $1M? $10M? Will any amount of money ever be enough? What other forms of wealth will you have to sacrifice to get there?
Is this really the game that you want to win?
Knowledge, like money, is an accumulated form of wealth. However, unlike money, it is difficult to compare "knowledge" from person to person. The polyglot, the master chef, and the world-class investor are all rich in knowledge, but their knowledge takes different forms.
Mispronouncing different Spanish phrases for hours and hours is how you acquire knowledge. Making dozens of disgusting dishes before the recipe *clicks* is how you acquire knowledge. Sucking at a sport, attempting to scale a business, playing a thousand games of chess, and exchanging stories with others are all activities that help you accumulate more knowledge.
You receive knowledge for working to build your own skills and expertise, and you receive money for leveraging these skills and expertise to help others.
But knowledge isn't merely a tool used to create wealth, it is wealth in itself.
Knowledge shouldn't simply be acquired to help you reach some other goal. Knowledge is a worthy goal in and of itself.
If money is the most obvious form of wealth, time is its antithesis. A form of wealth that you can't see. Time doesn't flash expensive possessions and large salaries. Time is so nonchalant that you would hardly notice it at all.
If monetary wealth is best displayed through luxury possessions, a wealth of time is best displayed through nothingness.
Monetary wealth displays itself on a scoreboard for the world to see, but time is measured on an hourglass that no one, not even you, can view. Monetary wealth climbs higher as we make more money, but time slowly ticks lower and lower. You are the most time-rich when you are the most financially poor, but we rarely notice when we have an abundance of time.
We only become aware of the value of time when ours is almost gone.
Theoretically, money has unlimited upside. Elon Musk, the world's richest man, is worth upwards of $200B right now. But one day, someone (maybe Musk!) could be worth $500B, or even $1T. Why not?
Time is the inverse. There are hard limits on our time, and unlike our money, which generally increases as we age, our time decreases. You can't buy more of it, and you never know how much time you have left. The relationship between money and time looks something like this:
When wealth is measured in increments of time, the young are richer than anyone else. Sure, having $100B would be great. But if you are young, how many of your years would you sacrifice for Bezos's wealth?
How about we flip the question around? How much money would Bezos sacrifice to switch places with me, a 25-year-old who will never be a billionaire? Maybe all of it. He’s already shown that he wants to invest billions in life extension technology.
Like oxygen, we ignore time when it's abundant, but we desperately want more as it becomes scarce. If you blow all of your money, you can make more. When your time runs out, it's game over.
Opportunity costs are everything, how much is your hourglass worth?
The clock is ticking.
Health is the cousin to time. Much like time, we rarely think of health while we have it. And when we are young, we tend to have plenty of health. Eat like shit, never work out, it doesn't matter, you're young. You'll bounce back.
In college, for example, whether you treat your body like a temple or like a dive bar, you'll probably be alright.
But decisions compound.
In finance, compound interest is a powerful force. The person who invests an extra $200 per month might not see a difference in their early years, but they will be hundreds of thousands of dollars richer in 30 years.
But compound interest isn't solely reserved for finance. In fact, its most valuable application is in your health.
The person who doesn't take care of their health in their youth might not notice any effects early on, but a laissez-faire approach to one's well-being is catastrophic as you grow older. What you ingest begins to matter more. Whether you exercise begins to matter more.
As you grow older, your looks fade, your metabolism slows, and your potential health problems grow more severe. At this point, the decisions that you have made regarding your health begin to snowball.
Much like time, we rarely think of health while we have it. But once you lose it? It is the only thing that you can think about. Confucius put it best when he said, "A healthy man wants a thousand things, a sick man only wants one."
And that sick man rarely finds his wish granted.
Health's greatest value is the optionality it gives you.
When you are healthy and broke, you have a world of options. If you are bedridden and rich, what's the point? What good is a billion dollars if you are incapable of enjoying it?
Every other form of wealth is irrelevant if you have a scarcity of relationships. What good is that money if you have no one to share it with? Sure, you can go further and further down the path of singular materialistic pleasures, but it won't bring fulfillment.
Time and good health are only as valuable as your capacity to spend them with those you care about. Otherwise, you are wasting your open calendar and able body on frivolous distractions.
A wealth of knowledge is all right and good, but knowledge is best used when it is shared with others. The only difference between a master and a hermit is the presence of students.
We are social creatures, and relationships are critical for the soul. We need others with whom we can laugh and cry. Exchange dreams, stories, and fears. Fall in and out of love. Forge new memories. Drive a Uhaul 1,000 miles across the east coast of the US.
To be clear, this photo is in reference to the Uhaul, not the other stuff.
Every little thing we do comes back to relationships.
A life that is rich in all other regards but deficient in relationships is hollow at best, and depressing at worst. What's the point of having the world if you have no one to share it with? Do you really want to be king if it means residing in a castle of one?
One of my Twitter friends, Fed Speak, once said, "The purpose of life is to experience things for which you will later experience nostalgia."
I tend to agree. Life is one ~90-year experience defined by a variety of other, smaller experiences throughout. We are fortunate to live in an era where experiences are more accessible than ever before.
You can travel anywhere in the world in under 24 hours for $1,000 or less. You can learn anything, from foreign languages to exotic recipes, on the internet. For the first time in history, we can quite literally do anything. Meet anyone. As one of the first generations that doesn't have to spend every waking moment simply fighting for survival, we can form deep relationships, pursue a higher calling, and straight up have fun every once in a while.
Out of the 100 billion humans who have walked this Earth, we won the timeline lottery.
What better way to spend your money, use your time, leverage your knowledge, take advantage of your good health, and maximize your relationships than doing cool stuff with those you care about?
At the end of the day, our experiences are all we have.
Experiences are our opportunities to cash in our other forms of wealth for something memorable.
Some experiences cost money, but the most valuable experiences aren't defined by their price tags. I don't remember how much it cost to visit Tromsø, Norway. But seeing the Northern Lights? Priceless.
A night spent with cold beer, loud music, a hot fire, and good friends is priceless.
Engaging with Argentinians in their native tongue is priceless.
Taking a road trip across the western US with my best friend was priceless (except for the Polaris RZR I wrecked in the desert, which was $1200).
Of all the tradeoffs one can make, exchanging financial wealth for experiential wealth is one that you will never regret. But missing out on experiences because you are "too busy with work?" Rarely worth it.
Money is an infinite resource, but experiences, like time, are finite.
How many opportunities do you have to grab dinner with your grandparents? Take a ski trip with your best friends? Visit a new country on a whim? Learn a new skill that always interested you?
Money is best used to fund the experiences that you desire. The fun stuff. The stuff that sets your soul on fire.
Imagine spending 40 years minimizing a higher form of wealth (experiences) to maximize a lower form of wealth (money), before spending your twilight years vainly trying to recapture the experiences that you missed.
The goal is a life rich in experiences, and sufficient in finances.
At the end of your life, would like rather look back fondly on fun times with those you care about, or will you be satisfied that you didn't "waste your time and money" on such trivial pursuits?
Can't take it with you.
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- My friend Lawrence Yeo is one of the best writers in the game (my favorite article that I have ever read online to date is his The Nothingness of Money), and I digest every single thing he publishes. Give his blog, More to That, a read. And make sure to subscribe if you enjoy it as much as I have.
- In April 2021, my friend Rohit wrote a great piece explaining the pros and cons of college. With student debt in the headlines again, I wanted to resurface this as well.