It’s unclear if the mistakes we’ve made will be applicable to everyone. In fact, some of the mistakes may be the right move for some people. That said, we’ll start with bigger mistakes we’ve made since the chances of these items being “good decisions” are quite low. Then we’ll move onto the smaller scale mistakes. While we did avoid the biggest errors: high debt, single form of income and legal marriage at a young age, there are still many mistakes that we would reverse (if we could turn back the clock).
First on Regret: Overall, every single person you meet could have done something better to maximize their potential. While we don’t worry about these mistakes, it is simply reality. Think about it like this, if you never learned from a mistake then it means you wouldn’t be able to go back in time and improve your current life. This of course is impossible.
The good news is that smart risk adjusted decisions should lead to a high quality life. Maybe you could have done things better but if you avoid the disasters (big mistakes), it won’t move the needle that much. Regret to us means you made a mistake that was large enough to not enjoy your current life. We’re not in that camp.
Second on The Past and Future: Generally, if someone didn’t make a major mistake they won’t long for the past. We wouldn’t go back in time and redo everything. This is because there is a lot of luck and timing involved as well. If we could go back in time with our current knowledge, then of course we’d take it (you would simply do the same things but undo obvious old mistakes). This is why hindsight is 20/20. With this in mind, we don’t have any interest in re-doing all of the work we did in the past. The future is a lot brighter because the correct life decisions over the past couple of decades makes the next several decades easy to live. In short, we’re not writing this post to complain about the past (we would not redo it) instead we’re writing it to see if these mistakes are being made by anyone else.
Third on Major Mistakes: To wrap the introduction up, we wouldn’t classify any of the mistakes we made as “life changing”. That is because most life changing mistakes are avoidable in nature (except for extreme examples of bad luck: getting hit by a bus, natural disaster etc.). We’ve already mentioned the major mistakes but we’ll go ahead and restate them. The first is debt: anything that cannot be paid back within a year is a high level of debt (particularly if the debt was supposed to increase your income). The only exception would be a rental property. The second is a single form of income: by having a single form of income you’re not diversified. If you lose the single form it could set you back many years since compounding is brutal if it works against you. The Third item is legal marriage: we don’t talk about dating or anything like that anymore since it’s essentially something that can be learned in 2 years. What we do emphasize is never creating a legal contract because all of the effort you put in could be cut in half for no reason (out of your control). If you follow these three items alone you’ll be at the middle of the pack without much effort at all. Simply avoiding the major traps.
Laundry List of Changes: Personal Life, Personal Finance, Health, Business
Personal Life #1: Grasping to Mediocre Talent: We’ve done this several times. When you find something you’re reasonably good at, you think it could be your calling. The problem is recognizing when to move on. If we could go back in time we would have thrown a LOT more spaghetti at the wall to figure out where our talents were. This is a mistake since you lose valuable time investing in a skill where you’re only going to be in the top 20% or so. Nothing to sneeze at but nothing to be extremely proud of.
We get questions about this “talent” and it’s quite easy to summarize. How much time does it take for you to excel? The general framework is 1) people must tell you you’re good without fishing for complements – no friends and family don’t count, 2) you must get into the 2nd or 3rd standard deviation without working long hours – this is relative and more art than science and 3) the distance between you and your competitors should lengthen every single year that goes by for the first 5-7 years or so. The last one is something we figured out at the end (unfortunately). If you’re creating more and more distance between you and the competition, you’re basically near top-tier. After a few years into the task, you’ve already thinned the crowd to decently talented people. So if you’re getting further and further away from them every year after that, you’ve found your skill.
Personal Life #2 – Giving Out Second Chances: Smiling and nodding is the best strategy to avoid giving out free second chances while leaving the door open. If someone has failed to deliver on a promise do not expect them to do you right the next time. If you’ve worked with them 10 times and one time there was an error, this was likely due to chance/law of large numbers. If the first task is immediately a mess and they go against what they said they would do (or made some new rules as well), go ahead and back out. There is nothing wrong with moving on and you’re going to save yourself a lot of time as well. If someone was willing to try and pull the blinders down on the first go around, it’s likely someone who will do the same in the future.
On a positive note, yes in rare instances 0.1% of the time, (okay, okay, 0.0001%), people do change. Instead of being the person who helps them get on the right track, just leave the door open if they do change several years later. This way you’re not the one actively involved in fixing their problems for them. Let them figure it out themselves or have someone else help them along the way. Life is extremely short and it’s just not a good use of your time. There are many people who are honest and upstanding people to work with, don’t try to make lemonade out of a lemon when you can just go out and find something better.
