Building and Maintaining Wealth

From: alexhormozi

Becoming a millionaire involves understanding key principles and strategies that extend beyond simply earning money to encompass owning assets, strategic focus, and long-term vision. Achieving financial success and wealth is a journey with defined levels and insights that can guide individuals towards enduring prosperity [00:00:05].

Defining a Millionaire [00:00:11]

A millionaire is defined as someone whose net worth, excluding their primary residence, is in excess of one million dollars (assets minus liabilities) [00:00:13]. It’s crucial to distinguish between total net worth and liquid net worth, where liquid net worth refers to assets that can be easily traded [00:00:44]. The speaker himself achieved millionaire status in his early 20s, had his first cash million by age 27, and crossed $100 million in net worth by age 31, having helped over a hundred others create million-dollar-plus net worths [01:01:01].

Two Paths to Wealth: Earn vs. Own [01:02:26]

There are two primary ways to become a millionaire: earning your way or owning your way [01:02:27].

1. Earning Your Way: This involves making a significant income and saving a large portion of it. For example, earning $200,000ayearandsaving100$1 million liquid net worth after taxes [01:01:45]. This path often requires a long time, with living expenses and taxes working against accumulation [01:03:14].
2. Owning Your Way: This involves acquiring assets like businesses or real estate that appreciate in value [01:02:08]. An entrepreneur is essentially investing, heavily indexed on their own “stock” (their business) [01:02:18]. For instance, a business making $250,000ayearinprofitwithoutdirectownerinvolvementcouldbesoldfora$1 million net worth at a four-times multiple [01:02:50]. This path can be significantly faster, as time works as an ally through multipliers rather than diminishing returns [01:03:23]. The focus here is on building wealth through equity appreciation [01:02:23].

Focus Over Diversification [01:03:31]

Early in the wealth creation journey, diversification is often misunderstood. To quote Warren Buffett, diversification is “a hedge against ignorance” [01:03:38]. The more you know, the less risky it becomes to focus [01:03:42].

Your most valuable resource when starting out isn’t money; it’s time and attention [01:03:54]. Spreading attention across multiple opportunities (e.g., crypto, day trading, real estate, Airbnb) means none reach their potential [01:04:00]. The myth that millionaires have seven income streams is true, but they achieved wealth by going “all in” on one income stream until it overflowed, then diversified to maintain wealth [01:05:05]. Focus leads to disproportionate returns [01:05:48].

Stages of Entrepreneurship [01:06:37]

New entrepreneurs often quit prematurely due to a lack of understanding of the process:

1. Uninformed Optimism: Excitement about an opportunity, unaware of challenges [01:06:40].
2. Informed Pessimism: Realization that the task is harder than initially thought, discovering hidden complexities [01:06:54].
3. Valley of Despair: The point where most people quit, believing the grass is greener elsewhere and restarting the cycle [01:07:10].
4. Informed Optimism: Understanding the process and having a clear path forward, even if not yet achieved [01:08:10].
5. Achievement: External accomplishment of the goal [01:08:35]. The key is to push through the Valley of Despair to reach informed optimism and eventual achievement [01:08:24]. This process builds understanding and reduces the desire to diversify prematurely [01:08:55].

The Long Game [01:09:30]

Building wealth sustainably requires a long-term perspective. Rushing often leads to building a “flimsy” structure that cannot scale [01:09:51].

• Building Right: Instead of quickly stacking something that will collapse, build piece by piece with a stable foundation [01:10:04]. A business built “wrong” (e.g., focused solely on initial sales without product improvement) will hit a ceiling [01:10:41].
• Product-Promote-Fix Cycle: The correct way to build is to:
  1. Create an amazing, valuable product/service [01:11:15].
  2. Promote it to let people know [01:11:21].
  3. Continuously improve the product based on feedback, turning customers into advocates who tell others [01:12:03]. This builds a strong foundation for continued growth [01:12:30].

Tactics for the First Million [01:13:08]

Find a Hungry Crowd [01:13:13]

Success in business is heavily dependent on the market. The “hungry crowd” analogy illustrates that a great product is secondary to a strong market [01:13:47].

• Market First: The market is always the strongest variable in how much money you make (e.g., selling toilet paper during COVID) [01:14:05]. Supply and demand are core to economics [01:14:18].
• Superior Offer: If the market is normal, a superior offer is the next most powerful lever (e.g., “start for free, only pay if you get results”) [01:14:40].
• Ability to Persuade: Your sales and marketing skills [01:15:06]. Ideally, target a big market with an amazing offer and be a great persuader [01:15:08].

Four Market Criteria [01:15:39]

When identifying a market, look for:

1. Pain: People who are in desperate need of your solution (must-have, not want) [01:15:44].
2. Purchasing Power: They must have the ability to buy [01:15:53].
3. Easy to Target: You must be able to find them [01:16:15].
4. Growing Market: The overall market should be expanding, not shrinking [01:16:45]. All four criteria are necessary for sustainable growth [01:17:20].

