5 Tips on How to be Rich according to Adam Smith

In The Wealth of Nations, Adam Smith gave tips on wealth-generation:

1. Build capital, not expense

Capital is anything that produces value. It can be a physical thing like a machine that produces a valuable product or a metaphysical thing like skill, knowledge, relationships, trust, and integrity. Expense is spending that does not return any value. An example is consumption.

2. Save your time and money or resources to keep on building your capital.

Skill is a type of capital. Instead of going out and having fun, try improving your skills. A lot of young people do the opposite.

3. As much as possible, do productive labour, not unproductive ones

Once you secure your capital, use it to create high quality value for as many people as possible. Productive labour produces results that persist in existence while unproductive labour does not. Manufacturing is an example of productive labour while services is an example of unproductive labour. Elon Musk became wealthy because he chose to manufacture cars instead of staying as a janitor at a lumber mill.

4. Be a risk-taker first, then be risk averse later

To get started, everyone has to take risks whether auditioning for American Idol or starting a business. But after some steady revenue is attained, you should take care not to lose that revenue. A good example is the financial crisis which caused a lot of wealth loss.

5. Build your character (Trust, Integrity, Respect)

Trust and respect is the most important foundation of wealth. The Roman Empire became wealthy because contracts were honored and in ancient China, the leaders were respected. This is a person’s most important capital. Even if you lose all your money-capital, you can bounce back more easily if you are trusted and respected by many.