Perceived Value: The Formula For Wealth EVERYONE Needs
The Revised Formula for Wealth
Wealth equals perceived value plus fair exchange times leverage. In my book Money, I wrote the original wealth formula. Value plus fair exchange times leverage. I've evolved that based on extensive research. Ever since I created this formula in 2017, I've been trying to disprove it in order to make it better. I've only been able to slightly update it. It seems to work universally. This formula defines wealth in a broad and practical way.Why Perceived Value Matters in Wealth Creation
Wealth isn’t just about money and currency. It’s holistic and includes self-worth, contribution, impact, and wellness. Perceived value lies at the heart of this definition, making it an essential factor in wealth creation.Wealth vs. Riches: A Holistic Perspective
I also have a formula for riches which I believe is more focused on money and currency. Wealth is more holistic to include value, self-worth, net worth, exchange, contribution, reach, impact, and also wellness. The word wealth originates from W-E-A-L, which means well-being. Historically, the people who've lived the longest have been the most wealthy. They can afford good healthcare, security, and other life-extending benefits that the poor don't have access to. So wealth in monetary form and in health and wellbeing form are intrinsically linked and can't be separated. Many people state that health is wealth and money doesn't make you happy. This isn't strictly true because money enables you to get the best technology and biohacking, operations, insurance, environments, travel, and organic foods that enable you to live long. So wealth is holistic financially, emotionally, and for your overall humanity.Examples of How Money Promotes Well-Being
- Access to biohacking and advanced medical treatments.
- Availability of organic foods and clean environments.
- Insurance and operations that improve health outcomes.
The Commercial Value of Wealth
The formula focuses more on the commercial value of wealth. Perceived value is value that you create in the workplace, in your city, country, or the globe. How valuable you are to humanity or just to your niche. After extensive research and experience, I added perceived because value is not absolute.Examples of Perceived Value
- A duct-taped banana to a wall sold for $6.2 million. To most, the banana is worth £1, but to the buyer, its perceived value was $6.2 million.
- Casio makes digital watches in the low hundreds of pounds that tell a better time than Patek Philippe's worth hundreds of thousands. Yet, Patek Philippe buyers perceive greater value in their product.
- Some don’t see the value of spending hundreds on a digital watch when a phone provides accurate time updates.
Overcoming Belief Ceilings in Pricing
Some people say you can't charge more in certain industries because of a price ceiling. However, this is often a belief ceiling or a lack of value creation. Here are ways to overcome these barriers:- Improve the quality of your product.
- Enhance your marketing message.
- Target the right audience.
- Solve meaningful problems for more people.
Fair Exchange: The Heart of Wealth Creation
Fair exchange is the balance between buyer and seller where both feel gratitude. Buyers experience fair value, and sellers make sustainable profits. You’ve achieved the sweet spot when there’s gratitude on both sides.Signs of Fair Exchange
- Buyers feel the product or service was worth the money.
- Sellers make a profit and gain satisfied customers.
Pitfalls of Unfair Exchange
- Overpricing and under-delivering lead to complaints and refunds.
- Underpricing reduces profits and creates unsustainable businesses.
Leverage: Scaling for Greater Impact
Leverage is essentially scale. A boutique car manufacturer might earn £300,000 profit on a £1 million car but lacks scalability. Conversely, a membership site for £10/month has the potential for infinite scale if marketed globally.Tips for Scalable Models
- Focus on products or services that can reach a global audience.
- Avoid high-risk, location-dependent businesses like restaurants.
- Leverage the internet for global reach and infinite scalability.
Scalable industries include:
- Digital products and memberships
- Online education and training
- Software as a service (SaaS)
The Formula for Riches
The formula for riches focuses on the formula for increasing your financial value and net worth. The formula for making maximum money in your life is relatively simple. Riches equal I plus X times L times C. I equals inflation. An inflation plus X is the way to guarantee not losing money first and then making money slowly over time. Second, a basic rule of saving and investing and building wealth is you must beat inflation.Why Inflation Erodes Wealth
Savers are losers because savings historically lose to inflation. Most people are going broke slowly by a thousand cuts because their wages and their savings are not keeping up with inflation.- Relative spending power and wealth decline gradually.
- A 20-30% drop in a year would shock most people into action.
- Slow, steady erosion (1-5% annually) often goes unnoticed until it's too late.
The Golden Rule: Beat Inflation
- If X is 1, you’re beating inflation by 1%.
- If X is 3, you’re beating inflation by 3%.
- The higher the X, the faster your wealth grows.
The Power of Leverage in Riches
The second part of the formula is times L, which is leverage. When you buy real estate, you can put in between zero and 100 percent of the cash to buy the property.- Mortgage loans allow you to control more assets.
- A 25% deposit gives you four times leverage on your investment.
- Leverage includes using other people's money, time, and expertise.
Examples of Leverage
- Real estate financing.
- Staff and teams to handle operations.
- Joint ventures and partnerships.
Compounding: The Final Element of Riches
The final part of the formula, the third element, is compounding. Compounding is the slow and steady growth that becomes exponential over time.Lessons from Warren Buffett
- Buffett started investing at 12 and is now worth $200 billion.
- His growth curve was flat for decades before exponential gains.
The Power of Doubling
- Doubling numbers grow slowly at first but accelerate dramatically.
- After 29 days of doubling, a pond is half-covered with lilies; on day 30, it's fully covered.
- Long-term investments and reinvesting dividends maximize growth.
Key Takeaways on Wealth and Perceived Value
- Wealth is holistic, combining financial, emotional, and human well-being.
- Perceived value is subjective and can be elevated through quality, marketing, and targeting.
- Fair exchange ensures sustainable business growth with gratitude on both sides.
- Leverage is crucial for scaling businesses and reaching global audiences.
