To be truly rich: Multiply!

Posted on December 21, 2004 20:26 PM EST

I am convinced that Addition is not the way to get rich. Multiplication is the way to get truly rich.

You cannot exchange a single hour of labor or a single product of your effort or a single service for money, and hope to get rich. That is not how it seems to work.

I mean, how much money can you make by exchanging hours of labor to dollars? Even if you are a top class consultant, there are only so many hours you can work and bill for in a day. You are constrained by the number of hours in a day and by your physical limitations. What one-of-a-kind product can you produce with your tools and skills, which can bring you a lot of money? How many of such pieces can you make in a day, a month? Just how much money would that be sold for even if you were the greatest painter alive? (Moreover, the worth of your painting is likely to go up after you are dead). The same logic holds for individual services too. Even if you are the best masseuse or hooker in town, there are only so many individual services you can give in a day and you can earn only so much. Your money-making capacity is limited.

I call this making money by Addition. In this method, to earn more money, you have to add to what you deliver or provide: add hours to your working hours, add to the number of one-of-a-kind products you can make, add clients to the individual service you provide. This is a tiresome way of making money and it is severely limited. You may be able to earn a comfortable living, but cannot get really rich this way. I am talking of filthy rich, being rich enough to throw money away, being so rich that you can never correctly tell exactly how much your riches are worth.

Now look at how these people make money: Stephen King writes a book, he writes it once. But he gets money everytime a copy of the book is sold. Millions of copies are sold and he makes millions. With just one time effort. And then the book gets made into a movie. He makes money then. The movie is seen by millions of people, he makes money everytime a person sees the movie. All this with one time effort. Similarly with movie and television producers and actors. They put in a one time effort and earn money on it over and over again. Beyonce earns the same way when she makes a music album. So does the richest person on Earth, Bill Gates, who makes a product once and sells it many times over, with some clever marketing and monopolistic strategies. In case of this last gentleman, it is truly impossible to exactly estimate his worth. It goes up everytime someone buys his product somewhere in the world, and it is a safe bet that his products are bought every hour, perhas even every minutes, day after day.

In each of the above cases, a single effort pays off many times over. Some of these continue to pay over and over through the decades. The money keeps flowing as long as the product is popular and bought with the copyright intact. This is the Multiplicative way of getting rich. On this path, there is no mid-way success. You won't get slotted somewhere in the middle class or upper middle class or some such wimpy category of richness. You will either be well and truly rich, able to afford all the first-class and business class stuff. Or you will go kaput and lose your investment. But the investment often appears to be so low, and the returns so high, the risks seem well worth it.

Clearly, putting your attention and effort into channels which multiply your wealth, rather than add to it, is the way to go. Compound interest (multiplicative/exponential) is always preferred to simple interest (additive).

I could almost convince myself to chuck my day job and put all my effort into writing a best-seller, ya?