How leverage separates you from the wealthy
Exchanging Time For Money
What’s the goal of financial freedom? The key word for me is “freedom”. I want to create an ever-widening gap between effort and the amount of money derived from that effort. Wider the gap the better.
The goal is to have outsized returns on our efforts, which means we should avoid exchanging our time for money. This is a linear growth path, no matter how much we’re making per hour, we’re limited by the number of hours and our ability to serve.
Here are two quotes from Naval Ravikant that provide more context to the above.
“If you are paid for renting out your time, even lawyers and doctors, you can make some money, but you’re not going to make the money that gives you financial freedom. You’re not going to have passive income where a business is earning for you while you are on vacation. ”
“An old boss once warned: “You’ll never be rich since you’re obviously smart, and someone will always offer you a job that’s just good enough.”
This second quote cut deep when I read it for the first time. I’ve convinced myself that the corporate path is “safe” compared to going to work on my own (i.e. solopreneur), but the more I think about it, the more I realize how wrong I am. The corporate path feels safe, but you’re completely reliant on others for income, exchanging time for money, never allowing yourself to create proper wealth.
Here’s another quote from Warren Buffet to cut even deeper.
“If you don’t find a way to make money while you sleep, you will work until you die.”
“Work until you die…” ouch. Working until you die isn’t necessarily a bad thing. Honestly, I hope I work until I die, but the type of work is critical to call out. I want to work for the enjoyment of working, not out of necessity to support myself because the experiment of social security collapses in 2034.
Leverage
Now that we know that decoupling our inputs (work) from our outputs (income) is key, how do we do it? Leverage.
Leverage will allow us to create non-linear growth, instead of the linear growth provided by exchanging one’s time for money.
As Naval would say…
“Without ownership, your inputs are very closely tied to your outputs. And you can’t earn nonlinearly.”
Leverage comes in four different forms – Labor, capital, code, and media. Labor was the first form of leverage, think of the industrial revolution. Each factory’s scale was limited by the number of people performing similar tasks. But labor isn’t the ideal form of leverage.
Naval – “Labor leverage will impress your parents, but don’t waste your life chasing it.”
Think of leverage as a timeline, in the past, we had permissioned leverage and today we have permissionless leverage.
For both labor and capital, we need permission from others to create leverage. Either someone commits to working for us or provides us with money to invest (i.e. Warren Buffet).
Side note: Here’s Alex’s long-form and short-form explanation of a similar topic.
Ideally, we’re able to utilize the new forms of leverage – code, and media. Both are permissionless. I can create an application and once I’ve created it that app continuously works on my behalf, without me needing to intervene too frequently. Media is the same. I can create content, publish it on the internet, and have people consume that content continuously as long as my site is up without any additional effort.
Naval – “If you can’t code, write books and blogs, record videos and podcasts.”
I like many of you lean on the media side, but the code side is becoming more accessible as generative AI grows in capability.
The Ultimate Challenge
Now we’re onto the most difficult part of this idea, figuring out where to target this leverage. In other words, what in the hell should I do with my time?!
This is where I’m at currently and will likely be in the coming years. Fortunately, we’re in good company. Naval Ravikant and Paul Graham both stated that figuring out what to do is the ultimate challenge. Once you know where to direct this leverage, for those with discipline and curiosity you’re bound to succeed with enough time.
Naval – “If you don’t know yet what you should work on, the most important thing is to figure it out. You should not grind at a lot of hard work until you figure out what you should be working on.”
Paul – “How many people even discover something they love to work on? A few hundred thousand, perhaps, out of billions.
It’s hard to find work you love; it must be if so few do. So don’t underestimate this task. And don’t feel bad if you haven’t succeeded yet. In fact, if you admit to yourself that you’re discontented, you’re a step ahead of most people, who are still in denial. If you’re surrounded by colleagues who claim to enjoy work that you find contemptible, odds are they’re lying to themselves. Not necessarily, but probably.”
How does one take on such a herculean task? Naval and Paul both have advice on the how.
Naval – “Whenever you can in life, optimize for independence rather than pay.”
Anytime you’re given an offer to work on a project, take a new job, etc. ensure you’re optimizing for independence. This optimization allows for space in your days, weeks, and months to enable the personal exploration and creation needed to uncover where your true curiosity sits.
Next, Paul provides a way to test that you’re not settling but truly seeking what drives your curiosity. Always produce.
“Another test you can use is: always produce. For example, if you have a day job you don’t take seriously because you plan to be a novelist, are you producing? Are you writing pages of fiction, however bad? As long as you’re producing, you’ll know you’re not merely using the hazy vision of the grand novel you plan to write one day as an opiate. The view of it will be obstructed by the all too palpably flawed one you’re actually writing.
“Always produce” is also a heuristic for finding the work you love. If you subject yourself to that constraint, it will automatically push you away from things you think you’re supposed to work on, toward things you actually like. “Always produce” will discover your life’s work the way water, with the aid of gravity, finds the hole in your roof.
Of course, figuring out what you like to work on doesn’t mean you get to work on it. That’s a separate question. And if you’re ambitious you have to keep them separate: you have to make a conscious effort to keep your ideas about what you want from being contaminated by what seems possible.”
Even though we don’t have a set destination, at least we have a process of getting there, no matter how chaotic.