Read The Millionaire Fastlane Online
Authors: M.J. DeMarco
Tags: #Business & Economics, #Entrepreneurship, #Motivational, #New Business Enterprises, #Personal Finance, #General
Over this process, my net income exploded and, with it, asset value. Then, subsequently, and after profiting millions passively, I put the company up for sale and entertained multimillion dollar offers. I bought an asset for $250,000, appreciated and manipulated the variables, and then sold it for millions.
I controlled my financial plan; the plan didn't control me
.
In the Fastlane, your Wealth Accelerator is based on creating or buying appreciative assets, adding value and manipulating the variables, and then selling. Or you can opt for the Slowlane alternative-dump $200 a month into a mutual fund and pray for 8% per year and 40 years of employment. Excuse me while I laugh.
Super-Fast Wealth Acceleration: Liquidation Events
Liquidation events create millionaires overnight, but only if liquidation occurs. Liquidation events are the process of selling your appreciable asset to the market. It's a Fastlane exit strategy.
John Twitnuts creates a social networking Web site that goes viral. Soon millions of people are using his service and John finds himself entertaining buyout offers and venture capital investments. Despite having no revenue and no profit, John has built an asset that has value to the marketplace. He receives a $640 million offer for his service from the Web's leading search engine. John declines, arguing that his business will be worth more money once he starts generating revenue. While this is true, it is a gamble.
After 18 months, John's social networking service falls out of vogue, proving that the service was nothing more than a fad. The company becomes a bad party joke. In search of glowing valuations on a declining property, John no longer receives investor or buyer interest. He realizes too late that he should have taken the $640 million and experienced a liquidation event. He eventually sells the company at a “fire-sale” price of $2.5 million to a private equity firm. His poor timing cost him more than $600 million.
Asset valuations of businesses, real estate, and other appreciable assets are nothing, but just that-valuations based on subjective analysis and market data. If the company you build from scratch has a paper valuation of $60 million and your bank account only has $10,000, are you really a millionaire? Not really. Illiquid, paper-millionaires can't buy Italian sports cars and palatial estates; money does. And to get the money, you have to increase profit and save it, or go for the big exit: liquidation.
Fastlaners accelerate wealth by building cash-flowing assets that can be sold in the marketplace to realize gains. Their wealth equation has controllable, unlimited leverage.
Chapter Summary: Fastlane Distinctions
CHAPTER 19: DIVORCE WEALTH FROM TIME
Time is the coin of your life. It is the only coin you have, and only you can determine how it will be spent. Be careful, lest you let other people spend it for you.
~ Carl Sandburg
Industrializing Wealth: Divorce from Time
My first Fastlane taste was in my late 20s, when I had one of the worst months of my life: A brutal mix of a bad relationship gone south and some troubling health news served as a lethal cocktail to my business productivity. I spent most of the month in bed with the shades drawn, watching Judge Judy unleash a firestorm of common-sense whoop-ass. During this troubling time I had to cash in my Fastlane lottery ticket-and let me tell you, it paid.
Despite being “checked out” on life, my income actually grew. Yes, grew. My income didn't stop because I stopped. How did I get so lucky?
I was divorced from time
. Years earlier, I broke the chains of “my time for money.” This allowed me to escape the stranglehold of the Slowlane equation and operate on the Fastlane playing field.
When your wealth is predicated on factors that you cannot control and that are implicitly limited, you aren't going to make fast progress. You aren't in control, because time is in control. You aren't in control, because the boss is in control. You aren't in control, because the stock market is in control. How did I escape these controls that society finds perfectly acceptable? Instead of trading my time for money (manual labor), I traded it into a business system-industrialized wealth production.
In my situation, time was working for me, not against me. My business system earned money with the passage of time, and yet was exclusive of my time. It was a virtual money tree and it didn't care what I was doing. Whether I was watching Jerry Springer or jet skiing in Jamaica, the system was built to be its own machine-a living, breathing entity that did the dirty work for me. My system was a surrogate and traded its time. I owned my time instead of time owning me.
Passive Income: The Holy Grail to Retirement
The buzzword in moneymaking circles is “passive income”-earning income while not working. While retired, I receive checks every month like clockwork and I don't lift a finger. Passive income is a successful divorce from the “work for-money” equation indigenous to the Slowlane. The beauty of passive income is it doesn't care if you're 20 years old or 80. If your monthly income exceeds your lifestyle expenses including taxes, guess what? You're retired!
The Fastlane Roadmap is engineered for two purposes. It's engineered to create a passive income stream to the excess of your expenses and lifestyle desires, and to make financial freedom a reality, exclusive of age.
To Break Time Is to Grow a Money Tree
Mom convinced me it was true. “We can't afford that, do you think money grows on trees?”
She was wrong.
Money grows on trees if you own a money tree. And, you can own one if you know how and where to get the seeds.
Money trees are business systems that survive on their own. They require periodic support and nurturing but survive on their own, creating a surrogate for your time-for-money trade. A few years ago, I was in Vegas and I lost nearly $2,000 gambling. After retreating to my hotel room with my tail between my legs, I realized, why fret? I lost $2,000. On that day, my money tree, my Internet company I created, earned $6,000. While I gambled (or slept, swam, or ate) my blooming money tree bore fruit.