One Avatar, One Product, One Channel [01:17:30]

This is the simplest formula for reaching $2 million-plus [01:17:34]:

1. One Avatar: Be very clear on the specific person you aim to help [01:17:40].
2. One Product: Avoid over-complicating early businesses by selling multiple things [01:17:47]. Focus on selling more of the same thing to the same person [01:18:11].
3. One Channel: Reach $1 million-plus on any single advertising channel (outreach, content, paid ads) without needing to add new ones [01:18:31]. Adding channels too early complicates the business [01:19:18]. The goal is to master one channel before expanding [01:19:49].

Crafting a Compelling Offer: The Value Equation [01:20:13]

Value can be broken down into four variables [01:20:39]:

• Dream Outcome: What the prospect deeply desires [01:20:40].
• Perceived Likelihood of Achievement: How likely the prospect believes they will achieve the dream outcome through your offer [01:21:30].
• Time (Micro & Macro):
  • Micro: Daily time commitment required [01:22:23].
  • Macro: Total duration to achieve the macro result [01:22:38].
• Effort & Sacrifice:
  • Effort: New unwanted actions required [01:23:02].
  • Sacrifice: Desired actions that must be stopped [01:23:09].

To maximize value, increase dream outcome and perceived likelihood, while decreasing time, effort, and sacrifice [01:23:41]. Hidden costs beyond money (like time and effort) are often the most expensive parts of an offer [01:24:28]. Nailing the offer is strategic and affects all departments of a business [01:25:21].

Marketing and Sales [01:26:13]

After creating the product, the next step is promotion and sales [01:26:21]. This is part of a virtuous cycle: create a product, promote it, and then go back to fix and improve the product, promoting it further [01:26:47].

Eight Ways to Advertise [01:26:58]

There are eight methods to advertise, divided into two categories [01:27:01]:

• Four You Can Do:
  1. Warm Outreach (one-to-one to friends/network) [01:27:06].
  2. Content (one-to-many to people who know you) [01:27:09].
  3. Paid Ads (one-to-many to strangers) [01:27:12].
  4. Cold Outreach (one-to-one to strangers) [01:27:16].
• Four Others Can Do For You (Leverage):
  1. Referrals (from customers) [01:27:28].
  2. Employees (who help with the core four) [01:27:30].
  3. Agencies (who run core four activities for you) [01:27:36].
  4. Affiliates/Influencers (who have an audience and promote your product for compensation) [01:27:44].

Founders should be integrally involved in marketing and sales early on to learn essential skills and be able to teach others later [01:28:40]. Sales should follow a choreographed, step-by-step process, which the founder develops through trial and error, then documents for others [01:29:19].

Paying Yourself [01:30:41]

How much and when to pay yourself is subjective and depends on individual risk tolerance [01:30:47].

• Benefits of Taking Cash Out:
  • Forces cash flow generation from the business [01:31:30].
  • Forces personal spending discipline [01:31:50].
  • A full bank account reduces stress in business decisions, leading to better choices [01:32:08].
• Allocation Model: A common model for capital-intensive businesses suggests:
  • 33% to personal income [01:32:49].
  • 33% to growth (e.g., new locations/hires) [01:32:53].
  • 33% to rainy day/cash reserves (for both business and personal) [01:32:56].
• Watermark Strategy: Define a profit level needed for growth (e.g., to hire two new people) and distribute everything above that watermark [01:33:02]. Balancing investment back into the business with personal consumption of the fruits of labor is key for a well-rounded life [01:32:50].

Setting Goals: Focus on Inputs [01:34:06]

Instead of focusing on outcomes (outputs), set goals around activities (inputs) [01:34:19].

• Inputs Drive Outputs: Define what you will do that would make it unreasonable not to hit desired outputs [01:35:00].
• The Rule of 100: If you do 100 primary actions over 100 days, you’ll usually get your desired first result [01:35:17]. Examples include 100 daily reach-outs, 100 minutes of content, or $100/day in ads [01:35:40]. This allows control over what you do every day, regardless of immediate sales [01:36:00].

Scientific Method for Goal Setting [01:36:19]

1. Problem: What problem are we trying to solve? (e.g., low website conversion rate) [01:36:26].
2. Hypothesis: An “if-then” statement (e.g., “If we redesign the website, then we will get increased conversions”) [01:36:56].
3. Measure: How will we measure X (the action) and Y (the result)? (e.g., “Did we redesign it? Yes/No” and “Is conversion rate greater than 10%? Yes/No”) [01:37:19].
4. Did It & Did It Work? Evaluate whether the action was taken and if the desired outcome occurred [01:37:43]. This iterative process allows for continuous improvement and identifying wrong hypotheses or constraints [01:38:15].

