Growing money and keeping money are two different skill sets 

In earlier eras, when wealth was synonymous with land, and “investing” meant buying hard assets like head of cattle instead of clicking numbers on a screen, the skills of growing and keeping wealth existed on a much tighter continuum.

But there’s one big difference.

Keeping money means controlling your appetite and not breaking what’s already working.

Growing money on some level involves taking on risk to reveal more value.

Smart investors and owners try to mitigate risk in clever ways, or even eliminate it entirely. But even in those scenarios, risk is the central factor. Either measuring and accepting it, or removing it entirely.

Keeping wealth is tactical

I say that only because the strategy is super simple: spend less than you make.

The tactics for “spending” and “making” are all the conventional wisdom:

  • Make a budget and stick to it
  • Invest 10% of every paycheck
  • Max out retirement accounts
  • Use compounding interest to make sure your investments are beating inflation
  • Etc.

All good stuff. But in an age where wealth is mostly abstracted to numbers in a ledger, and you’re not watching your wealth graze in a field or seeing the your wealth consume coal and output goods, then the skill of wealth creation matters more.

“Number go up” is not wealth creation

This is easy to confuse. Number go up has been wealth creation for a very long time.

Let me show you a few graphs though:

Historically, the average cost of a house in the US has been around 5 times the yearly household income. However, during the housing bubble of 2006, this ratio exceeded 7. In other words, the average single-family house in the United States cost more than 7 times the US median annual household income.” – Longtermtrends

Housing is the most important metric in terms of talking about wealth because that is the primary vehicle of wealth storage for most Americans.

For Boomers, it was twice as easy in the 70s to “get in the game” of home equity than it is for anyone now. Getting in the game is crucial because you can ride the equity wave up, even if your income isn’t increasing as dramatically.

When housing is cheaper too, it also diminishes a lot of the risk of buying. Now, not only is it more expensive, but it is more volatile. Volatility increases the costs of consideration for what, when, and where to buy.

If you buy something expensive and it goes down 10%, that’s worse than buying something cheap and it going down 10%. Ironically, if more people are buying when it’s cheap, that also reduces the likelihood of your home value going down in the first place.

Okay. Pause.

What does this have to do with wealth creation

All the above on housing is just to say the stakes are higher.

Equally, a higher percentage of everyone’s income is going towards that single savings vehicle. Its a vicious cycle.

Housing is not a wealth creation vehicle. It’s a wealth storage vehicle. The above chart from FRED shows the median price in the $30-40,000 range in the 70s, and in the $400,000+ range now. Is the quality of houses 2x, 5x, or greater than 10x as good as they were in the 70s? Or have the incentives of housing, the creation of money, and more all converged to make this the defacto means of keeping wealth?

The Business of Wealth Creation

I’ll skip ahead to my personal takeaway real quick: build equity ASAP, but it doesn’t have to be in a house.

Income-generating assets is the only way you will stay ahead of this monetary nightmare. The “K-shaped recover” and the cheapening of savings is absolutely driving everyone into two classes: rich or poor.

The reason the rich don’t suffer during inflation as much as the poor (and the reason they want you to think inflation is good for the poor) is because inflation cuts down on everyone’s savings, meaning only those with income-generating assets will be positioned to recoup their relative positioning.

(I felt dirty even linking the above article, because the motivation for the writer disgusts me.)

The middle class is waning. This is the root of my distaste for conventional financial advice. It’s selling one story when a much greater one is going on in the background.

To be clear, if you are poor: you need the basics. You need to learn to budget, the fundamentals of investing, and more. But that alone won’t make you rich—and the urgency to protect your wealth is only increasing as the dollar continues to crumble.

Generations of schooling that trains workers to grade themselves on someone else’s artificial metric has done its best to make sure you fear risk or uncertain risk metrics. Maybe that’s why immigrants and children of immigrants tend to disproportionately dominate in terms of entrepreneurship. Their own family narrative is stronger than the state-sponsored one.

The math is simple: hard assets or hard income

You can’t dollar-cost average into a house you don’t own. That’s why I’m such a big fan of Bitcoin as a hard asset that cannot be taken or inflated away, and you can start with $1. No 20% down payment needed.

Outside of this, if you are an average worker, your income will never rise fast enough to cover the increasing costs of housing, college, and everything else. You will have increasingly less savings. See the above graphs.

The only mathematical solution is to increase your savings. There are lots of small ways to do this, but the only big way is to have income-generating assets.

Taking on greater short term risk of business ownership is the only way to mitigate the guaranteed insidious long-term risk of wealth depletion.

*The one big caveat: if you’re already obscenely wealthy, you can just invest and live off dividends forever. Ignore all of this if that’s you.

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