When is a JV not a JV?

Last week I wrote about joint ventures (JV’s) in real-estate; personally, I don’t like ’em but I showed you the right way and wrong way to enter into one. You should also read the comments.

Today, I want to share an interesting e-mail discourse that I had with another reader who wants to set up  what he calls a “JV with a manufacturer”.

Firstly, what he proposed is not a JV; to me, this is one of the most overused terms. He wants a manufacturer to help him design, then manufacture a new product.

What he is setting up is a supply chain relationship, not a joint venture.

To me a JV occurs when both parties take significant risk in the ‘venture’ and in some way share the upside / downside risks.

An example might be where you come up with an idea for a new product (as this reader has) and approach a manufacturer who is willing to take your sketch or prototype and turn it into a manufacturable product at no cost to you. Or, if at cost, then the cost is shared to some significant portion, say 50/50. In return, you pay the manufacturer a (hopefully, reduced) price for the finished product + a % of sales (better yet, % of profits).

I had a number of true business joint ventures: these are when two businesses create a third business party owned by both (it need not be 50/50, in my case one was 51/49 and the other was 40/60). In a true JV both parties bring something significant to the table that makes the JV better than either party going it alone … in our case, my business brought niche industry expertise, unique software and processes and the other party brought infrastructure, client relationships and customer service.

However, if you’re thinking of entering into a JV I can only point you to a conversation that I had just prior to signing my first one:

I was on the plane with a friend heading to see the Rugby World Cup in Sydney. I told him about my plans for a series of JV’s to help me expand to other countries. He cautioned me that he was privvy to a study that showed that JV’s were successful proportionally according to size-parity between the the parties.

The corollary was that where one party was tiny (my company, at that time of 30 employees in Australia) and the other large (my $2 Bill. multinational proposed JV partner) JV’s generally did NOT work … the small guy was almost always swallowed up by the big guy.

In my case, the JV’s actually did work, but they were difficult to manage and even where I held majority ownership (as in the USA JV), that did not translate into effective control.

In the end, it all worked out well for me and for my JV partner, but always remember: it is very difficult for a fly to steer an elephant. 😉


Why most business owners are not wealthy …

There is a very simple reason why most business owners are not wealthy.

Can’t guess?

I’ll give you a hint: the secret is in this statistic:

According to the US Census Bureau, in 2008 there were 27.3 million businesses in the USA. Of these 21.3 million have no employees.

Think about it, 78% of all businesses in the USA have NO employees.

Now, some of them may be bloggers. Some may be eBayers. Some of them may own niche eCommerce sites. But, I bet that the bulk cut hair, mow lawns, see patients, and so on.

They don’t have employees because they offer a relatively simple service: writing, middle-manning, mowing, cutting, diagnosing …

You get the picture.

They are not wealthy because service businesses are very limited in how much revenue they can generate.

Generally, they are a job – albeit a lucrative job for a lucky few – nothing more. And, if these service business owners don’t put in place a very aggressive savings/investment strategy they will never become wealthy.

Ramit at I Will Teach You To Be Rich tells the story of Mark who quit his high-flying day-trading career and gave away his entire $1 mill. net worth just to prove that getting rich (sic) the first time around was no fluke.


You should read his story here.

What struck me is how Mark has now created a nice little kitchen table business for himself:

“I was surprised,” Mark recalled. “[by] this little, easy thing that I can do in an hour. [My clients] want me to hacker test their site and give them a logo to put on the bottom of the site when it passes.” Depending on his schedule, Mark contacts about 15 leads a day. He adds the rest to his growing lead database.

Can you see how Mark is building a nice little service business; contacting 15 leads / day, which I guess allows him to service 7 or 8 in a day (if half convert into paying customers, and if it takes him 1 hr to do each, and if he can do all his other biz admin/marketing after hours)?

What can he charge?

If as much as $99 each (I’m guessing, here), that’s still a nice little earner of $700 / $800 per day or $160k per year!

Again, nothing wrong with that, but hardly likely to make him wealthy, unless Mark does one (preferably both) of two things:

1. Save 50% of his $160k pre-tax income and invest in income-producing assets. Remember, Mark has to generate $1.6 million of assets for every $80k of retirement income that he needs. Oh, and he needs to double that number for every 20 years before he intends to retire to account for inflation,


2. He has to Productize His Service.

This simply means converting his low growth service business – that probably can only be sold for a small amount (typically one to two years’ revenue) – into a high growth ‘real’ business that can be sold for a much higher $$$ figure.

How so?

It means taking Mark out of the picture. By that, I don’t mean replacing Mark with somebody else, I mean making Mark’s – or, his replacement’s – labor secondary to the real purpose of the business.

The benefits of doing this are two-fold:

a) Mark can go on vacation, and

b) the business can scale as big as Mark likes.

