How to Get Rich When You Don’t Have Any Money

In partnership with

I’m almost 5 years now into this Profit+ writing experiment and it strikes me that there may be no more important question on peoples’ minds than this:

How to succeed in financial life? 

It’s what everyone is thinking, worrying, and obsessing about. Indeed, even all this political stuff we’ve been discussing all year comes down, in large part, to money. Financial striving, difficulty, and insecurity are at the core of almost every major issue in our society. This should come as no surprise really, for money makes the world go around, and especially so in capitalism. 

What people need to understand is that the critics of capitalism are right—the fundamental problem of capitalism is indeed capital. What this means in practical terms is that to win at this game you absolutely need money. Period. 

Capitalism is generally meritocratic but isn’t necessarily so. There is a kind of magical quality to capitalism where talented people are ultimately recognized and rewarded, but the system tends toward inequality and unfairness because of disparities in access to capital. And things like systemic racism and political corruption have a nasty tendency to get in the way of the function of the Invisible Hand. This is why, while many people and corporations are abandoning DEI initiatives, I remain sympathetic and supportive of the idea of trying to be strategic with capital allocation as a tool to create a more equitable society. More on this later.

For those who want to win at this game but who didn’t hit the genetic lottery, what can be done? 

Well, fortunately, there is just one trick at the core of all great wealth building strategies:

Using other people’s money to make money. 

In fact, for all the apparent fanciness and sophistication of Wall Street, what’s going on there is really very simple. All of global finance is predicated on two business models—both of which rely on the savings of other people. Alert!! This is not a coincidence. It’s also not a coincidence that our schools hardly teach a thing about finance and when they do, the best advice they can give is “Make sure you save!” Tell that to the 100M households in America who cannot afford the median-priced home today. 

To be clear, I’m not at all against savings but if your goal is to get rich or even to just achieve some decent level of financial security, savings will not save you. 

Anyway, on the one hand, we have the banks, which when you really stop to think about what they are and how they function, it makes your head spin. Basically, we allow certain—let’s call them what they are: quasi-governmental institutions—to engage in what is really a giant leverage scheme—where banks take your deposits and then use those deposits to issue a whole bunch of loans to other people. These days, with a leverage ratio just under 10 to 1, for every $1 you put in savings, the bank is lending another $10 and earning the difference in what it earns in interest on the $10 from what it pays you on the $1.  

Ease into investing

Ease being the key word. With automated tool like portfolio rebalancing and dividend reinvestment, Betterment makes investing easy for you, and a total grind for your money.

Get started

If you are thinking to yourself, “Wow. I sure would like to be in the bank’s position!” you are getting the point. A modern bank sits in a phenomenally privileged position in the economy, especially in light of all the implicit and explicit guarantees backing them up. It may not be as good as the heyday a few decades ago when we allowed banks to lever up over 30 to 1 and then watched them almost ruin the global economy, but the getting is still good.

Since starting a bank is out of reach for most of us, we will have to rely on the other tried and true, Wall Street business strategy: the promoter model. The game here involves using other people’s money to make speculative investments in a structure that is wildly skewed in your favor from a risk-reward standpoint. While there are many forms and flavors, the easiest way to understand this is to consider the basic hedge fund “2 and 20” structure.  

Imagine a hedge fund that raises $1B from a carpenters’ union pension on January 1^st and makes a bunch of investments throughout the year and then sells everything on December 31^st for $1.2B, producing a solid 20% annual return. 

Well, under the 2 and 20 model, right off the bat the fund is taking their 2% fee—a cool $20M. Then they will take their performance fee of 20% of the profits—which amounts to another $36,000,000. 

So, at the end of the day, the hedge fund walks away with $56,000,000 and the investors get $144,000,000 and their $1B back. A win-win, right?  

In this model, the entrepreneurs are the people running the hedge fund and they just used $1B of other people’s money to earn several lifetimes of wealth all in one year!

To be clear, if you are the one without money and trying to build wealth, you want to be on the hedge fund side of the promote. There you are taking no risk—other than, I guess, a little reputational risk—and have the chance to make enough money to never work again. Meanwhile, the carpenters, who have worked day after day for years to accumulate savings, have risked everything. In our hypothetical, they made out ok but you see the disparity in risk here. 

By the way, you may have heard the talking heads discussing something called the “Carried Interest” loophole before. Well, by some incredible twist of fate, Congress passed a law that classifies the promoted interest (in this case, the $36M) as capital gains instead of income, which is taxed at a way lower rate of course. Convenient, right?

Here’s the thing: whatever you may think about the fairness of the promote model in our system, there’s no denying that it is the answer to the problem of not having any money. In that sense, it has been one of the most democratizing forces in modern history. How else can a kid from humble beginnings get ahead anyway? 

The promote model is everywhere in our system and responsible for incentivizing basically every form of investment in our economy. When it works, it is life-changing. For me, something like 99.99% of my wealth has come from promotes. 

For everyone out there who’s animated by this idea and interested in pursuing financial success and freedom, I have good news for you. We are in the Golden Age of Entrepreneurship. Never has there been this much opportunity that is so accessible by so many. To be sure, our system is still very unfair but it is not impossibly so. 

You are literally just one good pitch away from completely changing the trajectory of your life!

So, come up with that good idea, meet as many rich people as possible, and then pitch them until someone says yes.

It’s really that simple. 

Even if you don’t have that great idea just yet, there’s still plenty you can do. Every day is a new opportunity to improve yourself. Learn something new. Get stronger. Meet someone new. The key is to commit to the path of ownership and work hard every day. 

While entrepreneurship is hard, the elements of the formula are very straightforward. All you need is a good idea and access to capital. But whether you have an idea or not, one thing you can always do is take proactive steps to improve your access to capital, which—let’s just call this what it is—means finding ways to meet and connect with wealthy people. 

The main socioeconomic problem in our society is that privileged kids have a staggering advantage when it comes to access to capital. I realized this when I got to Stanford Law School. My friends there who grew up in the elite private school world had access that was exponentially better than mine. It’s not just about the money; it’s the extra knowledge you get and the mentorship and internship opportunities available to you.  It’s about being comfortable and not feeling insecure around people with money. It’s hard to overstate how big of a deal this is. Having a bunch of friends with rich and successful parents is a tremendous life advantage. 

Fortunately, meeting wealthy people is not nearly as hard as it seems. It’s not like it’s some secret where these people are hanging out. So, find some genuine way to put yourself in those circles. Don’t be sleazy about it or overly transactional. Be interested and interesting and see what sticks. Trust me: if you go about this in the right way, you can absolutely improve your position. This is, by far, the easiest part of the entrepreneurial journey and all it takes is one person to believe in you to change everything. ▫️

PS. Some great advice for identifying and overcoming what’s holding you back 

Like what you’re reading? Join us on our socials for more content throughout the week. 🙏 Thank you!