From: alexhormozi
Achieving a significant net worth, such as $100 million by age 31, often involves learning from past mistakes and adopting specific principles that challenge common beliefs about money and status [00:00:00]. These principles emphasize a focus on return on time, strategic saving, long-term vision, continuous learning, and prioritizing genuine value over superficial status symbols [00:00:09].
Debunking “Passive Income” [00:00:14]
The concept of “passive income” is often misunderstood [00:00:14]. All money is made over time, meaning everyone has a “dollars per hour” rate [00:00:19]. Instead of distinguishing between passive and active income, it’s more useful to consider the “return on time” or how much you make per hour [00:00:49]. Many people fear the idea of trading hours for money, but everyone does, even if the compensation isn’t explicitly denominated in hours [00:00:57].
An obsession with quick, easy, low-effort money can lead to spending heavily on things that promise no time investment, while neglecting activities that actively generate income [00:01:10]. Rather than seeking passive opportunities, focus on investing money back into active income streams that are already proving successful to multiply their effectiveness [00:02:40].
Calculating Your Hourly Rate [00:02:09]
To gain perspective on your earnings, divide your total income from the last year by 2,000 (for a 40-hour work week) or approximately 8,000 (for actual hours of being alive) [00:02:09]. This calculation helps determine if a potential activity is “worth your time” [00:02:31].
The “Buy It Twice” Rule [00:02:53]
A critical rule for managing money is: if you can’t buy something twice (or even three, four, or five times over), don’t buy it once [00:02:53]. This rule encourages you to consider the amount of time it takes to earn the post-tax money for a purchase [00:03:07]. For example, spending 2 hours of a 6-hour shift on lunch reveals the true cost of daily habits [00:03:46]. Feeling the “pain” associated with the time investment before a purchase can drastically shift buying behavior [00:04:22].
Saving money, while not directly making money, provides capital to take on bigger, wealth-generating risks in the future [00:04:37].
The Power of a Decade [00:06:07]
Many people overestimate what they can achieve in a year but underestimate what they can achieve in a decade [00:06:07]. Significant wealth building and life-changing results are possible over a 10-year period [00:06:46]. The key is to commit to a long-term contract with yourself, focusing on compounding potential earnings rather than chasing immediate, smaller gains [00:06:52].
This mindset encourages investing in personal growth and skill development, even if it means foregoing higher immediate income for an internship or opportunity that offers exponential growth over a few years [00:08:10]. The asset to invest in is yourself, using time and effort to gain experience and skills [00:08:31]. In the early stages, when funds are limited, prioritize investing in yourself over traditional investments like the S&P 500, as your personal growth will always outperform the market [00:09:01].
Principles of Wealth Creation [00:09:11]
Only Get Rich Once [00:09:11]
Do not bet what you possess and need for something you don’t possess and don’t need [00:09:15]. This includes being cautious about partnerships, which can often be the riskiest endeavors [00:09:20]. A partner must bring clear contributions that you lack, such as money, experience, or time and energy [00:10:07].
Time Management is Money Management [00:11:26]
Money is an encapsulated version of time [00:11:47]. The wealthiest individuals are those who have learned to best invest their time [00:11:38]. Regularly appraise your calendar to identify opportunities to trade time for more money [00:12:12]. Be aware of the transaction cost of your time, even for leisure [00:12:25]. Consistently trading up the value of your time will increase your income year after year [00:12:41].
Check Your Bank Account Before Social Media [00:12:52]
This habit fosters financial awareness. If checking your bank account causes discomfort, it’s even more crucial to do it [00:12:58]. As Peter Drucker noted, “What gets measured gets managed” [00:13:29]. Awareness of a problem—whether financial or related to other goals like weight loss—prompts conscious or subconscious actions toward improvement [00:13:58]. This consistent monitoring builds discipline and enables delayed gratification [00:14:55].
Learn to Make Money Before Making Money Make Money [00:15:10]
Many young people try to invest small amounts of money, hoping for high returns, often leading to losses [00:15:16]. Instead, focus on actively improving your skills and actions to increase your income [00:15:48]. Investing in your skills to increase your annual earning by 50% will yield far greater returns than chasing a 10% or 20% return on a small initial investment [00:16:14].
The Myth of “No Time” [00:16:29]
Claiming “you don’t have time” is often a lie [00:16:29]. Even with a full-time job or as a student, most people have significant hours between 5 a.m. and 9 a.m. and 5 p.m. and 9 p.m. to dedicate to personal growth [00:16:36]. Reframing current comfort as a future discomfort can motivate trade-offs [00:16:52]. Embracing discomfort today can lead to comfort for decades [00:17:02].
Work has a double effect: you make money, and you’re not spending money while working [00:17:10]. Patience in investing means finding productive activities to do in the meantime, primarily working to have more money to invest [00:17:33].
Understanding Risk [00:19:07]
If you don’t understand how you can lose money in an endeavor, you will lose it [00:19:09]. Optimism is essential for entrepreneurship, but it must be tempered with a realistic understanding of potential downsides and their likelihood, multiplied by a conservative factor [00:19:34].
