From: alexhormozi
Achieving significant wealth, such as a $100 million net worth by age 31, requires understanding and implementing specific rules, especially concerning time management and continuous learning [00:00:00]. These principles often distinguish success from repeated financial setbacks [00:00:05].
Redefining Income: Focus on Return on Time
The concept of “passive income” is often a misconception, as all money is made over time [00:00:14]. Every person has a “dollars per hour” rate, whether explicitly stated or not [00:00:28]. Instead of distinguishing between active and passive income, it is more beneficial to consider the spectrum of activity and evaluate one’s return on time [00:00:38].
Most people implicitly trade their hours for money; the difference lies in how that money is denominated [00:00:59]. A key behavioral change involves obsessing less over quick, low-effort money schemes and instead focusing on investing money into activities that significantly multiply existing active income [00:01:10].
To understand your true hourly rate, divide your total earnings by the actual hours you are alive and working, not just a standard 40-hour work week [00:02:20]. If an activity offers a return higher than this calculated rate, it is likely worth your time [00:02:33].
Time-Based Spending Decisions
A critical rule for managing money is: “If you can’t buy it twice, don’t buy it once” [00:02:53]. This principle shifts one’s perspective on spending by considering how much time it took to earn the money for a desired purchase, post-tax [00:03:07]. For example, earning 6 after taxes means a 30 shirt costs a whole shift [00:04:09].
Feeling the pain of the time investment required for a purchase significantly alters buying behavior [00:04:22]. While saving money itself doesn’t make money, it provides the capital to take on bigger, wealth-generating risks in the future [00:04:37].
Long-Term Vision and Investment in Self
People often overestimate what they can achieve in a year and underestimate what’s possible in a decade [00:06:07]. By thinking in terms of a “10-year million-dollar contract,” individuals can realize that life-changing wealth is attainable within a decade [00:06:21]. This long-term perspective encourages making “reasonable bets” that compound over time, leading to inevitable winning rather than relying on chance [00:07:30].
A common mistake is realizing immediate “potential earning” by accepting a good salary now, rather than investing in oneself to compound future earning potential [00:07:48]. The true asset to invest in is “you,” using currency like time, experience, and skills [00:08:29]. Instead of investing limited money in traditional markets, young people should “put in the 500” – meaning invest in themselves, as the return on personal growth will always outperform the stock market [00:09:01]. This aligns with the importance of learning over earning for young people’s success.
The Interplay of Time and Money Management
Managing time is intrinsically linked to managing money [00:11:26]. Everyone receives an equal amount of time each day, and those who get the best returns on their money are those who learn how to best invest their time [00:11:32]. Money can be seen as an “encapsulated version of time,” where for wealthier individuals, the same denomination of money represents less time [00:11:47]. Regularly appraising one’s calendar to identify activities that yield more money per hour is crucial [00:12:12].
The Power of Awareness and Measurement
A simple yet powerful habit is checking your bank account before social media each morning [00:12:52]. As Peter Drucker stated, “What gets measured gets managed” [00:13:27]. Consistent measurement of finances, even if painful initially, creates awareness that drives conscious or subconscious behavioral changes toward improvement [00:13:39]. This discipline fosters the ability to delay gratification, moving from saving money for a day to saving for a quarter [00:15:01].
Prioritizing Learning Over Early Investment
Before attempting to make money make money, it’s essential to learn how to make money [00:15:10]. Young people with limited capital should prioritize investing that money into actively improving their skills and actions, which will yield far greater returns than trying to compound a small sum [00:15:46]. A 50% improvement in one’s skill set will increase annual earnings far more significantly than a 10-20% return on a small investment [00:16:16].
The Cost of Ignorance
The “biggest cost” anyone has is ignorance [00:20:06]. The difference between current income and financial goals represents the cost of not knowing how to achieve those goals [00:20:44]. Therefore, the number one priority should be to “pay down ignorance as fast as possible” [00:21:01]. This can be done through various means, including relational capital (leveraging network), favors, or direct monetary investment [00:21:07].
