One of the realities of life is that moving up in life causes you to lose “touch” with prior problems. Anyone who has followed this blog can see the significant change over the last several years. We used to focus on things that people struggle with if they are still trying to make it (still stuck in the $150-200K/year range). This included optimizing your life for dating, finding short cuts for working while on the job and creating benchmarks to keep your eyes on the prize (getting rich with tons of a free time). Since this was the target audience in the first place, we’re going back to that type of content with a slight twist, reviewing what we would have changed to make the process even easier. Mainly, adjustments we would make in 2019 and beyond since the opportunities continue to morph.
No Timeline Change: Even in 2019, there is no reason to change the timeline, you can get reasonably rich within 10 years and the process is still similar: get to two forms of income asap (ideally more) and invest into nothing but cash flow positive assets – never sell. The good news is that we would argue that it is easier than never to make a few bucks. The bad news is you probably want even more than just a couple of forms of income as the cash flow may not meet expectations. From what we’ve seen, the larger established cash flow companies continue to put the clamps on smaller sized businesses. This is due to margin compression and inability to compete with scale. The good news? It’s easier than ever to create multiple small niches.
Only Cash Flow Positive Side Incomes: Unless you plan on building a massive unprofitable technology company and take it public (Uber, WeWork etc.) there is just no reason to deal with the headaches associated with negative cash flows. Since you’re starting from zero even an extra $5,000 a year is a solid 0.5% of the way to a million dollars ($10,000 is already 1% of the number and that’s possible to do in a single day in the future if you’re lucky & successful). We’re going to veer a little bit away from Efficiency here and talk about potential “prerequisites” for efficiency since we realize many people are starting from Zero dollars.
The first item is to always get a desk job. This is always our initial strategy. While it is true that there is money in starting a brick and mortar company, if you have $0 to your name a desk job is going to work out better for you. Why? Less of what we call “bad stress”. Bad stress involves potentially going bankrupt, going into massive amounts of debt and being forced to worry about every single penny you have.
Notice we’ve lowered the bar a tad to any desk job. In efficiency we say you must start in a career, but this is a post tailored to people with quite literally nothing. Once you get a desk job you then look to optimize the hours at the desk job. You can do this by trading time for money. That’s right, we’re actually fine with time for money exchanges if you have $0. Everyone (including us) traded time for money at some time. Your time for money exchange has a small wrinkle in it. It must be done at your desk. This creates a lot more opportunities than you could actually imagine if you have interest in getting rich. You can do any service that is done on a computer (hint there are millions of services done from a computer including editing services and copywriting to graphics design). This is now optimizing your time.
Some quick math. Lets say your first desk job is just terrible, you get paid $50,000 a year and work 40 hours a week (around $25/hr). Here’s the first lesson in compounding. Since we know that low paying desk jobs rare require 40 true hours of work per week (more like 20 hours), you can now compound this number with just one or two projects a week. While most will laugh at the thought of doing a project that generates $100 a week, if you can do this consistently your daily income goes from $200/day to $220/day (10% increase). You’ve given yourself a 10% raise.
Do the math on that 10% increase or $5,000 a year. That now practically guarantees you’re going to become a millionaire before you die if you live past age 62. On a meaningless $5,000 a year in extra income, if that represents all of your savings for your working life, you’re a millionaire at age 61 (40 years out and assumes you’re 21 when you start and a 7% return).
Learning the Value of Time: Now that you’ve given yourself a 10% inorganic raise, it’s time to learn the lesson of “life time value of customers”. It doesn’t matter what you are doing, if you’re getting a lot of a referrals it means the amount of money you are charging is just too low. This increases the amount of money you’re making *without being forced to look for new customers*. Now you’ll scale this up until you simply can’t take any more customers.
As we’ve learned in basic economics, price is a function of supply and demand. Since you can’t physically work more than X projects per week you either have to raise prices or you have to train someone to do this same job for you. This is where a typical mistake is made. Most will simply keep raising prices until the referrals stop coming in as the value is roughly equal to the price. Big mistake and doesn’t account for the value of time.