The Cost of Ignorance [00:20:07]
The biggest cost is ignorance [00:20:07]. The difference between your current reality and your financial goals represents the cost of not knowing how to achieve those goals [00:20:44]. Prioritizing the payment of “ignorance debt” through any available currency (relational capital, favors, or money) is crucial for growth [00:20:59].
Investing in learning, even at a high cost, can be a bet on oneself that cannot be lost [00:22:04]. Lessons learned from education, even unexpected ones, invariably provide more value than their cost [00:22:19]. When providing “free” help or favors, do it completely and professionally, treating it as a paid service to build reciprocity and a network of valuable contacts [00:23:00]. Bartering skills is highly efficient and avoids tax implications on wealth [00:23:54].
Two Types of Knowledge [00:24:05]
To effectively pay down ignorance, understand two types of knowledge:
- Declarative knowledge: Learning about something that exists which you didn’t know existed (e.g., private equity) [00:24:19]. This often reveals “unknown unknowns” and provides breakthroughs by showing how wealthier individuals perceive the world [00:25:15].
- Procedural knowledge: Learning how to do something [00:24:22]. This is more predictable, as you’re learning specific steps for a skill you already know exists [00:25:31].
When investing in access to networks or relationships, the primary gain is often declarative knowledge—discovering new strategies, business models, or tax strategies [00:24:37]. When seeking procedural knowledge, employ a “document, demonstrate, duplicate” approach to truly master the skill [00:27:01].
Status vs. Wealth [00:27:40]
Material possessions like watches or luxury cars are often sought for short-term status, but this comes at the expense of long-term wealth [00:28:04]. You cannot impress someone wealthier than you with assets; you will only impress those below you [00:28:13]. To impress poor people, you outspend them; to impress rich people, you outwork them [00:28:24]. True respect from successful individuals comes from recognizing a shared commitment to hard work and dedication, not superficial displays [00:28:29]. This is a common pitfall of underspending on education and overspending on status.
Buy Time Like a Rich Person, Buy Stuff Like a Poor Person [00:29:12]
Prioritize buying back your low-cost time (e.g., for chores like cleaning, grocery shopping, cooking) to free up more time for high-income-earning activities [00:29:31]. This allows you to leverage your most valuable asset (time) to make more money [00:30:10].
This strategy leads to a double benefit: you make more money by working more high-value hours, and you become more skilled faster due to increased practice [00:31:37].
Reference Groups [00:32:16]
Who you compare yourself to, not who you spend most of your time with, is the highest predictor of your earning potential [00:32:16]. Motivation often stems from lacking something [00:32:25]. To be motivated to make money, cultivate a desire to make a lot more money by observing those who are doing so [00:32:33].
Your “reference group” consists of the people whose opinions you value when making big decisions [00:35:51]. If those people don’t have what you want, disregard their advice [00:36:31]. Only listen to opinions from those whose dreams for you are bigger than your own [00:36:38].
Investing and Spending Habits [00:36:45]
The mindset of “there will always be time to make money later” is the fundamental crux of poverty [00:33:16]. Prioritize investing first, then spend what is left [00:36:47].
Automate Investing, Create Friction for Spending [00:37:33]
Automate money transfers from your paycheck into investment accounts before you see it [00:37:40]. For spending, manualize withdrawals (e.g., writing checks, paying cash) to increase awareness of money leaving your account [00:39:21]. Make it difficult to spend money (e.g., deleting shopping apps, not saving credit card details online) and easy to save [00:39:52]. As you earn more, keep your living expenses fixed rather than increasing proportionally, so more money goes into investments [00:38:02].
Thinking Bigger [00:40:08]
It is often easier to make a million dollars than 100,000 goal often assumes a traditional time-for-money exchange [00:41:01]. However, a goal of a million or $10 million forces a shift in strategy, requiring different tools and a focus on acquiring skills needed for large-scale impact [00:41:17].
The Nature of Money and Wealth [00:41:40]
Do not love money; learn to love making money [00:41:40]. The misconception that “money is the root of all evil” is often misquoted; the original text states “the love of money is the root of all kinds of evil” [00:41:49]. This means an excessive desire for money can lead to unethical or immoral actions [00:42:17].
Money itself is neutral, merely “potential energy” or “bottled time” [00:42:41]. It can be used for destruction or for building hospitals, schools, and educational content [00:42:47]. Fearing money means fearing power [00:42:59]. If your mission is to help the world, making more money amplifies your ability to do so [00:43:06].
Making Others Money [00:43:24]
Your earning potential depends on three variables:
- The total value you create for others [00:43:32].
- Your ability to negotiate how much of that value you retain [00:43:38].
- The scarcity of others who can create that same value [00:43:46].
To maximize earnings, create value in a way that is unique and difficult for others to replicate [00:44:17]. This uniqueness comes from a “skill stack”—a combination of diverse skills and experiences gained over your unique life journey [00:44:29]. Your lived experiences and the time you invest become your competitive advantage and a moat against competitors [00:44:42].
Final Principles [00:45:21]
- Money loves speed [00:45:24].
- Wealth loves time [00:45:27].
- Poverty loves indecision [00:45:29].
This advice, if followed, can help avoid common mistakes keeping people poor and contribute to building and maintaining wealth, as part of a strong financial mindset of wealthy individuals.