Introduction: The Greatest Show On Earth

The first idea—simple, but easy to overlook—is that building wealth has little to do with your income or investment returns, and lots to do with your savings rate.
A quick story about the power of efficiency.

In the 1970s the world looked like it was running out of oil. The calculation wasn’t hard: The global economy used a lot of oil, the global economy was growing, and the amount of oil we could drill couldn’t keep up.

We didn’t run out of oil, thank goodness. But that wasn’t just because we found more oil, or even got better at taking it out of the ground.

The biggest reason we overcame the oil crisis is because we started building cars, factories, and homes that are more energy efficient than they used to be. The United States uses 60% less energy per dollar of GDP today than it did in 1950.³² The average miles per gallon of all vehicles on the road has doubled since 1975. A 1989 Ford Taurus (sedan) averaged 18.0 MPG. A 2019 Chevy Suburban (absurdly large SUV)

averages 18.1 MPG.

The world grew its “energy wealth” not by increasing the energy it had, but by decreasing the energy it needed. U.S. oil

and gas production has increased 65% since 1975, while conservation and efficiency has more than doubled what we can do with that energy. So it’s easy to see which has mattered more.

The important thing here is that finding more energy is largely out of our control and shrouded in uncertainty, because it relies on a slippery mix of having the right geology, geography, weather, and geopolitics. But becoming more efficient with the energy we use is largely in our control. The decision to buy a lighter car or ride a bike is up to you and has a 100% chance of improving efficiency.

The same is true with our money.

Investment returns can make you rich. But whether an investing strategy will work, and how long it will work for, and whether markets will cooperate, is always in doubt. Results are shrouded in uncertainty.

Personal savings and frugality—finance’s conservation and efficiency—are parts of the money equation that are more in your control and have a 100% chance of being as effective in the future as they are today.

If you view building wealth as something that will require more money or big investment returns, you may become as pessimistic as the energy doomers were in the 1970s. The path forward looks hard and out of your control.

If you view it as powered by your own frugality and efficiency, the destiny is clearer.

Wealth is just the accumulated leftovers after you spend what you take in. And since you can build wealth without a high income, but have no chance of building wealth without a high savings rate, it’s clear which one matters more.