A reason why it’s a wonderful time to be alive now, is because possibilities are truly endless. You can be anything you want to be, and whoever you want to be. The playing field is arguably flatter now, with an abundance of quality knowledge everywhere. What one has to do is to put an effort in establishing one’s foundation and learn what needs to be learnt. To be a billionaire seems incredibly possible.
I’ve talked about billionaires before, about their ideological difference. Ultimately to become a billionaire, one has to own capital. (Which reminds me, I’ll share about my thoughts on the future of labour and the shift in capital ownership and division of labour.)
Capital is anything one owns that makes you money. Money makes money, assets make money, patent make money, etc.
I’ll highlight again
You become rich by being an honest hard worker.
A millionaire by owning a label.
Billionaire by owning capital.
Labour-Income vs Capital-Income
At the end of the day, it boils down to economics. There are two ways to earn money, either by spending labour effort to earn income, or by leveraging capital to earn income.
With labour, as I said time and time again in my conversations, it is limited. As is with many other finite resources. There is an upper limit as to how much labour can be exchanged for income. And that upper limit is 24h a day. If you are paid on a per hour basis, you can only get a maximum of the 24h x hourly rate per day.
Side note: I still like the idea of hourly rates. It calculates my opportunity cost if I am doing something else instead. Gives me a monetary value to bad decisions I make.
However with capital income, that is limitless. Capital is an infinite resource, especially with central banks printing money like it is free today. (Another article that I need to write about soon, because this is a conversation I’ve been having with many people for over a year now.)
Capital need not be just money, but anything that earns you money.
The fun thing about capital is in two-folds:
- It is valuable because of the opportunity cost. It takes time and effort to create a specific type of capital that is irreplaceable. Hence, the value. i.e. a network of loyal followers (brand), years of research (patent), etc.
- It is limitless. With labour, the upper limit is not cost per hour, but the number of hours itself. With capital, it is simply limitless. Money? You can grow money with money. Network or brand? You can advertise to new target segments. Patent? You can license it to new regions and segments.
Capital income is valuable because it has no upper limit. That means one does not have to trade the limited scare resource of time for money. And that is how you play the game.
Another fun thing with capital is the opportunity cost of a vast amount. With $100, you have to divide and allocate $100 to cover the basic needs like food and daily expenses. These are fixed costs. Sure, they might be proportional, but when one has more money, $1,000,000, one has a greater degree of freedom to divide and allocate that amount.
Which translates to putting some capital aside (cash in this scenario) and allow it to accumulate more cash. With $100, it is tougher because the daily basis necessity is barely covered. Whereas with $1,000,000, it is just easier to play around with asset allocation.
80-20 Billionaire Rule
At the end of the day, it comes back to the 80-20 rule. The top 0.01% use 20% of labour income and 80% of capital income to accumulate their wealth. The bottom 10% use 80% of labour income and 20% of capital income to accumulate their wealth.
Sure, life seems unfair that way. But life always is. One just need to learn the resources and advantage one is entitled to, and leverage the resources to become the top 0.01%. It’s not the easiest, but it’s probably the most fun thing you can do in your lifetime.