The Almanack of Naval Ravikant

Introduction

Many everyday people strive for wealth and happiness, but most of us struggle, and very few seem to achieve both. Still fewer share their insights about how to get there—entrepreneur Naval Ravikant has become known for doing this online via Twitter, podcasts, interviews, and blog posts. The Almanack of Naval Ravikant is a collection of insights on wealth and happiness compiled by business blogger Eric Jorgenson.

Born to poor parents in India, Ravikant moved with them to New York as a child. From those humble origins, he eventually achieved tremendous business and financial success as a Silicon Valley entrepreneur in the early 2000s. He’s a founder of several highly-valued companies, including Epinions, Vast.com, The Hit Forge, and AngelList, and he’s also an angel investor in companies such as Uber and Twitter, providing both with significant start-up capital in exchange for equity early on. The book has two parts: advice on building wealth and happiness.

The first section discusses principles for building wealth, and the second discusses building happiness.

Part 1

Focus on Building Wealth, Not Money Naval distinguishes wealth from money. To him, wealth is owning assets that grow over time without further input from you. Money, by contrast, is merely the means of distributing wealth and time. The equity you own in a growing landscaping company is wealth; the cash people pay you for mowing their lawn is money. According to Ravikant, focusing on generating wealth is more important than generating money.

?Ravikant, the best measure of wealth is financial freedom. When you achieve financial freedom, you have enough income or assets to cover your expenses for the rest of your life without ever having to work. This, to Ravikant, is why you should pursue wealth: By reaching financial freedom, you can spend your time as you please. (Shortform note: Although Ravikant says true wealth means financial freedom for the rest of your life, other financial experts note that you can aim for economic freedom for a shorter period. Financial freedom is merely having enough net worth to cover your expenses for a given time. As a measure of wealth, some financial experts suggest that economic freedom should be measured in years, not money. By dividing your net worth by your annual expenditures, you can figure out how many years of financial freedom you have.)

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Passive Income Is the Way to Build Wealth Ravikant argues that passive income is the key to achieving financial freedom. This is income that earns money with minimal effort from you. According to Ravikant, owning assets is the best way to earn this income. For example, selling an easily reproducible product—such as a popular original music album—is a passive income source. Similarly, owning equity in a growing company provides passive income: As the company grows, the value of your equity grows. This type of income contrasts with active income, which people typically get as wages for work.

Most jobs earn wages, but Naval explains that you’ll never get wealthy and achieve financial freedom by working for wages. This is because wages grow linearly—that is, the amount of money you earn is directly related to the amount of time you work. By contrast, passive income streams have the potential to grow nonlinearly: Over time or under the right conditions, they can generate more income per unit of time than wage work can. For example, if you publish a book, you may at first sell only a few copies each week, but in time, you could sell hundreds or thousands of copies each week, generating more income with each sale.

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Leverage Specialization and Good Judgment to Generate Passive Income

Generating passive income requires the leverageable skills of specialization and good judgment.

Let’s look at these concepts: leverage, specialization, and good judgment.

Leverage is the ability to multiply effort. Building passive income is helpful because any investment (effort) you put into an opportunity can be magnified by the leverage applied to it. Ravikant distinguishes between three types of leverage.

?1. Labor: The people who work for you provide leverage through their labor—for example, a task done by two people should take half as long as a task done by one. Ravikant believes this is the worst kind of leverage because managing people is hard.?

2. Money: This is a good form of leverage because it can amplify any decision you make. In the typical start-up, this comes in the form of capital invested in a fledgling company. If the idea is sound, money can make it a reality. Money is the main leverage in the venture capital (VC) industry. Accordingly, it’s become associated with propping up bad ideas. In many cases, an unprofitable business can be made to appear successful merely because it’s received a lot of VC money. Research shows that 30-40% of VC-backed companies fail, and 75% don’t profit enough to cover the initial investment. Money may be an effective form of leverage but doesn’t ensure business success or wealth.?

3. Products that can be replicated without further inputs: Two primary examples include media such as books, art, videos, or music and code such as the script behind your favorite app. According to Naval, this is the best and newest kind of leverage for building wealth.

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Specialization building Expertise

Ravikant believes that you must specialize in something to create products or attract money. Specifically, you should develop a deep understanding of something technical or creative. Expertise in these areas is beneficial for developing products. You could, for instance, become skilled at coding and programming an essential piece of software that proves valuable to society. Software, once programmed, is infinitely reproducible and so has the potential to provide significant financial returns.

