To Become Rich, You Need To Find Leverage

What do the rich actually do differently than the average citizen?

Why are some so incredibly rich, while others work incredibly hard all their lives without ever becoming wealthy?

Leverage is probably the most accurate answer to this question. To become wealthy, you have to find a form of leverage, as Naval Ravikant famously stated. Let me explain.

Leverage Vs. No Leverage

No leverage

Peter works as a waiter and earns $10 dollars an hour plus tips. In total, he earns on average around $15 per hour.

He earns $600 in his 40-hour work week and his earnings are mathematically limited because he has no leverage. He trades his working time for $15 per hour and this time is limited.

The formula of his income is determined by fixed, inflexible quantities.

Working time in hours times his hourly wage equals his income.

Unfortunately, he can’t work 30 hours a day, as he can’t leverage time.

The 3 Forms Of Leverage

Michael, on the other hand, has found a form of leverage.

In fact, he has three. He runs a blog that earns him income from advertising, affiliate marketing, and the sale of his own digital products such as ebooks and online courses.

He doesn’t write all of his posts himself but employs a freelancer to do the writing. Most of his monthly income is invested in stocks, which makes him even more money in the long term.

This way he earns $20,000 a month.

Micheal uses all three forms of leveraging described in the well-known book “The Almanack Of Naval Ravikant” to build up his assets.

1. Labor

By hiring a freelancer, Micheal can scale his blog faster and earn more. So he uses labor as a leverage mechanism.

2. Capital

In addition, Micheal leverages his capital by investing. This type of leverage is described in the book as follows.

Capital is a trickier form of leverage to use. It’s more modern. It’s the one that people have used to get fabulously wealthy in the last century. It’s probably been the dominant form of leverage in the last century.

You can see this by looking for the richest people. It’s bankers, politicians in corrupt countries who print money, essentially people who move large amounts of money around. If you look at the top of very large companies, outside of technology companies, in many, many large old companies, the CEO job is really a financial job.

It scales very, very well. If you get good at managing capital, you can manage more and more capital much more easily than you can manage more and more people. [78]

3. Products With No Marginal Cost Of Replication

While Peter can trade his working time for money only once, Michael can sell his ebooks infinitely often. He has neither more costs nor more time when he sells it 10,000 times compared to only selling it 100 times.

This fact is tremendous leverage that allows him to benefit enormously from his wide reach on the internet.

The final form of leverage is brand new — the most democratic form. It is: “products with no marginal cost of replication.”

This includes books, media, movies, and code. Code is probably the most powerful form of permissionless leverage. All you need is a computer — you don’t need anyone’s permission.

Key Takeaway:

To become wealthy, you need to find some kind of leverage. The three most common forms of leverage are:

• Labor
• Capital
• Products with no marginal cost of reproduction

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