Naval Ravikant - Money Habits Keeping You Poor [w/ Charlie Munger, Mohnish Pabrai]

people who are living far below their means enjoy a freedom that people busy upgrading their Lifestyles just can't fathom and I think that's very important like just to not upgrade your lifestyle all the time to maintain your freedom and it just gives you a freedom of operation once you make a little bit of money you still want to be living like your old self so that just the worry goes away so don't run out to upgrade that house and lifestyle and all that stuff let's say you're getting paid $1,000 an hour the problem is that when you go into a work lifestyle like that you don't just suddenly go from making $20 an hour to making $1,000 an hour that's a progression over a long career and as that happens one subtle problem is that you upgrade your lifestyle as you make more and more money and that upgrading of the lifestyle UPS what you consider to be wealth and you stay in this wage slave trap so I forget who said it maybe it was Nasim tal but he said you know the most dangerous things are heroin and a monthly salary right because they're highly addictive here's the greatest news physical Talent maybe that ever lived and what was his life like well he was bitterly unhappy and he died young that's the life of Mozart what the hell did Mozart do to screw it up to make himself well he did two things that are guaranteed to create a lot of misery he overspent his income scrupulously that's number one that is really stupid then the other thing was he was full of jealousies and resentments if you'll spend overspend your come and be full of jealousy and resentments you can have a lousy unhappy life and die young all you got to do is learn from Mozart there's a guy called Mr Money Mustache so Mr money mustach was a software engineer okay so now he has a Blog and he's got you know big following and whatever but when he was a software engineer and he graduated at 22 he knew that the gods were not so benevolent to land him at Snowflake and then he just rides that c tail into becoming a billionaire he knew that that was not what was going to happen to him so he figured out he said he assumed that when he graduated he would get an generic programming job somewhere and playing a generic salary with a generic basic bonus living a very generic life and his goal was that when he turned 30 that he would be financially independent and he would no longer be working that was his goal when he graduated so he said I've got 8 years and I'm not going to be making high incomes and I don't need a great amount of you know comfort and such I'm so for example Mr Money Mustache would not be caught dead in a Starbucks okay I mean $4 for a latte that's not happening for him I mean he would just you know he would choke if that ever for him it's like more like five or 10 cents Max for beverages in a day okay if you go to his his blog you will understand what frugality means okay like he lives on like 8,000 or $10,000 a year a new car not in three generations would he ever buy a new car and so like now he's in the woods of Colorado somewhere so he retired at 30 he made a lot of money he retired because he had no expenses and he's a carpenter on the side so he built himself his own Wood Shack in somewhere in the middle of nowhere in Colorado and lo and behold in his 20s he won he he met Mrs Money Mustache okay Mrs Money Mustache is even more dedicated than him she's even more frugal than he is so it's very important that if you're going to be Mr money mustach that you find Mrs Money Mustache okay so now the two of them completely financially independent quit their jobs he bikes everywhere for everything and I think his annual consumption of gas is like maybe 15 Gallons a year okay like one tank a year when I was young one of my principles was I I knew I had to make money it was my overwhelming desire and uh one of the things I did was I said okay I'm never going to be worth more than what I think I'm worth okay no one's going to pay me more than what I think I'm worth so what am I worth so I I picked an hourly rate for myself that I was worth and I said I'm never going to squander my time for less than this so if originally it was 500 bucks an hour then I upgrade to 5,000 bucks an hour and you know it's ludicrous but pick an aspirational hourly rate aspirational it has to be a little ludicrous and then what I would do is if if I have to return something I'm standing in line to return something and it's below my hourly rate I'll throw it away if if I have to if I or give it away if I have to do some task and I can hire somebody to do it for less than my hourly rate I would hire them and so I just became extremely jealous of my time which doesn't mean you can't have fun rest Leisure spending time with your friends and family that's all great don't count that but if you're doing anything you don't want to do which is the definition of work it's a set of things that you have to do that you don't want to do if you're working it better be for your hourly rate otherwise don't do the work the tweet that we skipped was there are no getrich quick schemes that's just someone else getting rich off you this goes back to the world being an efficient place if there's an easy way to get rich it's already been exploited and there are a lot of people who will sell you ideas and schemes on how to make money but they're just always selling you some $79.95 course or some audio book or some seminar which is fine everyone needs to eat people need to make a living they might actually have really good tips if they're giving you actionable high quality advice that acknowledges that it's a difficult journey and will take a lot of time then I think that's realistic but if they're selling you some get-rich quick scheme whether it's crypto or whether it's an online business or seminar they're just making money off you that's their get-rich quick scheme it's not going to necessarily work for you one of the things about this whole