How does Naval define the distinction between "wealth" and "money"?

Okay, this is a fascinating question. Naval Ravikant’s distinction between "Wealth" and "Money" is foundational to his entire philosophy. Let me try to break it down in plain language.

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Naval's "Wealth" vs. "Money": One Makes Money While You Sleep, The Other is Just a Tool

Hey friend. Glad you're interested in Naval's perspective. Many people spend their lives chasing "money," but Naval teaches us that what we should truly pursue is "wealth." These sound similar, but the difference is crucial to him. Understanding it could change how you view work and life.

Simply put:

• Money is the tool we use to transfer wealth.
• Wealth consists of the assets that work for you, even while you sleep.

Let's unpack that.

What is "Money"?

Imagine you fix your neighbor's computer. As a thank you, they give you an "IOU" note that says: "Present this to get a crate of milk from my warehouse anytime."

That "IOU" note is money.

• It's Social Credit: It represents what society owes you. Because you provided value (fixed the computer), society (your neighbor) gives you a claim token to exchange for other things (milk). The cash in your wallet or the digits in your bank account are essentially IOUs of this kind.
• It's Fluid: You get paid wages today, use them to pay rent or buy food tomorrow. Money constantly flows from one person to another. It's an intermediary. A tool.
• It Can Be Diluted: If your neighbor prints loads of "IOUs" and hands them out, the ones you hold become less valuable. Maybe your note used to get a whole crate of milk, now it only gets a bottle. This is what we call inflation.

So, Naval argues that chasing money alone is like a plumber obsessed with collecting more wrenches, instead of using them to fix pipes and provide real value. Money is a conduit, not the ultimate destination.

What is "Wealth"?

Now, let’s flip it. Suppose instead of fixing a computer manually, you write a small program. This app automatically diagnoses common computer problems and suggests fixes. You put it online. Every time someone downloads and uses it, you get $1.

That small app? That’s wealth.

• Assets That Work Continuously: Whether you're eating, sleeping, or on vacation, the app is online. People can download it anytime, generating income for you. It’s a system. A “robot” working for you automatically.
• It Brings Freedom: The true essence of wealth is the liberation of your time. When the passive income generated by your assets (wealth) covers your living expenses, you achieve financial freedom. You no longer need to sell your time just to “make money.” You can do whatever you want.
• Examples of Wealth:
  • Stocks in a company you invest in (you own a piece and the company makes money for you).
  • A rental property (the asset generates rental income).
  • A book you wrote, music you created, an online course you built (they can be sold repeatedly).
  • An automated business system you created.

Pursuing wealth means shifting your focus from “exchanging time for money” to “using time and energy to build a system that makes money on its own.”

A Comparison Table

To make it crystal clear, here's a simple comparison:

In Summary

So, Naval’s powerful insight is:

Don't just focus on your monthly salary (money). Focus on how to build your own “wealth.”

When evaluating a job or starting a business, consistently ask yourself: “Is what I'm doing merely exchanging time for money, or is it building wealth?”

For instance, even a high-paying job involving repetitive tasks with no new skill acquisition might just be giving you “money.” Whereas a slightly lower-paying job that lets you master core skills, build a valuable network, or potentially transform into your own venture later, could be building “wealth.”

Hope this explanation helps! Simply put: Stop thinking just about how to make money. Start thinking about how to own the things that make money.