Why does Naval say, 'Seek equity, not salary'?

Okay, let's discuss this truly classic and profoundly insightful perspective from Naval.

"Seek equity, not a salary" – this can arguably be called the "nuclear-level" insight in Naval's wealth philosophy.

To understand this statement, we need to break it down and use a simple analogy:

The Simplest Analogy: Renting vs. Buying a Home

Imagine your time and energy are your "money."

• Getting a salary is like renting

  • You pay rent every month (spending your time) and get a stable place to live (stable income).
  • You pay this month, and you'll have to pay again next month to keep living there.
  • The rent might increase a bit (a raise), but it's generally predictable.
  • Crucially: You never own the property. Whether you live there for 1 year or 10 years, you take nothing with you when you leave. You haven't accumulated any asset in that building.

• Getting equity is like buying a home

  • Initially, you need a significant down payment and take on mortgage payments (which, in a startup, might mean lower pay, higher risk, and harder work).
  • You take on the risk. If the property value drops (the company fails), your investment vanishes.
  • However, you own (a piece of) the property.
  • If the neighborhood develops and the property value increases 10x (the company succeeds), your asset value also increases 10x. In the future, you can sell it for a sum far exceeding the total of your "mortgage payments."
  • You own an asset, whose intrinsic value fluctuates with the market and has enormous growth potential.

Through this analogy, you can likely grasp the fundamental difference between salary and equity:

• Salary is rent for selling your time; it has a ceiling.
• Equity is owning a piece of a business asset; it has no ceiling.

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Why is Salary Considered a "Trap"?

Naval argues that relying solely on salary makes true financial freedom difficult to achieve. This is because salary represents linear income.

• Linear Relationship: Your income = Time worked × Hourly rate.
• Obvious Ceiling: You only have 24 hours in a day; your energy is finite, and your hourly rate can't increase infinitely. Even if you are the top programmer or executive at a top firm, your annual salary has a limit. You cannot double your income 100x by "working twice as many hours."
• Essence is "renting yourself out": The moment you stop working (stop renting out your time), your income stops. This traps you in a never-ending cycle of "must work to earn money."

Why is Equity the Path to Wealth?

Equity represents the potential for non-linear income.

• The Power of Ownership: You own a piece of the company. The company's success is not proportional to your time invested. You might work intensely at a company for 3 years in its early days, but the value created during those 3 years could yield you a 100x or even 1000x return when the company IPOs in year 8.
• Leverage: This is key. Equity allows you to harness leverage. A company's success doesn't rely on you alone; it leverages:
  • Labor Leverage: Dozens, hundreds, or thousands of employees work together; their output contributes to the company's value, which indirectly increases the value of your equity.
  • Capital Leverage: The company uses investors' money to grow the business and amplify results.
  • Code/Media Leverage: This is the new-age leverage Naval champions most. Code, written once, can serve billions; a single video or article, published once, can be viewed infinitely. Your equity grants you the rights to profits generated by this "work once, scale infinitely" model.
• Assets Work for You: When the income generated from your equity (assets) exceeds your living expenses, you achieve financial freedom. Your money works for you, not you for money. Even while you sleep, the company (your asset) keeps operating and creating value.

How Can Ordinary People Understand and Apply This?

Naval isn't saying everyone should immediately quit their job to start a company (that's the highest risk form). He means you should consciously seek opportunities to acquire ownership stakes with strong growth potential throughout your career.

1. For Wage Earners: When choosing a job, look beyond the salary. Prioritize whether the company offers equity/stock options (e.g., RSUs, Options) and whether the company itself has massive growth potential. Getting equity at a high-potential company in a fast-growing industry could be worth a fortune within a few years. Many early employees at Google, Facebook, and ByteDance achieved wealth freedom this way.
2. For Entrepreneurs/Freelancers: You should create "equity" of your own. This could be a company, but also your own personal brand, a paid membership community, an online course, or a software product. These are all assets that can generate ongoing income independent of your time.
3. For Investors: The most direct way is to use your capital to buy shares in excellent companies (acquiring equity in the public markets). This is essentially purchasing ownership in enterprises, delegating your capital so that talented entrepreneurs and teams work to generate returns for you.

To Summarize

The core of Naval's statement is a shift in mindset:

From a "Renter of Time" mindset to an "Owner of Assets" mindset.

• Salary is the tool that lets you live and live comfortably.
• Equity is the tool that gives you freedom and boundless possibility.

So, the next time you evaluate an opportunity, ask yourself: Does this opportunity let me better "rent out my time," or does it offer me the chance to "own an asset"?

Salary gets you a good life, while equity offers the possibility of freedom.