tweet storm and podcast is that we don't have ads on here we don't charge for anything we don't sell anything not because I don't want to make more money it's always nice to make more money we're doing work here but because it would completely destroy the credibility of the Enterprise if I'm saying hey I know how to get rich and I'm going to sell that to you it ruins it when I was young and I was kind of studying up on the topic one of my favorite books on the topic was actually called how to get rich by Felix Dennis the founder of Max and magazine billionaire who passed away and he had a lot of crazy stuff in there but he had some really good insights too but whenever I read something by him or by the GoDaddy founder Bob Parsons or say Andrew Carnegie you read stuff by people who are already very wealthy and they've clearly made their wealth in other fields not by selling the how to get rich line they have credibility you just trust them and they're not trying to make money off of you they are obviously trying to win some status and some ego right you always have to have a motivation for doing something but at least that is a cleaner reason why they're probably not lying they're probably not fooling you they're not snowing you if anyone is giving advice on how to get rich and they're also making money off of it they should have made their money elsewhere like you don't want to learn how to be fit from a fat person you don't want to learn how to be happy from a depressed person so you don't want to learn how to be rich from a poor person but you also don't want to learn how to be rich from somebody who makes their money by telling people how to be rich it's suspect anytime you see somebody who's actually gotten Rich following some guru's advice on getting rich just remember that in any random process if you run it long enough and if enough people participate in it you will always get every single possible outcome with probability one there's a lot of random error in there and then also this is why you have to absolutely in completely ignore business journalists and Economist academics when they talk about private companies I won't even name names but like when a famous economist rails on bitcoin or when a business journalist attacks the latest company that's iping it's complete nonsense those people have never built anything they professional critics they don't know anything about making money all they know is how to criticize and get page views and you literally becoming Dumber by reading them you are burning neurons I'll leave you with a quote from Nim taleb that I liked where he said if you want to be a philosopher king first become a king and then become a philosopher not first become a philosopher and then become a king let's talk about compound interest compound interest is basically the idea that let's say if you're earning 10% a year the first year you make 10% and you end up with let's say you had a dollar you invested you end up with a$1 10 but the next year you end up with a121 and the next year you end up with a dollar 32 or 3 3 so it keeps adding on itself in such a way that if you're compounding at 30% a year for 30 years you don't just end up with you know 10 or 20 times your money you end up with thousands of times your money so compound interest is a very powerful concept Einstein used to say compounding is the eight1 of the world and there are three variables you need to get fluency in compounding and you know we're not going to go there too much in this class but there are three variables that control compounding you know your starting Capital uh or the capital you're contributing every every every year the length of the runway and your average analyze rate of return and so if you think of those three variables if the runway is really long even with very small amounts of capital and even with not such a high rate of return you will end up with spectacular sums so the most important thing for all of you is start early so if you look at someone like Warren Buffett so far his Runway is 70 years old he started in at the age of 20 with 10,000 and now he's 90 and he's been compounding for 70 years if you look at the 40-year Old Warren Buffett so 40-year-old Warren Buffett 19170 net worth less than 30 million his net worth when he was 40 was less than I think 13 3,000 of his Network today if he hadn't G start started giving the money away so this is the thing one of the things about compounding is that because it's geometric humans aren't used to thinking geometrically you have to become fluent in thinking geometrically in your head now let me leave you with two little Reflections about this topic on the habit of upgrading your lifestyle as you make more money I really like Navada rikan's tweet where he said survival replication put us on the work threat Mill honic adaptation keeps us there the trick is knowing when to jump off and play instead and on the topic of investing or buying into a get rich quick scheme or any other sorts of bad Investments Paul Graham the founder of why combinator wrote a very insightful essay titled how to lose time and money in this essay he shows that the most common way to lose a lot of money is not overspending but making bad Investments and this makes sense because you can feel the self-indulgence of over spending and it's hard to spend it all at once whereas in the case of a bad investment you don't feel any self-indulgence in fact you feel productive and you can lose all the money in one single moment so as you make more and more money it becomes increasingly important that you make Sound Investment decisions as this is my last video for 2023 I thought it would be a cool idea to make a recap of my four favorite tools this year for Learning and productivity the first one is notion which I use for taking notes and managing projects the second one is Obsidian which I use for making mind maps of my nodes the third one is short form an app with super high 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