Money and wealth

Last night I read a thought-provoking article by Daniel Tenner about the difference between money and wealth. Having a big pile of money, he argues, is not the same as being wealthy. Rather, wealth is the ability to create money.

Money, everyone knows, is simply a way to facilitate the exchange of things of value. I can buy a candy bar or a house with money, and the recipient of my money can then use it to buy a book or a game console or whatever. In the end, it’s the candy bar and the house that have value to me; the money doesn’t have intrinsic value. Daniel says:

Money is not a net income generating asset. Money is not wealth. Money is a medium of exchange. By reading about rich people, you’ll notice they generally try to avoid having a load of cash lying around, because money is not a place to store wealth. It is and has always been, historically, a very, very poor store of wealth. Currency, since its invention, has been a fantastic tool to facilitate exchanges of things of wealth. That is what it is, nothing more, nothing less. Our economy could not function without money, but its value is not in the money. The relationship between value and money is like that between a community and a message board, or a bicycle and its tires. The first can exist without the other, but the second without the first is mostly useless.

He goes on to talk about creating wealth:

Having piles of money may occasionally happen on the way to getting rich, but it’s not the goal, nor a desirable thing. To get rich, what you want is net income generating assets, including the skills to generate those net income generating assets. Learning how to turn business opportunities into functioning businesses is an invaluable net income generating asset. But the fundamental pillars of wealth seem to me to be health (including youth, energy, endurance), education (including work ethic, general knowledge, wisdom, self-knowledge), intelligence and relationships (connections to useful people, trust, reputation, power).

Instead on focusing on how to accumulate money, you should instead focus on how to turn money (or other things) into things that create more money.

And finally, the whole point of having wealth:

Wealth is highly relative to the person. You are wealthy not if you exceed some social threshold, like being a millionaire or a billionaire, but simply if you have enough wealth to meet all your needs.

I find all of this to be interesting, particularly at this point in my life, because I’m now almost a year beyond my self-imposed goal to retire at age 40 and I don’t have a solid “exit strategy”. Back at the tender age of 26, when I made this wild plan, I had decided that having two million dollars in the bank would allow me to retire and live a nice comfortable life by earning 5% annually on that money.

Well, here I am, with nowhere close to two million dollars in the bank, working nearly as many hours every week as I did a decade ago. Something needs to change. I’ve set some resolutions for myself this year; amongst them is the desire to work fewer than 40 hours every week and generally taking time off on Fridays. We’ll see how that goes.

But that still leaves me wondering what my “retirement” is going to look like, and when I might be able to ease into it. This essay has let me view it in a slightly different light: rather than having a pile of money in the bank, perhaps I should instead focus on how to have enough money to meet my needs and continue generating this money for the next sixty years or more.

Owning two businesses is certainly a big step toward this, so long as I can ease back on my involvement in both of them, allowing the businesses (and ultimately the employees) to keep me in the lap of luxury. Heck, after all of the long nights and weekends building up my businesses for the past fourteen years, I’ve probably earned it.

It’ll be interesting to see how things change this year and whether I can take the next step toward retirement (and, more specifically, wealth).