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To develop a specialization, Naval offers two pieces of advice:

First, learn the basics of math and communication. Across all domains of knowledge, specific basic skills apply simple calculating skills (for example, the ability to add, subtract, multiply, and divide competently) and the ability to communicate clearly. So, no matter what specialization area you pursue, ensure you constantly hone these essential skills. ( other experts back up Ravikant’s advice on improving your math and communication skills. Studies suggest that basic math skills (numeracy) correspond with wealth: Generally, people with higher numeracy have more wealth than those with lower numeracy. Likewise, Warren Buffet believes that improving your communication skills can increase your worth by 50%.) Second, figure out what you’re genuinely interested in—what you’d learn and practice for fun. Ravikant suggests you listen to what others observe about you to find this interest. Family and friends can often see things in you that you can’t. They can identify your core interests even if you don’t notice them. Another way to discover your interests is to pay attention to your hobbies. Frequently, your hobbies are the things you’re genuinely interested in. If you want to do something in your free time, chances are, your interests will make it easier for you to become an expert.

Another essential skill for developing products and attracting capital is sound judgment. Suppose you develop a reputation for good judgment. In that case, investments will follow because you can identify suitable investment opportunities, and people will invest in you when they trust your insights.

According to Ravikant, developing good judgment requires seeing reality. Seeing reality enables you to size up situations accurately—this is an invaluable skill for making good business decisions. Ravikant believes you must first eliminate faulty assumptions about the world to see reality. Don’t make assumptions about things or forget your preconceptions about people or ideas. If you do, you’ll be prone to confirmation bias—that is, to see things the way you want to visit them—and you’ll be more likely to misinterpret reality.

Once you’ve rid yourself of faulty assumptions, Ravikant suggests that you must continuously build a more accurate understanding of the world. The best way to do this is to read a lot and constantly learn. In particular, I read about science, philosophy, and basic math. These disciplines are grounded in a rigorous search for truth, so familiarizing yourself with them will help you think independently about the world and give you better mental tools for understanding reality clearly.

Building Meaningful & Long-Term Business Relationships

Good relationships are invaluable for building wealth because working with people is far more productive and efficient than going solo. For Ravikant, building relationships in business isn’t a matter of short-term networking; It’s a matter of identifying capable and ethical people and building long-term relationships with them. Sticking with competent, moral people and deepening your rapport with them is far more effective than seeking out more people. In business relationships, quality is more important than quantity. If you’ve built a foundation of trust with someone, and they’ve shown themselves to be consistent, honest, and fair, keep working with them. This way, your business relationship will grow more efficiently as you get to know each other better.

Patience is a Virtue

The above principles are critical to building wealth, but wealth creation doesn’t happen overnight. Be patient. Ravikant encourages you to develop and leverage your skills and cultivate deep, trusting relationships with good people. If you give it enough time, these things will pay off. If your ideas for a product fail at first, keep generating more ideas. If you make a mistake in judgment, own it and learn from it, then carry on. Stay focused on your specialization, stay attuned to up-and-coming companies, and stick to the work: Achieving wealth is worth it.

Part 2:

Building Happiness

In the second part of this guide, we’ll consider Ravikant’s ideas about building happiness. True happiness, as he understands it, comes from being at peace—another way to express this is that true happiness is fulfillment. When you have this happiness, you don’t long for anything more and feel your life is complete.

In this section, we’ll consider how you might arrive at this place of fulfillment. While Ravikant believes wealth can help you get there, happiness isn’t dependent on external circumstances—it’s a choice. Making that choice is a matter of practicing the proper habits.

Happiness by Practicing the Right Habits

?The first thing you have to do is decide to be happy. You can’t wait for external circumstances to become what you want or seek to change them—you need to be OK with them as they are. This isn’t easy, but Ravikant believes cultivating the proper habits can make it easier.?

According to the book, we’ve all developed habits we haven’t thought about, which tend to make us dependent on external circumstances. Maybe we always have coffee in the morning or listen to talk radio on our commute, for example. Over time, we end up needing that cup of coffee to feel well or craving the agitation we get from talk radio. Ravikant suggests that we need to replace these thoughtless habits with better ones.

The Habit of Acceptance

One habit the book advocates is acceptance. Acceptance is simply being content with a circumstance no matter what—it’s a kind of freedom. He sees it as freedom from frustration, expectation, desire, etc. Practicing acceptance will help you find contentment. In particular, practice the habit of acceptance in two areas of life.

Accept Yourself ?

