In MJ DeMarco’s books ‘’The Millionaire Fastlane’’ (which I highly recommend), he creates the foundation for a new set of beliefs and mindsets when it comes to building financial wealth. That we can get rich young and spend most of our lives enjoying the fruits of our labour.
He gives us 3 different road maps that we can use for our journey to wealth:
- The sidewalk
- The slowlane
- The fastlane
The Sidewalk (Are you a sidewalker?)
Sidewalkers don’t want to make a sacrifice today for a better tomorrow. They are instant gratification seekers. There was an experiment conducted where a dozen kids were given a marshmallow. They were told that they could eat it now, or wait 5 minutes and they would get an extra one. Half the kids immediately ate the marshmallow. It was more important to have something good now, than something better in the future. Years later, the doctor who conducted the experiment tracked down the now grown up kids to see how they were doing. The ones who were able from a young age to forego pleasure in the present for greater future gain were recorded as being happier, better off financially and more ‘’successful’’.
Most people are sidewalkers. They use the sidewalk roadmap their entire lives. They choose to feel good today, rather than make life better tomorrow. They take out loans for holidays and buy groceries on credit. If they get an unexpected bonus at work they blow the whole thing on a holiday. They genuinely believe that their best chance of creating wealth is by playing the lotto, gambling and waiting for redundancy payments. They don’t save for their future, if they have money they find a way to spend it.
Many people lost their jobs, their savings and their pensions in the last economic crisis. Sidewalkers have no protection if something goes wrong as they live pay cheque to pay cheque. They will never accumulate wealth because no matter how much they earn, they will find a way to spend it!
The Slowlane (Are you a slowlaner?)
The slowlane is the opposite of the sidewalker. Slowlaners sacrifice today for a better tomorrow. It’s the path you take to get rich slowly (the flavour of the month). Invest 10%+ of your salary until you retire, max out your pension contributions and live frugally. Forget that sports car you dreamed of owning, forget the fancy house, forget the €10 you spend on coffee everyday. If you save, save, save, when you retire you will be a millionaire!
The slowlaner has a financial plan. They accept responsibility and accountability for their actions. This is definitely a good place to start and they are streets ahead of the sidewalkers, but how much of our present are we giving up on, for a future that is not guaranteed? Will we even be alive in 40 years? Or will we have the health to enjoy our years of hard work? Surely wealth would be best lived when you are in the prime of your life, rather than in its twilight?
The main critique of the slowlane roadmap is how well does it actually work? To save 10% of your salary for 40 years you are assuming you have a job for life, that you live till 80 and that you still have your health at 65.
Moreover, it is relying on factors outside your control. If the stock market crashes and falls by 50% in a year, you just lost half your savings. If the property market crashes you might lose 30% of your net worth or be trapped in negative equity.
The mentality of the slowlaner is to become more and more educated, as then you can command a higher salary. It is to trade your time for money, the more hours I can work, the more I can save. Their job is their sole source of income. Save, live frugally, don’t take unnecessary risks and one day you will retire with millions.
The destination of the slowlaner is a comfortable retirement in the latter years of their lives. It is a rat race towards the middle class, climbing the corporate ladder and working overtime. Your income is capped by the amount of hours you can work. The slowlane will get you rich. But it will take most of your life to get to the destination.
Living for the weekend & Monday morning Zombies
Look around you on public transport in the mornings during the week. How many people are like zombies staring into an abyss of nothingness? How many people do you know that HATE their jobs? How many people do you know that live for the weekend? Are you one of them? Work for 5 days, get 2 days off… Is this a good trade? If you don’t do something different and take risks this is the path you will walk on until you retire. And the longer you are on the path, the harder it is to get off. Once you get married, buy a house, have kids… etc are you really going to have the time or be able to risk the uncertainty of starting your own business? The time to change lanes is now, before you are too far down the road to turn back.
In the slowlane, your hard work and time is traded for your employers money. If you want to earn more, you need to educate yourself all the time so you can command a higher salary. The slowlane will help you ‘’get rich slow’’ (40-45 years). The fastlane is an accelerated version of the slowlane roadmap. The fastlane is designed to help you ‘’get rich quick’’ (5-10 years). Now this isn’t some ‘’magic pill scam’’ We are not talking about ‘’get rich easy’’. The reason so few people succeed in taking the fastlane to wealth is because few people are capable of doing it.
The fastlane is about building a better system, product and method of leveraging your time and efforts. Once you can create a business system that can be automated, you can eventually detached your time from the process.
If you create a business system, your wealth is measured as being the profit that business has made + the value of your business (if you were to sell it)
Wealth = Net Profit + Asset Value
The net profit of your business system is measured by the amount of profit you make every time you sell a unit multiplied by the number of units you sell.
Net Profit = (Units Sold) *(Unit Profit)
From this equation if you want to have a increase your net profit (and therefore increase your wealth) you need to either sell more products, or make more profit every time you sell a unit.
Let’s say you wrote a book on personal finance. If you put it up on Amazon and sell 1,200 copies during 2015. You charge €20 per book and your sales occurred evenly throughout the year.
1,200 * 20 = €24,000
100 * 20 = €2,000
Would selling 1,200 copies of a book be overly difficult in a world with billions of online customers?
€2,000 a month in additional income would pay for your rent, groceries and a couple holidays, with change to spare! Or it could be a deposit on a house…There is also the added benefit that once the book is written it earns money on its own. You don’t need to work 9-5 for the next year to make that €24,000.
What if the book really took off and you sold 100,000 copies in 2016?
100,000 * 20 = €2,000,000
8,333 * 20 = €166,666
Well suddenly… you are a millionaire!! You have unlimited upside in terms of earnings. And you have divorced time from money.
Can you bypass 30 years of the slowlane?
By creating a business system that generates large profits or selling the system you created for a windfall sum, you can jump ahead in the lifetime of compound interest savings ladder!
It’s crucial to understand compound interest, view a previous article here: Compound Interest
The real benefits comes from it once a large enough principle is built up. For most people this will take 25-35 years to earn. However, if we use the fastlane to jump ahead in the compound interest ladder, we can enjoy the benefits of a lifetime of compound interest earnings, while still in our prime! While with still have the energy and vitality to get the most out of it!
Let’s say our initial investment is €10,000, earning 10% a year returns, with no additional contributions.
After 10 years, the compounding difference isn’t game changing at €5,937.
By year 30, the compounded returns are greater by 336%!
Can we use the fastlane to start our life of compounding with €1m? Let’s say we sold our online marketing business for €1.1m at age 35. We had now jumped rungs on the ladder and skipped about 50 years of compounding to get to this net worth figure. We can now live off the income your fastlane has created. Another 10 years of compounding later (from 35-45 years old) and our wealth has risen to €3,044,816!
Your Fastlane might be someone else’s Slowlane!
There are many financial guru’s selling slowlane products and services right now. Funnily enough, most of the successful ones didn’t get rich by following the advice they are selling -> invest in mutual funds and max out your pension contributions (slowlane tactics). They got rich in the fastlane by selling their products to slowlaners! They were able to create a product that appealed to the masses. Don’t get me wrong, saving, investing and pension contributions should be PART of everyone’s financial plan, but it shouldn’t be the plan itself. The guru’s have used the power of scale to satisfy a need of the many and sell books for low prices to a huge market of people. Your slowlane map has created their fastlane.
BEGIN your fastlane journey today. Uncover your own fastlane venture -> Something that has leverage, satisfies a need, has scale (many many potential customers), or high profit per unit. Use this to accelerate your wealth building by decades. Divorce money from time. Live off passive income. Create the lifesytle YOU really want.