Staying Rich and Getting Richer [01:38:26]

Only Get Rich Once [01:38:28]

A key philosophy is to “only have to get rich once” [01:38:36]. This means playing the game correctly so that after achieving wealth, you are playing with “house money” and never take bets that risk losing everything [01:38:46].

• Bold Bets with Small Money: Fortunes are created by taking huge risks with small amounts of money [01:40:01].
• Preserving Fortunes: Fortunes are preserved by taking small risks with lots of money [01:40:04]. This aligns with Jeff Bezos’s idea that “big winners pay for so many experiments,” but once a home run is hit, you shouldn’t have to bet everything again [01:39:33].

The Quad Marketing Calendar [01:40:22]

To build a sustainable, valuable business, you need to market in four directions simultaneously [01:40:39]:

1. To Prospects: To acquire new customers [01:40:42].
2. To Customers: To encourage repeat purchases and increase lifetime value [01:41:21].
3. To Candidates: To attract and convert new employees [01:41:04].
4. To Employees: To keep them engaged, educated, and help them ascend in value [01:41:39].

Neglecting marketing to employees means the founder becomes a “genius with a thousand hands,” unable to scale effectively [01:41:50]. Building enterprise value means making the business’s structure, processes, and people the “genius,” rather than relying solely on the founder [01:43:09]. This shifts a business from an income generator to a valuable, sellable asset [01:43:18].

Reputation (Brand Building) [01:44:44]

A reputation or brand is an association between something known and something unknown [01:46:08].

• Building a “Bouquet”: Personal life experiences, skills, and character traits combine to create a reputation [01:45:05]. Similar experiences strengthen the perception of expertise, while negative experiences can significantly tarnish the whole bouquet [01:45:23].
• Associating Value: A strong brand associates desired qualities with a company or individual [01:46:19].
• Customer Surplus (Goodwill): Providing value in excess of what was paid creates “goodwill,” which compounds multiplicatively, not just additively [01:48:36]. This compounding goodwill can build a brand much faster than revenue [01:49:36].
• Protecting Reputation: Risking your reputation for short-term gains (the “short money”) can undo years of goodwill [01:50:29]. As Charlie Munger suggests, any number multiplied by zero is zero; one bad decision can erase years of good ones [01:50:21].

Compounding [01:51:35]

Compounding is when something multiplies upon itself, often referred to as the “eighth wonder of the world” [01:51:42].

• Long-Term Perspective: Compounding only truly unlocks with a long-term perspective. Early growth may seem small, but over decades, it becomes exponential (e.g., Warren Buffett’s wealth growth) [01:52:26].
• Equity as a Vehicle: Equity (ownership in businesses) is one of the greatest compounding vehicles because capital can be reallocated within the same asset [01:52:56].
• “Boring is What Makes You Rich”: Sticking with a plan for a long time, even when it feels boring, is where the greatest compounding happens [01:54:16]. As Charlie Munger states, “the money isn’t made in the buy or the sell, it’s made in the wait” [01:54:20].
• Patience and Skills: Patience means figuring out what to do in the meantime while your long-term plan unfolds [01:54:53]. Developing skills gives you something to do, allowing you to “ignore and let it be” without interrupting the compounding process [01:56:31]. The Marshmallow Test demonstrates that successful individuals employ strategies to delay gratification and manage the “meantime” [01:56:25].

Enjoying Your Wealth [01:57:05]

There are two levels of wealth [01:57:07]:

1. Personal Needs Met: All personal needs and desires are taken care of [01:57:09]. This level of luxury living can be surprisingly attainable (e.g., $150,000/monthinexpensesequatestoabout$2 million/year after tax income) [01:58:10]. It’s important to define your personal dream list and what truly brings enjoyment, rather than pursuing arbitrary large sums [01:58:54].
2. Unlimited Wealth (Playing the Game): Using money to make more money, playing the game for its own sake [01:57:14].

Enjoying wealth isn’t about not working; it’s about gaining freedom to work on things that are worth doing [01:59:50]. Humans thrive with purpose and challenges; constant ease leads to weakness [01:59:58].

Infinite Games [02:02:06]

The best games in life are infinite, not finite [02:02:07].

• Marriage: The point is to stay married, not just get married [02:02:11].
• Business: The point is to stay in business, not just win at business [02:02:17].
• Health: It’s about staying healthy over decades, not just for a short period [02:03:08].

This infinite mindset redefines victory: the act of playing the game itself secures victory [02:02:44]. As Winston Churchill said, “You win as long as you never quit” [02:03:29]. This blueprint outlines not just how to get rich, but how to build and maintain wealth sustainably and joyfully over a lifetime [02:03:39].