Arithmetic Wealth Vs. Exponential Wealth

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Arithmetic Wealth is wealth accumulated in proportion to the number of hours you work, your pay for that labor and then by consistently saving and investing a specific percentage of your employment income. Arithmetic Wealth is almost always a modest amount of wealth.

Exponential Wealth is wealth that is created, not by the number of hours you work, but by the income-generating assets you create, such as: a unique product, artwork, authored books, music, an app, etc. Exponential Wealth is Exponential because it is not dependent on the number of hours you work, which is limited, but by the perceived value of the asset you created. The more the public values the assets you create, the more assets you can sell and the more you can charge for those assets.

As an example, I run a CPA firm. It pays me a modest salary. I save a portion of that modest salary, via my firm’s 401(k) Plan. My expectation is that when I end my CPA career, that 401(k) “Wealth” will be close to $1 million – a modest amount of wealth.

I also happen to be an author. While the royalties are inconsistent, year to year, I have during some years received significant, unexpected royalties – royalties I did not work for but that were the byproduct of the asset I created – my books. Those royalties windfall represent Exponential Wealth.

You will accumulate far more wealth, exponentially, by creating assets that the public wants, than you will ever accumulate trading your labor for compensation.

The only exception to this is if you happen to be a Virtuoso. Virtuoso’s are compensated Exponentially for their labor, simply because they are among the best at what they do and are therefore able to charge a significant premium for the labor they provide.

Tom Corley

Tom Corley is an accountant, financial planner, public speaker, and author of the books “Effort-Less Wealth: Smart Money Habits At Every Stage of Your Life” and “RichKids: How to Raise Our Children to Be Happy and Successful in Life“.  Corley’s work has appeared on CNN, USA Today, The Huffington Post, SUCCESS Magazine, and many other media outlets and podcasts in the U.S. and 27 other countries. Tom is a frequent contributor to Business Insider and CNBC.