Nivi: Next you go into more specific details on how you can actually get rich, and how you can’t get rich. The first point was about how you’re not going to get rich: “You are not going to get rich renting out your time. You must own equity—a piece of the business—to gain your financial freedom.”
Naval: This is probably one of the absolute most important points. People seem to think that you can create wealth, and make money through work. And it’s probably not going to work. There are many reasons for that.
But the most basic is just that your inputs are very closely tied to your outputs. In almost any salaried job, even at one that’s paying a lot per hour like a lawyer, or a doctor, you’re still putting in the hours, and every hour you get paid.
So, what that means is when you’re sleeping, you’re not earning. When you’re retired, you’re not earning. When you’re on vacation, you’re not earning. And you can’t earn non-linearly.
If you look at even doctors who get rich, like really rich, it’s because they open a business. They open like a private practice. And that private practice builds a brand, and that brand attracts people. Or they build some kind of a medical device, or a procedure, or a process with an intellectual property.
So, essentially you’re working for somebody else, and that person is taking on the risk, and has the accountability, and the intellectual property, and the brand. So, they’re just not gonna pay you enough. They’re gonna pay you the bare minimum that they have to, to get you to do their job. And that can be a high bare minimum, but it’s still not gonna be true wealth where you’re retired.
Renting out your time means you’re essentially replaceable
And then finally you’re actually just not even creating that much original for society. Like I said, this tweetstorm should have been called “How to Create Wealth.” It’s just “How to Get Rich” was a more catchy title. But you’re not creating new things for society. You’re just doing things over and over.
And you’re essentially replaceable because you’re now doing a set role. Most set roles can be taught. If they can be taught like in a school, then eventually you’re gonna be competing with someone who’s got more recent knowledge, who’s been taught, and is coming in to replace you.
You’re much more likely to be doing a job that can be eventually replaced by a robot, or by an AI. And it doesn’t even have to be wholesale replaced over night. It can be replaced a little bit at a time. And that kind of eats into your wealth creation, and therefore your earning capability.
So, fundamentally your inputs are matched to your outputs. You are replaceable, and you’re not being creative. I just don’t think that, that is a way that you can truly make money.
You must own equity to gain your financial freedom
So everybody who really makes money at some point owns a piece of a product, or a business, or some kind of IP. That can be through stock options, so you can be working at a tech company. That’s a fine way to start.
But usually the real wealth is created by starting your own companies, or by even investors. They’re in an investment firm, and they’re buying equity. These are much more the routes to wealth. It doesn’t come through the hours.
You want a career where your inputs don’t match your outputs
You really just want a job, or a career, or a profession where your input is don’t match your outputs. If you look at modern society, again this is later in the tweetstorm. Businesses that have high creativity and high leverage tends to be ones where you could do an hour of work, and it can have a huge effect. Or you can do 1,000 hours of work, and it can have no effect.
For example, look at software engineering. One great engineer can for example create bitcoin, and create billions of dollars worth of value. And an engineer who is working on the wrong thing, or not quite as good, or just not as creative, or thoughtful, or whatever, can work for an entire a year, and every piece of code they ship ends up not getting used. Customers don’t want it.
That is an example of a profession where the input and the outputs are highly disconnected. It’s not based on the number of hours that you put in.
Whereas on the extreme other end, if you’re a lumberjack, even the best lumberjack in the world, assuming you’re not working with tools, so the inputs and outputs are clearly connected. You’re just using an ax, or a saw. You know, the best lumberjack in the world may be like 3x better than one of the worst lumberjacks, right? It’s not gonna be a gigantic difference.
So, you want to look for professions and careers where the inputs and outputs are highly disconnected. This is another way of saying that you want to look for things that are leveraged. And by leveraged I don’t mean financial leveraged alone, like Wall Street uses, and that has a bad name. I’m just talking about tools. We’re using tools.
Computer is a tool that software engineers use. If I’m a lumberjack with bulldozers, and automatic robot axes, and saws, I’m gonna be using tools, and have more leverage than someone who is just using his bare hands, and trying to rip the trees out by the roots.
Tools and leverage are what create this disconnection between inputs and outputs. Creativity, so the higher the creativity component of a profession, the more likely it is to have disconnected inputs and outputs.
So, I think that if you’re looking at professions where your inputs and your outputs are highly connected, it’s gonna very, very, hard to create wealth, and make wealth for yourself in that process.