A money tree is a business system, and it's the Fastlane roadmap's Main Street. Money trees create passive income streams BEFORE you “officially” retire. Yes, you can experience the destination of retirement and financial freedom without actually being retired. This is akin to taking a vacation to the South Pacific and magically bypassing the nine-hour plane ride.
Money Tree Seedlings: A Fastlane Business
Not all businesses are Fastlane, and many of them can't be transformed into money trees. Misled by gurus and life coaches, wannabe entrepreneurs are steered astray under the lure of “Be your own boss” and “Do what you love!” and head down a path of business servitude that is identical to being indentured to a job.
It is Jillian's dream to be her own boss. After a 13-year career on Wall Street, Jillian quits her financial adviser job and buys a well-known deli franchise. She liquidates half of her 401(k) to pay for franchise fees and startup costs. Three months later she is in business and expects to realize her dream.
But Jillian discovers that her dream is nothing but a nightmare. Between seven-day workweeks, long hours, and constant bickering between her and the corporate franchiser, she burns out in two years. Her profit margins, slim and softened by franchise royalties, don't allow her to hire an operator to run the restaurant in her place. She feels trapped as she trades her time for dollars.
Although she earns a $90,000-a-year profit in her business, Jillian has no free time to enjoy the fruits of her labor. She could pay $60,000 to a general manager, which would give her free time. Knowing she can't survive on $30,000 per year, she feels trapped to her business while her profit is cornered into submission. Four years later, she puts the business up for sale and seeks the comfort of a 9-5 job.
Too many people plant businesses in barren, infertile soil that is incapable of spawning money trees, and which is suitable only for a scrawny Slowlane twig that sucks up time and money.
The Five Fastlane Business Seedlings
There are five business seedlings to money trees. Mind you, these aren't absolute and they interbreed with each other. Each system inherently has a grade that rates its level of passivity. A higher grade means a greater potential for passivity, but not necessarily a greater income.
Seedling 1: Rental Systems (Passivity Grade: A)
Real estate is one “rental system.” I consider real estate money trees as Fastlane 1.0 or Wealth 1.0. It is the old way and still very much a road to wealth.
For example, I own a single-family rental home with a great tenant. I could be living on the moon and each month I get a check in the mail because my time is detached from its income. Real estate is a perfect example of Wealth 1.0 because real estate is its own system. It is 95% passive. As time passes, tenants pay landlords to use their property. From single families to apartment buildings to massive commercial office buildings, real estate has always been the default choice for seedling money trees. Furthermore, real estate is an asset that can be manipulated and its value appreciated. Appreciative assets (asset value) are cornerstones in the Fastlane wealth equation.
Don't want to get involved in real estate? No problem. Rental systems aren't just reserved for real estate. Rental systems can come from a variety of other sources not real estate oriented.
Leases, royalty payments, and licensing are other forms of “rental systems” that can produce reoccurring monthly income. For example, when you own the rights to a music collection, corporations have to pay you a royalty to use the music. The work might have been recorded decades earlier, but it still generates royalties.
Likewise, if you invent and patent a product process and license it to other companies, you again earn income from the licensing fee. The patent was invented and registered, yet its income survives time exclusive of your time. Photographers can earn licensing revenues by allowing others to use their photos. Cartoonists license their artistry to book authors and newspaper producers. The creation of a cartoon might have happened years ago, yet, it survives time and generates rental income for the owner. Rental systems are powerful money trees because they are high on the passivity scale and survive time.
Seedling 2: Computer/Software Systems (Passivity Grade: A-)
My preferred system is computer and software systems, including the Internet. It's no shock that the Internet has paved the road to millions more than any other road out there. In fact, I heard a statistic that the Internet created more millionaires in the last five years than the previous five decades combined. What makes the Internet and computer systems so potent?
Computers are miraculous inventions and fertile seeds to money trees. They work 24 hours a day, 7 days a week, and they don't bitch about working conditions. They don't bitch that you don't pay them enough. They don't bitch and moan about co-workers like Lazy Joan or Same-Shirt Bob.
Nope, computers aren't late, they don't ask for pay raises, and they don't care you just bought a new Mercedes S-Class. Nope, they just do what they're programmed to do and it's done. What sets the Internet apart from real estate is
it implicitly contains leverage
. When you own a Web site, you're accessible to millions. When you own a three bedroom home on Elm Street, it's accessible to a few. This duality makes Internet systems one of the best business seedlings in existence.
Additionally, computer systems aren't limited to the Internet. It could be software or applications. Some of the richest people on the planet are software billionaires, like Bill Gates of Microsoft and Larry Ellison of Oracle. Software enjoys plump margins because it is easily replicated. Once the code is written, it's done. You can easily sell one or 10,000. Can you replicate an office building with ease? You can't.
Software millionaires can be “average Joes.”
Facebook and iPhone application developers are making money fast. One iPhone developer, Nicholas, raked in $600,000 in a single month with a single iPhone game. In a phone interview, Nicholas said that he wouldn't be shocked if he became a millionaire by year's end. Wow. One day Nicholas is treading the Slowlane at his nice cushy job and popping a few Benjamins into his 401(k), when suddenly he finds himself smack in the middle of a Fastlane. Of course, the road to the Fastlane wasn't easy for Nicholas. An engineer at Sun Micro Systems, he worked on his application after working eight-hour days, cradling his one-year-old son in one hand and coding with the other. How did he learn how to code an iPhone app? Nicholas couldn't afford books so he taught himself by scouring websites. Hmmm … do you smell process behind the event?