SIDEWALK, SLOWLANE AND FASTLANE – THE MILLIONAIRE FASTLANE
Being a millionaire is every entrepreneurs dream. But will you become one?
The following article is based on the book “The Millionaire Fastlane” by MJ DeMarco.
When it comes to entrepreneurship The Millionaire Fastlane is my bible. I have not seen a more sensible book on entrepreneurship in my life. It is one of those books that I go back and refer when I am stuck for a long time without progress, and usually I will find some guidance somewhere in this book.
Table of Contents
In this note I will introduce you to the 3 different roadmap for wealth.
There are three roadmaps that are available for you to choose from. Each roadmap has its true essence. It is possible to be wealthy in any roadmap you choose but for that you have to be an anomaly. You have to be extremely special to be an anomaly. If you pick the right roadmap for wealth you have the highest chances for success. These roadmaps are –
Sidewalk – True Essence is Poorness
Slowlane – True Essence is Mediocrity
Fastlane – True Essence is Wealth
Now we will go in detail about each of the above roadmaps.
Life as a sidewalker will naturally attract you to poorness.
If you spend all your surplus money on the next great gadget, on the next trip, on the next car, on the next fashionable styles you are a sidewalker. This is because sidewalk is all about short term and never about long term.
Sidewalker has no financial plan.
Sidewalkers spend money for instant gratification, for immediate pleasure and this goes on every month. Having no financial plan will tie a sidewalker to his job or business forever. A sidewalker will not save judiciously for a rainy day.
Sidewalk is the road most traveled because it is the path of least resistance.
Symptoms of a sidewalker –
1) Lives paycheck to paycheck.
2) Stops learning after graduating from school.
3) You think your income includes credit. Hence you have poor credit.
4) You think people with money have it because they got lucky or that you did not make it because of your bad circumstances. You blame external events for your horrible conditions
5) You rely on government or politicians to change a system instead of focusing on how you can change yourself.
6) You have a negative net-worth and little to no savings.
7) You have no car and health insurance and you have unprotected sex with uncommitted partners.
8) You spent a lot of time in alternate realities such as TV, reality shows, celebrity gossips or video games.
Sidewalkers wealth equation –
Wealth = Income + Debt
Because sidewalker believes that debt can be used as his own money he uses credit cards and loans extensively and falls into bigger and bigger financial traps.
Lastly, a sidewalker can be income-rich. It is not uncommon to see professional singers and celebrities going bankrupt after they lose their stardom. A sidewalker will burn through his entire income even if he is making a lot of money by buying fancy designer wears, expensive cars and other toys, by ordering bottle services in VIP section of the bar using credit .etc.
Sidewalkers biggest problem is poor financial management. You have to be financially intelligent to become rich.
Life in the slowlane will naturally attract you to mediocrity.
Slowlane is the sacrifice of today in hopes for a brighter tomorrow.
Slowlane is the first convenient exit from the sidewalk. After college most students start with the sidewalk and after getting more mature they will transition to the Slowlane.
Symptoms of Slowlane –
1) Get a job and sacrifice 5 days by working for someone in order to get 2 days off in the weekend. This means that you are getting a negative 60% return.
2) You bag lunch and you don’t drink $10 coffee in order to save money. Live frugal in order to retire with millions.
3) You entrust 10% of your paycheck to the stock market and your 401(k).
4) You save because you think compound interest is powerful. $10,000 invested today will become millions in 50 years.
5) You quit dreaming about buying a sports car because you simply cannot.
strong>6) You think time is abundant and that you will live forever. You restraint from all gratification until you are 65 years old.
7) Education is important for you because it will give you a bigger salary.
8) You job is your sole income source.
9) You rely on your employer, good economy and government to make sure that you are able to retire with millions of dollars.
In Slowlane you are promised of wealth in exchange of your life.
Slowlane as the only plan is the problem. Slowlane should be part of your plan.
Sometimes jobs can be fun. But having a job is not going to make you rich due to the following reasons –
1) You will have to trade your time for money. So now you have limited time to do things you like. A person who makes $80,000 a year and saves 10% will take 125 years to be a millionaire.
2) Your increment is limited.
3) You do not have control. They can fire you anytime.
4) Jobs limit experience. You can learn more things in 2 months as an entrepreneur than what you might learn in 10 years doing a dead end job.
5) Sickening office politics.
Slowlane strategy will not make you rich because of uncontrollable limited leverage (ULL). To make money you need two things – control and leverage. Slowlane does not have both.
We will explore this by using the Slowlaners Wealth Equation –
Wealth = Primary Income Source + Market Investment
Primary Income source is usually a job. You have limited leverage to make money through jobs because it is impossible to work more than 24 hours a day. You cannot demand to work 100 hours in a day to make more cash, time has a limit. Also you cannot work more than 50-60 years in your life because of human life expectancy.
Market investment works by Compound Interest. Compound interest is also limited by time because $10,000 invested today will take 15 years to become $20,000 if interest is 5%. Also in 15 years chances are due to inflation and fluctuation in the economy your $20,000 might not be as valuable as the $10,000 that you started with. Compound interest relies on the initial investment, time invested and investment yield.
Only 10% of pentamillionaires made their fortune from passive investment.
