A lot of people want to become rich. It is clear that most people do not attain the level of financial success where they have more than they can spend. Ironically enough, those who do are often quite thrifty. In order to grow wealth, it is necessary to understand that money is not automatically wealth. Money is the tool by which we measure our wealth. Wealth includes things that form capital. Capital is something useful that we use to make something else. Some types of money might be considered wealth, such as a bank account, a checking account, precious metals, or a popular currency. However, thinking that these things are the only form of wealth can limit how quickly our wealth grows.
Examples of capital include land, houses, work ethic, government authority, skills, certifications, popularity, knowledge, people, animals, and food. Increasing how much of these things that we possess will lead to a corresponding increase in money. Decreasing how many of these things that we possess will lead to a corresponding decrease in money. Becoming good at increasing capital requires identifying real value independently of the price. Warren Buffett recommends asking the question, “Would I want this 10 years from now?”
Buying low means that we identify the real value of an object or commodity. The real value is how much of it is capital. When buying, think about what the thing you are buying can create. If it is a car, how much value will this car create? A lot of people when buying think about the immediate joy that they will get from owning the asset. Buffett would encourage also thinking about the future benefit of the asset. If the asset will only be encouraging us to be lazy and inefficient, then it may be good to reconsider the purchase. Thinking about an alternative purchase is helpful.
Capital is the key to increasing profitability. Destruction of capital increases expenses. Capital is something that we use to create something else. Think about the long-term real value of what we are purchasing.
Ronn Torossian is a PR maverick and the CEO of 5W PR in NYC.