Let’s take a closer look at how this might work for Mark:

Mark said that his customers “asked for this little, easy thing that I can do in an hour. They want me to hacker test their site and give them a logo to put on the bottom of the site when it passes.”

If this is really the case (and, I’m not sure what is actually involved, but let’s go with it for the sake of this post) then Mark is really selling a product, not a service: the product is the “logo to put on the bottom of the site”.

Verisign, for example, makes hundreds of millions of dollars a year putting logos on the bottom of sites to indicate that they are secure; it sounds like Mark is doing something very similar.

And, that’s what the customer wants: a  logo.

Why do they want a logo?

Well, they really want what the logo represents: whether it be for their own peace of mind (e.g. “my site can’t be easily hacked”) or – more likely – for their customers’ peace of mind (e.g. “I can buy from this site, my info seems pretty safe from being hacked”) The service that Mark offers (i.e. to test the site) is simply the means to that end: if the site passes the test, they get the logo.

And, if they get the logo … then they (and/or their clients) get peace of mind.

Since it helps his customers to sell their own products from their own web-sites, Mark should be able to sell this ‘seal of approval’ for $19, $29, $49, $99, maybe more … maybe a LOT more.

In fact, it should be relatively easy for Mark to create a web-site in WordPress to act as the ‘front window’ for his new product-as-service, and do a bit of side-by-side testing (called ‘A/B testing’) to find the optimal price point.

Now, what about all of that “easy thing that [Mark] can do in an hour” stuff?

Well, since his customers are really buying the ‘stamp of approval’, and the work is easy to do, Mark should be able to train just about anybody to do it! Assuming that it can be done remotely, Mark should be able to use freelancer.com or odesk.com to outsource the work offshore. Cost $4/hr.

Mark’s gross margin should be anywhere from 80% – 95%, which is very typical for web-enabled ‘productized service businesses’ (more commonly known in the software world as Software as a Service or SaaS).

Now that Mark has a high gross margin SaaS business on his hands, he should switch his role to marketing and scaling it using the methods that every other successful SaaS business uses.

No more finding/chasing individual leads and personally delivering services in one hour increments … and, Mark may eventually find that he has a multi-million dollar web-business on his hands.

No fluke, after all. ;)


Bragging rights …

Some of my readers want to hear more on the business / startup front, which is where I have spent most of my working life …

…. but, it’s important to realize that the vast BULK of my $7 million that I made in 7 years (starting from $30k in debt) was made from investing – primarily in real-estate and stocks (mainly real-estate).

[AJC: That’s not to say that I didn’t make a lot from business as well – in fact, I exited three of my businesses to a UK listed company. But, that came a couple of years after I made my first $7m7y.]

Anyhow, since business is an important avenue for many of my readers to increase their income (so they can invest more), I like to offer the occasional tip. I love this one from Venture Hacks (via Twitter):

Why do companies brag about how many employees they have? They want to spotlight their inefficiencies and poor leverage? http://vh.co/euaB2h

Why indeed?

Number of employees is another example of what Eric Ries calls a vanity metric: a number that makes you feel good, makes your investors feel good, makes your bank feel good, even makes your wife feel good (and, your friends envy you) …

… but, tells you NOTHING about your business. At least, nothing actionable.

If more employees is good, then add employees to grow your business!? I don’t think so … adding overhead is a great way to go broke.

I have personal experience with this; back in 1998 my business was growing gangbusters:

I started with 4 or 5 employees, then won a couple of contracts in quick succession.

So, we rented a new building – our first ‘professionally fitted out corporate-style offices’ [AJC: actually, the ‘gentleman farmer’ who owned the building rehabbed the office himself … I mean, he and his sons wielded the hammers, nails, drywall, paint, etc. themselves! But, that’s another story …].

It was an 8 year lease, but something in the back of my head told me to negotiate for flexibility, so I pushed hard and got 4 by 2 year leases (our option to extend each renewal) instead.

Surprisingly, we grew from 5 to 16 or so within 2 years and were busting the ‘new’ office at the seams.

So, I scrambled out and hastily bought my own office (cost me nearly $2 million after fit-out), and I determined not to make the same mistake again: we moved into the office with 22 people but I fully / completely fitted it out, including workstations, phones, and so on for 50 people.

I made my self Growth Ready.

And, it worked!

We won more contracts and grew to 30 people. But, there was a catch …

We weren’t making money. The bigger we grew, the more money we lost.

I slowly came to the realization that my business didn’t have a Break-Even Point … our operating cost (i.e. expenses) was directly related to our revenue: the more we earned, the more people we needed to fulfill our service, the more money we lost 🙁

Luckily (!) we lost a major client and had to cut heads from 30 to 20 … it was a sad day for me.