Investing in learning may involve paying significant sums for access to expertise, even if it means depleting savings [00:21:22]. The lessons learned, even if unexpected, typically provide more value than the cost [00:22:21]. Additionally, using one’s skills to provide full-value favors to experts can build reciprocal relationships, allowing for valuable bartering of knowledge and help, which is an efficient form of trade not subject to taxes [00:22:36].
Two Types of Knowledge
When learning, it’s important to distinguish between:
- Declarative Knowledge: Learning about something (knowledge of existence). This often reveals “unknown unknowns” and broader perspectives, particularly when gaining access to networks of successful individuals [00:24:19].
- Procedural Knowledge: Learning how to do something. This is more predictable, clarifying the specific steps to acquire a skill [00:24:59].
The speaker’s experience with Facebook ads illustrates this: first learning that they existed and how they worked (declarative and basic procedural), then later paying a high hourly rate to learn how to do them at a bigger scale (advanced procedural) [00:25:45]. The “document, demonstrate, duplicate” method was used to master the skill [00:27:20].
Time as the Ultimate Weapon
Buying “stuff” like a poor person while buying “time” like a rich person is a powerful strategy [00:29:12]. This means investing money to outsource low-value, time-consuming tasks (e.g., grocery shopping, cleaning, food prep) to free up high-income earning time [00:29:31]. By doing so, you not only make more money but also become more skilled at your job, leading to accelerated growth [00:31:37].
Work itself serves a dual purpose: it generates income and prevents spending [00:17:10]. Patience in investing involves actively finding productive activities to do in the “meantime” while money compounds [00:17:33]. This often means dedicating significant extra hours to developing skills and building a future business, even while holding a full-time job [00:18:15].
Comparing Yourself to the Right People
Your income potential is highly predicted by who you compare yourself to, rather than who you spend the most time with [00:32:16]. To be motivated to make more money, one must desire it and visually observe those who are achieving far greater financial success [00:32:37]. Impressing wealthier individuals comes from outworking them, not outspending them [00:28:27]. Overspending on status symbols to impress those “below” you is a common trap that hinders long-term wealth [00:28:43].
If you are thinking of making a big decision, the “reference group” whose opinions you value the most will heavily influence your actions [00:35:51]. Only listen to opinions from those whose dreams for you are bigger than your own [00:36:38].
Invest Then Spend the Rest
A fundamental principle adopted by highly successful individuals is to invest first and then spend what’s left over [00:36:47]. This prioritizes the future self over the current self [00:37:18]. To operationalize this, automate investing by having money skimmed off paychecks or automatically transferred to investment accounts, and create friction around spending by manually paying bills and removing easy access to credit cards [00:37:33]. As income increases, maintain a fixed living expense and invest a larger percentage of the surplus [00:38:02].
The Ease of Making More
It is often easier to make a million dollars than 1M or $10M) enables earning more in less time with greater skill [00:41:35].
Love Making Money, Not Money Itself
Money itself is not evil; it is “potential energy” or “bottled time” [00:42:41]. The “love of money” can be the root of evil because desiring it above all else may lead to unethical behavior [00:42:07]. However, if one’s mission is to help the world, making more money amplifies the ability to do good [00:43:09].
The amount of money one can make is determined by:
- The value created for others [00:43:32].
- The ability to negotiate a share of that value [00:43:39].
- The uniqueness of the value created (i.e., how few others can create the same value) [00:43:46].
True uniqueness comes from a stack of diverse skills acquired through lived experience, making one’s life and the time invested a competitive advantage [00:44:21]. “Your time is your weapon if you invest it wisely” [00:45:17].
Money loves speed, wealth loves time, and poverty loves indecision [00:45:26]. Sacrificing immediate gratification in younger years (e.g., 20s) by investing heavily in skill acquisition, even if it means an “underlived” social life, can lead to significant happiness and success later [00:34:53]. The pain of growth in the moment often becomes the purpose when looking back on life [00:35:28].