Personal Finance #1 – Focusing on Returns Not Cash Flow: We got lucky. The majority of our investments over the past couple of decades have been more illiquid and less cash flow oriented. This is because we didn’t want to be heavily involved in real estate. Not smart. We realized the main reason why real estate professionals make up the vast majority of millionaires is because of cash flow. Cash flow is more important than the return profile when you’re younger since you need money to invest. The more money you have coming in gives you a chance to take on more risk. So on and so forth.
We got lucky because the returns ended up being similar. We recognize this as a mistake since it wouldn’t be good advice for someone in their 20s/30s today. While we wouldn’t go down the real estate path, we would be buying and flipping many websites. Websites offer monthly, bi-monthly and sometimes daily/weekly cash flow. This is typically inconsistent but is a lot better than a non-cash flowing asset that gives you the same return. Our strategy of buying non-cash flowing assets with excess money didn’t make much sense. It would have been easier to focus on buying nothing but cash flowing assets until we were we’ll into financial independence territory. Then move to non-cash flowing assets. Unless it’s earning money while you sleep, try to avoid it as an income stream. Assets that earn money in your sleep are: Real estate, websites, subscription income, dividend paying stocks and any employee who earns less than they generate for you. That last one sounds insane. But. Why would a company hire you unless you generated more than you were being paid?
Personal Finance #2 – Not Tracking Finances Properly: While you shouldn’t have time to check your net worth on a daily basis (creating an obsession) it is foolish to track everything in an excel sheet. Excel sheets don’t tell the whole story since you’ll have investments that may have management fees (like a mutual fund), you’ll have assets that go up a lot of in value that should be de-emphaisized later. And. You’ll have assets that go down a lot in certain years that you should re-invest into to buy lower and rebalance your allocation. We didn’t do a good job of tracking asset mix and it is going to take another 1-2 years to finally get the mix to make sense. Let’s think about that for a second. Despite serious planning and thinking for many years, it will still take another 1-2 years to rebalance. This is not a good use of time.
For those that are serious about developing multiple streams of income and a high net worth, we can recommend Personal Capital. The Company offers *free* software tools with the following four key features: 1) ability to avoid losing money by tracking all fees associated with an investment product allowing you to choose the best possible fund for your future, 2) portfolio analysis where your risk profile is stacked up against your current age and retirement goals, 3) in addition to these free tools, you can also track your net worth and path to becoming a millionaire and 4) when you hit $100K in networth you’ll receive a free one time consultation with an investment professional at Personal Capital. After linking up all of your accounts you’ll be able to sit back and watch as your net worth goes up and your fees remain minimal over the next several years. We strongly believe that Personal Capital is the premier personal finance software tool when compared to its competitors such as Mint.
Personal Finance #3 – Using Minimal Leverage: Leverage is a good and bad thing. If you have a long time horizon and high cash flows, you can take advantage of leverage. We made a mistake of being too risk averse to leverage. Keeping it well below optimal. Imagine having a rental property that is 80% paid off and appreciated by 15% or so. It doesn’t make sense to keep the leverage at just 20% of the value especially if you have a 2 year lease locked in. When thinking about leverage, it is smarter to delete all of your active income and see if you can make payments on your total debt load. You’ll be surprised to find that you can take on a bit more leverage since it is unlikely that all of your income streams go to zero. A good rule of thumb (if investing long-term), you can have your annual payments = to your passive income excluding the asset. This means that dividends, bonds, etc. should offset your mortgage payments. Which of course means all of your rental checks are going straight into the bank. Being blunt here, this is probably too risk averse as well. But. We don’t have any interest in taking on material risk anymore (personal decision making)
Health #1 – Not Taking Nutrition Seriously: When you’re young, you can consume practically anything. The most classic items are cheap carbohydrates: pizza, ramen noodles, lots of rice, candy bars, fast food etc. Your body is able to consume these items and see no major impact (when you’re young). This leads to the belief that food is just a way to get rid of the “hunger” feeling. Completely wrong.
Around your mid-20s to early 30s you’ll see a dramatic change in your body. You’ll feel worse when you consume unhealthy foods. Your skin will become more dry, prone to acne and pale. Instead of having a glowing/healthy skin color it will look matted and broken down. This leads to a large amount of damage to your internal body. Healing from the inside out takes a lot more time and is not easy to reverse.
The answer is clear. Your body does not react to food based purely on calories. While it is true you could eat 3 candy bars a day and lose weight, your body will be in terrible shape after a week of that type of torture. Just look at the experiments run on people who eat fast food consistently. They break down. Taking your diet seriously should begin as soon as you are living alone (low 20s at latest).
Health #2 – Giving up Intense Cardio: If you’ve played any sport at a high level, you know that touch (coordination/accuracy) and cardio go away first. While you don’t need to play a sport that has a ton of coordination involved, deleting anaerobic activity is pretty close to a death sentence. Yes, we’re taking it to an extreme to emphasize how important it is.
