The Exponential Game
The growth of your wealth is essentially made by three parts: what you earn, what you spend and potentially the returns from your investments.
A multitude of people in my network talk about getting rich. Most of them focus on increasing their wealth by increasing the earnings. Which, it can work if expenses do not increase as fast as the salary. Many of us are working for corporations. We all know how hard it can be to get a rise in salary. We over perform our team members and then at the end of the year we hear from our manager: You did a great job but the company has not been as profitable as forecasted, this year the increase is kept at 0.75%, next year it will be better. The next year comes and here we are with a new reason not to have a rise or promotion. Can you relate to this?
Probably yes and even if not, let me share with you a few things you can do to grow your wealth.
Increasing your net worth by increasing your salary while working from somebody else, it is probably the hardest thing to do. Why? Because you have no control over the business you work for. So my first recommendation is to grow your wealth by acting on things you have direct control of: expenses, side hustles and investments. Let’s tackle one of them at the time. As average people spend $1,700 a month in personal consumption. Despite the fact you can afford it, have you thought of: cutting on daily coffee, prepare your own lunch, cook your meals, one night less per month eating out, less junk food, useless subscriptions,…? If you do then you can save as much as $750/month. Moving on: the side hustle. Have you thought of renting your home parking lot when you go to work? Rent the room you do not use to a student or people on vacation? Instead of watching TV, how about spending one to two hours per day providing consultancy work on websites like www.freelancer.com? Realistically, it is likely you can make an additional $500 per month. Third and last point to act on: consistently investing savings. Treasury bonds: 2.5% p.a., option trading: 10.2% p.a., passive index 9.8% p.a., managed strategy 15%p.a.,… Saving account: 0% (negative in some parts of Europe!).
Recapping: thinking how to spend money and having a side hustle can give you an additional $1,250 month while investing an average of 12%. The numbers might not look exceptional and this is because people tend to focus on the present moment or days. Rarely people have a long term perspective: weeks, months, years and in some cases decades.
Let’s make a little effort to look at things in the long term perspective and let’s look at two case studies: the Traditional Way and the Exponential Game. Both cases have the same starting point (salary & savings) but the first does not cut on expenses, does not invest,… while the second applies everything we have discussed so far. The result? After 10 years: the first case is worth $246,400 while the second $724,657 (+194%). After 30 years: the first case is worth $738,400 while the second $10,185,923 (+1279%).
By Year 12, The Exponential Game case can be millionaire without even having a single $ rise in salary. This is not magic, it is reality!