Slowlane also dilutes your control because your wealth depends whether you are fired or not from your job, whether you are asked to cut hours or not, whether you get promotion, whether your company goes bankrupt or if the economy is good.
Slowlaners try to increase intrinsic value through education
The true essence of Fastlane is wealth.
You will have to make sacrifices that only a few will make in order to live a life that only a few can. When you are building a Fastlane business initially you might get negative 100% return as you might have to work for 7 days a week without taking any days off.
Mindset of the Fastlane –
1) Time is the most important asset I have. Much more important than money
2) I believe that knowledge is everything. If I stop learning I stop growing.
3) I make money using my business systems and investments.
4) The more I help others the richer I become in time, money and personal happiness.
5) Life is under my control. My financial plan is under my responsibility.
Fastlane is the rapid road to wealth. It is possible to get-rich-quick if you follow Fastlane principles (Remember, it is get-rich-quick and not get-rich-easy. You might have to work 60-80 hour weeks for 6 years to be successful, but Fastlane produces wealth in short periods – millions, sometimes billions of dollars.)
A business does not make a Fastlane, you got to find the right business
Fastlaners are producers, creators, entrepreneurs, innovators and visionaries
Fastlane is Controllable Unlimited Leverage and the wealth is not bound by time.
Fastlane Wealth Equation –
Wealth = Net Profit + Asset Value
Net Profit = Unit Sold X Unit Profit
Asset Value = Net Profit X Industry Multiplier
Now let us compare Fastlane and Slowlane wealth.
If you are in the Slowlane and you make $100 an hour, you can make a maximum of $2400 a day if you work for 24 hours. It is impossible to work for 24 hours and a more reasonable amount is to work for 8 hours day.
Compare this with what would happen if you were in the Fastlane. If a product/lead you sell is for $4 and your website gets 20,000 visitors a day you can make a maximum of $80,000 each day. Of course, it is not possible to convert all 20000 visitors just like it is impossible to work for 24 hours a day. But even if you convert 10% of your visitors you are still making $8,000 every day.
But on top of that Fastlane is Controllable Unlimited Leverage. For example –
You Can Control Conversion Ratio – If you look at the above calculation for Fastlane you are making $8000 a day with 10$ conversion rate. Now if you manage to increase your conversion by 1% you will make an extra $800 each day! If a website redesign further increase conversion by 4% you will make another extra $3200 each day.
You Can Control Web Traffic – Increase traffic from 20000 per day to 22000 per day. That’s an increase of $800 per day with 10% conversion. On somedays you might even get traffic spikes that will increase your profit even more.
You Can Control Unit Profit – A 0.5$ increase in price from $4 to $4.5 can result in increase of $1000 per day.
Unfortunately a lot of people who run businesses do not have controllable unlimited leverage. They are essentially running businesses like a job. If you own a burger stand it is not possible to sell 10,000 burgers in a day unless you own franchises.
Small numbers attract mediocrity. You need to have high leverage.
Asset Value –
Slowlaners and Sidewalkers buy depreciating assets such as cars, designer clothes, gadgets .etc. Fastlaners buy appreciating assets such as businesses, real estate, brands, inventions and patents.
Asset Value = Net Profit X Industry Multiplier
Are you familiar with multiplier? The valuation of your business is dependent on the Price-to-Earnings (PE) of your particular industry. For example, if a company’s stock is trading at 10 times PE investors are purchasing the company at a multiple of 10 times. This is true even if your company is a small private company or a large publicly traded company.
For example, in web based businesses the Industry Multiplier ranges from 2 to 6. If your industry multiplier is 4, every time profit increases, the asset value will increase by 400%. That is investors will purchase your company at 4 times PE(price to earnings).
Which mutual fund will ever pay you 400%? Mutual funds will pay somewhere around 8%. Some industries such as “Surgical and Medical Instruments” has an industry multiplier of 17 which means that a profit increase will result in asset value increase of 1700%.
In case of a liquidation event where you sell your appreciable asset to the market it is possible to be a millionaire or in some cases a billionaire overnight. This is the Fastlane exit strategy. Example, Whatsapp was purchased by Facebook for billions of dollars, broadcast.com was purchased by Yahoo for billions of dollars making Mark Cuban a billionaire.
Power of compound interest in the Fastlane – In the Slowlane you start saving $5 a day and expect to be rich in 40 years. In the Fastlane, if you are able to invest a principle amount of $10 million dollar in a bank account you will get an interest of over $40,000 dollars a month. Slowlaners use compound interest as a way to achieve wealth while Fastlaners use compound interest as a way to create passive income.
Compound interest is useful when the principle amount is a large sum of money. That is why it should be part of your plan and not your complete plan. Build your business system large enough for you to reach that large amount where compound interest makes sense.
With that said Fastlane is not the right strategy for lot of people because it is hard. Unless you are willing to put a lot of effort and try to be smarter than everyone else you are not going to be successful.
WHAT NEXT ?
I want you to think hard on your current choice of roadmap. And then you have to make the choice to change lanes to a different road if required.
I just covered a minuscule piece of information from The Millionaire Fastlane. The book is a must read, and something you should buy and hold with you forever 🙂
Buy The Millionaire Fastlane By MJ DeMarco if you like the notes and you want to dive in deeper.
Do let me know your feedback about this article in the comments below. I will answer each and every one of them 🙂