If you don’t do any sort of high intensity training: sprints, sprints on a bike, jumping exercises etc… You’re going to be in quite a bit of pain. This doesn’t show up instantly and is more of a slow erosion over time. Where does it show up? In your sleep. If you feel groggy in the morning it is typically because of lower oxygen intake (breathing out of mouth) and lower blood flow (no movement). Both of these are caused by low anaerobic activity.
Going to the gym is what every average guy does. It’s just not enough. You want to have a body that is used to various types of movement from regular strength (weights) to anaerobic (sprints) to endurance (swimming). Most people fall into the trap (including us) of focusing on body composition. Sure you look a lot better but you want to feel 100% as well. Giving up intense cardio probably causes you to lose 1 hour of productive work per day. We wish we were exaggerating but it seems to be reality. Note: when you get to your mid-30s stretching becomes a dangerous item to neglect. We luckily avoided this one but we’re leaving this note here in case someone reads it and realizes that they have not been stretching for several years. No stretching = severe injury.
Business #1 – Get the A- Not the A+ unless you own Equity: There is no reason to go above and beyond unless the results are going to accrue to you. This is seen most in the work environment. Trying to be the #1 person is unlikely a good use of time. Using Wall Street as an example, if you’re in the “top bucket” you’re going to make roughly the same as the #1 ranked person in your class. Maybe you’re off by a few percentage points. This really doesn’t matter because the #1 guy has a much higher bar to keep up with AND he is going to be forced to work more (everyone wants the guy on his team). The only exception (getting an A+) is if you’re in a revenue generating role and have nothing else to work on (unlikely).
A- work is not good enough if you own Equity (your own business). This is because you obtain all of the benefits. The A+ worker in a corporate environment is almost always the “highest operating margin employee” this means the extra few thousand he is paid is more than offset by the revenue he generates. Otherwise he wouldn’t be so loved, would he?
Put these two together and you’ll realize that it is better to be “liked” but not extremely liked in any corporate setting. This gives you a lot more time to build your own stake in something that flows directly to your bottom line. A+ work is only necessary if it is going to benefit the person who matters: you! You should only be motivated to do A+ work if you see the benefit of said work.
Business #2 – Small Money Matters if It Doesn’t Take Time: Should never sell tiny websites. Well, it depends but the point is pretty simple. If you have an extremely small website that makes $500 a month, you should not laugh at it. If it makes $500 a month but requires a lot of time to run, then you should dump it. The key here is how much effort are you really putting in? If you have an old website that makes a few hundred dollars a month but spend 15 minutes a month on it… keep it.
Just because a website wasn’t a success doesn’t mean it was a failure. There is definitely a middle ground and the middle ground is determined by time. We’ve sold quite a few websites that we considered failures. Making between $300-600 a month. We should have kept them. They are still up and running today and probably make the exact same amount of money. That was many years ago! All of that money could have been sent into a bank account without doing anything. In fact, if you have 20 “failed” websites, that would be $6,000-12,000 a month… with minimal work. This is a simple reminder to see if you can automate any “failed” project you have. If you can reduce the time to practically zero, you should keep it until it goes into the red (could last several years in the green).
Business #3 – Trying to Sell to a New Market: Yes everything is sales. And. No, sales are not equal. We wrote last post that it is better to sell to the masses since you learn basic communication skills with a wider audience that allows you to improve your social life as well. That said, if you know how to sell to the elite, there is no need to change gears. While this is a high level view, it makes absolutely no sense to try and change your target group.
Assume that you have a solid business that targets women in their 30s-50s. Now you want to start a second idea. Is it better to try and target men in the same bracket or a different set of women? Trick question. Neither. You’re better off finding another product to sell to the same age group! This is because you’ve already figure out how to tap into the sales funnel for that group. This is also why you find that specific affiliate marketers sell to certain niche’s. Gambling websites do not hit the same group as cosmetics. Diet does not target the same group as Lead Gen. While there are some specific instances where they do overlap, it is much smarter to stay with your core competency.
This is also why we are quite impressed by people who succeed in various types of businesses. Most can only tackle 1-2 industries or target audience (not throwing shade, one industry is *more* than enough). That said, targeting multiple at the same time takes a lot of skill. Also. We’ve noticed that this is typically where people blow their money. They succeed in one area then try to expand in an unrelated area… only to fail and lose a large amount of money. While we did lose a good amount of money trying an endeavor that was unrelated to a core business, it didn’t break the bank. We’ve learned our lesson and hope that anyone reading this will be sure to max out their core competency before moving on. Remember, if you know where your talent is, you need to maximize it before moving on to more risky ventures. Targeting a completely new group of people is a big risk.
We’re sure we have missed a lot more (will add as they come in) but if there are any other mistakes to avoid please leave them in the comments!