Humans by nature are incredibly lazy by design. They would much rather go somewhere and get something guaranteed than take the extra time and effort to start something themselves. So… the answer is simple…. if you were willing to do it for the amount you are charging you’ll find someone else who is willing to do it for 90% of the value (the lower the better!). Congrats you’ve suddenly turned this miniature hobby into something that may turn into a business.
At this point, mathematically you’ve at minimum created an extra $10,000 a year income. This is absolutely nothing in the grand scheme of things but you’ve cut a decade out of the time it takes to become a millionaire. The exact number is 9 years based on the same return profile but the point is roughly the same. You’re now a millionaire at age 52 instead of 61.
Optimize: Funny enough, you’d think that your regular desk job performance would go down the drain. This has not been our experience and has not been the experience of people we’ve seen succeed. The reality is that your desk job performance actually goes up. Why? You’re excited to go on to your next project and want to find ways to do the job faster and more efficiently without any significant error rate change. This optimization is going to bleed into your project work as well. A virtuous cycle upward.
Now here is where the decision making gets harder. You’ve got some desk job and you’ve got some side income and have a chance to get promoted or scale up other projects. You know (personally) that you can’t do both at the same time. While we’d love to tell you that you should always scale up projects the truth is that the answer is unclear. If you can get a substantial pay increase with a *temporary* increase in hours, you should probably stop taking new projects for a few months. Why? We the fact that you’re forced to turn down some projects will actually increase your brand’s value as you are seen as a scarce asset. Also. Never disrespect the chance for guaranteed money (classic mistake).
On the other side of the coin, if the new position require you to give up all of your projects for the next several years, it probably doesn’t make sense unless its an insanely large amount of money. This isn’t a mathematical science and this is why we still hold monthly Q&A’s for situations like this.
Giving Up Control: Assuming you’ve got this game down now, you’re spending your time optimizing the desk job white churning out new projects. Most people get emotionally attached to their projects at this point which is a bad thing. Eventually you have to give up control. When we say give up control we are 1,000,000% not talking about ownership of the actual small company you’re building. We’re referring to the number of tasks you’re willing to do. For fun it typically goes like this: Virtual Assistant -> help with sales -> back-end. Virtual assistant saves time and costs next to nothing. Initial sales positions are the easiest to calculate when it comes to profitability and finally back-end makes the small company easier to sell as no one in their right mind enjoys fixing boring technical/communication issues.
At this point your mind is no longer going to work as it did in the past. You’re going to have at least one item generating money for you while you quite literally sleep at night. The downside of this revelation? You will now realize you’re without a doubt being paid much less than you are worth at your job/career. For some reason you have to be in a position where someone is quite literally making money for you to realize that you’ll never be paid your true value. This makes it a lot harder to show up to that desk job you’re using to pay the bills. Who would hire someone that loses them money? Absolutely no one.
The second big catch 22 here is that you’re going to be significantly better at your desk/day job. Why? Anything that produces money is a transferable skill. You just won’t be able to pin point it. To make a sports analogy if you’re extremely good at say tennis, do you think you’ll have a easy or a hard time learning how to play racquetball? Now take it a step further, even if you had to take up Golf we would bet that you’d start off at a higher skill level than most people. Why? You’ve learned basic techniques (how to hold a racquet) and are in better shape than most people. While it won’t be as transferable, we would wager good money that you’ll learn something transferable that’ll continue to push you ahead of everyone around you.
Get Forced In: This is a new concept we’ll be talking about more often. Being “forced in”. Typically, the people who fail at making money over longer periods of time suffer from over confidence. They do all the processes above, they see the market expanding and they spend a large chunk of their earnings (say 15-20%). This then leads to a year-over-year decline in income the next year (life’s wonderful way of reality checking people who think they have it all figured out). This causes a reset once again in the journey to becoming rich.
Instead, you should always expand the distance of “living below your earnings” and eventually you’ll be “forced in”. What this means is that you’ll make tons of adjustments and continue to save/invest more money and get new customers. Then you’re forced into spending for yet another money making opportunity…. More on this on the weekend…