The Algebra of Wealth

My first piece of advice is you should assume you are not Jay-Z, Ronald Read, or Warren Buffett. Each was an outlier, not just in talent but in good fortune

Economic security is just a means to an end. Specifically, the time and resources to focus on relationships without economic stress

WEALTH = Focus + (Stoicism × Time × Diversification)

wealth is the absence of economic anxiety. Freed of the pressure to earn, we can choose how we live

economic security isn’t a function of what you earn but what you keep and knowing how much is enough for you

happiness isn’t “having what you want, it’s wanting what you’ve got.” It’s not about getting more … but ascertaining what you need and applying the right strategy to get you there, so you can focus on other things

Economic security is acquiring sufficient assets—not income, but assets—such that the passive income they generate exceeds the level of spending you choose for yourself—your burn rate

Passive income is money your money makes: interest you make on money you loan to someone else, appreciation in the value of your real estate, dividends paid by stocks you hold, rent paid by the tenant of an apartment you own

passive income … it is any income that’s not compensation paid for working at a job

burn rate is how much you spend, day to day and month to month

If your passive income is greater than your burn, you don’t need to work (though you may want to), because you don’t need the compensation to pay your expenses

That’s wealth. There are numerous paths to it; the reliable ones take time and hard work but are within the grasp of most people. And reaching for it should be a priority, early

ECONOMIC SECURITY = Passive income > Burn rate

Seeking wealth is not always in fashion. In a society correctly concerned about the acceleration of income inequality, wealth looks like the unfair allocation of a rigged system.

Wealth used to be a better seat. Now it’s an upgrade to a better life

The key to happiness is our expectations, and unrealistic expectations guarantee unrealized happiness

Wealth porn … a constant reminder: not of what you’ve achieved but what you haven’t

The system may need fixing; until then, you have to stand it. Better yet, work it and develop the skills and strategies to increase the likelihood you will prosper within it

If the system suits you, play it the best you can. If it doesn’t … play the best you can

until you attain economic security, your time will not be your own and much of your stress will be unproductive

the ultimate objective is to enjoy a life rich in relationships, not to die with the biggest number in the bank

Typically, personal finance advice is built around “retirement” (a clear distinction between working and no longer working). It’s an outdated construct and not central to our philosophy of wealth

I want you to obtain economic security before you stop working. The sooner the better

Once you’ve achieved economic security, you may decide to continue to focus on work and professional achievement

We perform better when we are confident. Work is a bit like dating in this regard—the less you need your job, the more it needs you

You could apply the principles of this book and, with some luck and a lot of hard work, be living on a boat in the Caribbean by age 40, never earning another dollar

You may decide to continue to work, as there are numerous studies showing work can extend your life and well-being

What kills you is stress, and much of this stress is a function of not having economic security. Work without economic stress evolves from necessity to purpose

Wealth is not a matter of intelligence, it’s a matter of arithmetic.” Remember our math: passive income greater than your burn

what’s your burn rate? Or, more precisely, what’s the burn rate you aspire to maintain in perpetuity? This is easier to answer the older you are, as you’re closer to perpetuity

rough out your projected expenses for a year and add them up. Bump it 20% to cover taxes (30% if you expect to live in California, New York, or another high-tax state). That’s your annual burn rate

Now multiply that burn rate by 25. That’s (roughly) your number—the asset base you need to generate passive income greater than your burn

If you need $80,000 a year to cover your burn rate, then $2 million is your number. If you hit that in invested assets, then you win

inflation will bump your number up to more like $5 million. We’ll get to that

Economic anxiety is high blood pressure—always there, waiting to turn a minor ailment into a life-threatening disease

Kids who grow up in low-income households have higher blood pressure than kids who live in wealthy ones

Your pursuit of wealth may be driven by something else. Perhaps validation, or a feeling of purpose. A passion for the good life, luxuries and experiences only money can bring

noble intentions are a good motivation for hard work, and desire is also powerful

You will need motivation, as there is hard work ahead

Most of us will have to go the hard way. It’s simple. Earn money by working hard. Save some. Invest it

If you maximize your income, minimize your spending, and invest the difference wisely, I can claim with reasonable certainty: you will achieve economic security

Executing this plan is not as simple as stating it

Wealth is the product of a life well lived—hard work, frugality, wisdom

it does mean hard work, and it does mean a certain amount of discipline. And it’s worth it

Stoicism is about living an intentional, temperate life in and out of work. It’s about saving money, for sure, but also developing strong character

Focus is primarily about earning an income

income alone won’t make you wealthy, but it’s the necessary first step. And you’re going to need a decent amount of it

we’ll help you plan and navigate a career and maximize the income it generates

Time is your most important asset. It starts and ends with an understanding of the most powerful force in the universe: compound interest

Time is the real currency, the one asset we’re all given at birth, and the foundation of wealth

Diversification is our take on the traditional personal finance questions, a road map for making sound investment decisions and for being an educated participant in the financial marketplace