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The Algebra of Wealth: A Formula for Financial Freedom

Are you tired of hearing that getting rich is just about luck, timing the market, or being a genius investor? What if the true path to wealth could be reduced to a single, manageable equation?

Entrepreneur Scott Galloway offers his "algebra of wealth," a formula emphasizing discipline, focus, and time. While acknowledging that many paths exist (citing Jay-Z, Warren Buffett, and Vladimir Putin), he shares the specific framework that worked for him and what he teaches his students. He cautions that luck is often conflated with talent and stresses that personal circumstances, including the circumstances of your birth, make a significant difference.

The resulting formula for wealth is: Focus + (Stoicism x Time x Diversification). The answer to "How do we get rich?" is simply: slowly.

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1. Focus

Focus is a more powerful indicator of future success than talent or intelligence.

Career and Positioning:

• Focus on finding a skill you are great at and that people will pay you for. Success will often make you passionate about the work, even if it wasn't your initial passion.

• Position yourself for success by getting certified and moving to a major city to compete against the best.

• Identify and ride major themes poised for growth. Following globalization and digitization, the next major wave is dispersion (in healthcare, work, education, and fintech), causing "tidal waves of change".

Relationships:

• The single most important economic decision is choosing your partner. Research shows married individuals experience a 77% greater increase in per-person net worth compared to single counterparts.

• To maintain the relationship, do not keep score; bring generosity, forgiveness, and engagement—or continue to show up.

2. Stoicism

The Stoic task is determining what is under control and what is not. For wealth, this means discipline and saving.

Discipline and Saving:

• Living below your means is the "clearest blue flame path to financial freedom". Being rich is determined by spending habits, not salary. Holding onto money is harder than making it.

• The most powerful forward-looking indicator of financial freedom is how much you save, not how much you earn. For example, investment bank partners earning millions but spending every penny are "poor," while his father, earning $50,000 but saving $10,000, is "rich".

• Temperance and discipline are necessary virtues in the age of "super abundance". Avoid consumption temptations like upgrading airline classes, doom-scrolling, or constantly checking cryptocurrency prices for a dopamine rush. Investment enhances economic security, while consumption provides that dopamine rush.

Investing Rules:

• If you are serious about investing, you should not be willing to lose everything; anyone who says otherwise is talking about gambling.

• Simple strategies work: investing in low-cost index funds over the last decade would have outperformed 90% of alternative investment funds. No one has ever lost money holding diversified stocks for at least 20 years.

3. Time

Time is a critical multiplier: an ally in the long term, but an enemy in the short term. Do not squander the time you have.

• Invest early and make it a habit. The math of compound interest proves that starting early with a little can outperform starting later with a lot.

• An individual who invests $4,000 annually from age 20 to 40 (stopping at 40) ends up with over 600% morethan someone who invests $4,000 annually from age 40 to 65 (assuming a 10% annual return).

• Remember: it’s "time in the market, not timing the market" that counts.

4. Diversification

Diversification is your Kevlar. It ensures that no single bad decision results in a fatal blow, similar to how a bulletproof vest prevents the bullets from killing you.

• Galloway shared personal examples of how diversification protected him, including selling Netflix stock early ("it hit the Kevlar but wasn't fatal") and surviving a startup failure (Red Envelope) that caused him to lose 70% of his wealth.

• Key investment rules he adopted: invest 10% to 30% of everything earned; hold investments for at least a decade; and never put more than 5% (previously 10%) of net worth into any one thing.

• You can participate in opportunities offering asymmetric upside, but never "bet the ranch". You don't need to be a hero; just make sure the setbacks never kill you.

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The Bottom Line:

Financial and emotional security come down to discipline, generosity, and investing every damn day. How do we get rich? The answer is: slowly.

Now, the big question: Are you ready to trade in your constant doom scroll or daily Bitcoin checks for the blue flame path of financial freedom?