The first area where we must practice acceptance is our view of ourselves. If we’re going to be happy, we have to accept ourselves for who we are. Many of us want to change who we are—we’d like to be someone else, or we feel disappointed that we’re not living up to the expectations people have for us. This frame of mind will always stand in the way of being satisfied and finding authentic happiness.

The best way to accept yourself as you are is to take your mortality: Life is short. Even the most remarkable ancient world cultures passed away, their accomplishments forgotten. Recognizing the brevity and insignificance of all things will make you less inclined to obsess over who you are. With this perspective, you’ll realize there’s little use in wasting your short life being frustrated or disappointed with yourself—you might as well enjoy your little time.

Another way to accept yourself is to stop obsessing over what others think of you—what they expect you to do or achieve, for instance. Do what you want to do. The sooner you pursue your genuine interests, the sooner you’ll experience happiness.?

Accept Circumstances as They Are

The second area of life you must practice acceptance relates to your circumstances. When you face circumstances that aren’t what you want, Ravikant says you have three options: change, leave, or accept them. Trying to change or leave your circumstances involves some struggle and dissatisfaction. This is the opposite of happiness. It’s far better to practice accepting your circumstances no matter what they are. This practice will help build happiness. An example of how to do this would be reframing a situation that annoys you—someone cutting you off in traffic, for instance. Rather than fixating on the injustice of the act, consider reframing the problem: Think of how it allows you to exercise your self-control or practice changing your perspective. Instead of merely being an inconvenience, consider it an opportunity for growth.

The Habit of Self-Care

The second type of habit Ravikant suggests is self-care. This type of habit encompasses several practices that can help keep your body and mind conditioned to support your happiness. Caring for Your Body Your experience of the world is mediated by your physical health, according to Ravikant. This is one of the reasons he’s chosen to prioritize his physical health above all other things. If his body isn’t functioning well, his mind won’t be able to function well, and he’ll have a more challenging time dealing with life circumstances. He suggests incorporating the following habits to care for your body.

1. Eat well. Ravikant suggests the paleo diet, which consists of foods our hunter-gatherer ancestors theoretically had access to, such as grass-fed meat, nuts, and fresh fruit—essentially, nothing processed or refined and no grains, legumes, or dairy. ( I have different views on eating as I turned Vegetarian-Ritesh)

2. Exercise. Instead of being based around gym equipment, Naval believes your exercise should come from play. Consider playing team or individual sports. Whatever you do, it should be something you’re happy to do daily.

3. Strengthen your immune system. The book suggests you must be exposed to allergens and pathogens to build your immune system. If your environment is too sterile, you won’t be very immune.?

4. Saying no often. We evolved, says Ravikant, for scarcity—resources were complex to come by. In our modern world of abundance, we have difficulty saying no to everything we can easily have. Accordingly, we have too much sugar, too much alcohol, too many drugs, and so on. Ravikant believes you need to practice saying no to these things.

Caring for Your Mind

Caring for your body is one way to support the health of your mind, but Ravikant recommends four other ways you can do so.

1.??????? Meditate. Ravikant is less interested in the spiritual aspects of meditation than the biological ones: Meditation techniques help you control the signaling in your brain, making you more relaxed. Ravikant has tried many different meditation techniques, and he suggests you do the same. He advocates sticking with any method you try for one hour each day for two months.

2.??????? ?Learn: Learning helps grow your mind and keep it healthy and engaged. Again, the best way to do this is to read. While Ravikant specifically recommends reading basic math, philosophy, and science books, as we saw earlier, he also recommends reading anything you’re interested in. The main reason is that learning to love to read is vital for learning—if you’re interested in reading something, read it. Another way to ensure you make reading a regular part of your life is to be okay with not finishing the books you start. For Ravikant, believing that you must finish every book you begin gets in the way of your enjoyment of reading. Instead, read as much as you’re interested, have several books going at once, explore various topics—just read.

3.??????? Maintain social contact. As Ravikant sees it, humans evolved to be in small social groups: We function best in such environments. When you’re frequently near friends and family, you have fewer opportunities to get depressed or lonely. This contributes to your sense of contentment and happiness.

4.??????? Live in the present. You’ll only find contentment by embracing your experience as it is right now—don’t look for things to be different than they are. Ravikant says that thinking about the past is the source of much unhappiness. Maybe you regret something you did or wish things could be as they used to be. Similarly, looking to the future is often motivated by desire (for a change in circumstances, for instance). For Ravikant, to desire anything is to be discontent. This is unhappiness. According to Ravikant, all you have is the present. Embracing it is vital to finding contentment and true happiness.