The Algebra of Wealth

 

Scott Galloway, “The Algebra of Wealth: A Simple Formula For Financial Security, Penguin, 2024, 253 pp.

Today’s workers have more opportunities and mobility than any previous generation. They also face unprecedented challenges, including inflation, labor and housing shortages, and climate volatility. Even the notion of retirement is undergoing a profound rethink, as our lifespans extend and our relationship with work evolves. In this environment, the tried-and-true financial advice our parents followed is no longer enough. It’s time for a new playbook.

In The Algebra of Wealth, Scott Galloway lays bare the rules of financial success in today’s economy. Scott explains what you need to know in order to better your chances for economic security, no matter what. You’ll learn:

·       How to find and follow your talent, not your passion, when making career decisions

·       How to ride and optimize big economic waves (hard truth: market dynamics always trump individual achievement)

·       What small steps you can take that pay big returns later, including diversification and tax planning

·       How Stoicism can help you minimize spending and develop better financial habits

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My Notes:

Pg. 5:  The median home price in the US is six times the median annual income--fifty years ago it was two times--and the share of first-time buyers is barely half the historical average and the lowest on record.  Medical debt is the leading cause of consumer bankruptcy; half of American adults would not be able to cover a $500 medical bill without taking on debt.  Marriage rates among all but the wealthiest cohort are down 15% since 1980, as people can’t afford to tie the knot, much less have kids.  Just 50% of Americans born in the 1980s are making more than their parents did at the same age, the lowest share ever, despite record growth in our broader prosperity.

Pg. 9:  Rough out your projected expenses for a year and add them up.  Bump it 20% to cover taxes.  That’s your annual burn rate.  Now multiply that burn rate by 25.  That’s roughly your number—the asset base you need to generate passive income greater than your burn.  Why 25%?  That assumes your assets produce income at a rate of 4% over inflation. 

Pg. 119:  Subtracting the inflation rate from the nominal rate is a useful approximation, but the proper calculation is: (1 + Nominal rate)/(1 + inflation rate)-1.  For a nominal return of 5% and an inflation rate of 3%, the real return is 1.94% (not 2%).

Pg. 184:  The US government is by far the largest single pool of financial capital in the world.  As of this writing, nearly $2 trillion has been invested in the US government by holders of Treasury securities.  That’s roughly the same amount of capital invested in all the corporations on the New York ‘stock Exchange combined.