Ultimately, though, it proved to be the first major turning point for our company: we created a new technology platform that allowed us to quadruple our business with fewer people; in fact, we maxed out at 22 after quadrupling our business.

Needless to say, we were suddenly – very – profitable.

So, now I was in an interesting position …

I could no long brag about having 30 staff … but I was rolling in cash, but who likes to brag about money to friends?

What would you rather have?

The vanity metric or the bottom-line results that come from understanding what really drives your business … then, doing it? 😉

You don’t need to become a barber to become rich …

Darwin’s Money shares a story about his barber that shows how anybody can become rich; here’s a trimmed down version of Darwin’s assessment of how his barber became rich:

  • Real Estate Mogul – He owns multiple rental properties.  He started off small and kept rolling his profits into more and larger properties.
  • Business Savvy… and Patient – He knows the real estate market very well and he waits for deals to come around.  He’s patient.
  • Frugal – Just through some casual observations, it’s evident he’s a frugal guy.  He dresses modestly, he doesn’t take extravagant vacations, and he doesn’t drive a fancy car.  The combination of multiple streams of income and frugality make for a huge net worth in your later years.
  • Small Business Owner– Like all smart business owners, he gets other people to work for him and generate income and offset his costs.  Rather than just running a one man barbershop, he has a couple other barbers working there.

This looks likes an great observational report … I’m not certain that Darwin actually asked his barber how much money he has or how he made it?

I’ll do the reverse; I’ll tell you how I made my money … it’s much the same as the barber, but I think it’s the order that’s critical:

Business Savvy, Impatient, Small Business Owner – I started by becoming a small business owner, then trying to become business savvy. But, it was a slow path. When I finally hit rock bottom (business-wise) and found my Life’s Purpose, hence my Number, I suddenly became impatient. In fact, this was the turning point for me: as I accelerated my business growth, I accelerated my income, which is the first key to becoming rich.

Frugal – Now, this is where most high income earners go wrong: as their income increases, they become looser with their money. It should be quite the reverse: in dollar terms it’s OK to (in fact, you should) reward yourself by increasing your expenditure [slightly] in $ terms. But, and this is the secret, you should be decreasing your expenditure in % terms. While it’s fine and dandy to be frugal while you are still on a low and/or fixed income (i.e. job), it’s actually critical to become more frugal in relative terms as your income increases.

… and Patient Real-Estate Mogul – What to do with the rapidly increasing bank balance? Well, you could put it in mutual funds (but the fees are too high and/or the returns are too slow), stocks (but, they are not leveraged enough), or other businesses (but, you run the risk of spreading yourself too thin). For me, the best compromise between the leverage of a true business and a passive investment is – and remains – investment-grade real-estate. This is where being patient finally kicks in, because buy/hold real-estate is subject to the vagaries of the market. But, I had a primary source of growing income, so I didn’t need to touch my real-estate investment income until I finally began Life After Work.

So, my assessment is that Darwin is right, but the order is wrong.

Oh, I also think that you can substitute small business ownership for any high income potential (e.g. highly-paid professional; CxO-level employee; consultant; etc.) with the only catch being that you miss out on the potential capital gains that owning a business may offer – on the other hand, you may be able to negotiate yourself a nice golden parachute …

How well do you think this simple strategy could work for you?

real rich, real simple, redux

This is a redux of a 2009 post, but it’s about time that I gave my newer readers a heads-up as to what we’re all about … if I had to point somebody to just one of my posts to get them started this would be the one; putting in all of the links nearly killed me 🙂


I get a lot of questions, comments, and e-mails in general from new readers, and this one – from Chad – is reasonably typical of what I might see:

I’m turning 27; just got a job making 50k/yr.; on the market for my 1st condo to live in (and hopefully rent out a room); have 1 student loan at < 3% fixed interest. My goal is $7 million in 13 years.

1. I have very little to no knowledge of finance/investing. Do you recommend any resources to get me up to speed so I can understand what you write about?

2. Where does my situation put me in terms of Making Money 101 and 201, i.e. where do I go from here?

I appreciate ANY direction you can give me as I do not want to be stuck behind a computer in a cube for the next 30-40 years.

While I love reading these sorts of e-mails (AJC: I really do!], I have a hard time responding because I can’t / don’t give direct personal advice … but,

I can suggest that Chad think about:

1. Exactly HOW important that $7 million in 13 years is to him, and

2. Assuming it’s VERY important (critical even), how he is going to get there.

You see, my advice might change according to his Number – more importantly to his Required Annual Compound Growth Rate:

a) If low – say, no more than 10% to 15% – then I would point Chad to the various ‘frugal’ blogs (my personal favorite is Get Rich Slowly) and ‘starter books’ like The Richest Man In Babylon, or the more modern equivalent: Automatic Millionaire by David Bach, or anything by Dave Ramsey or Suze Orman.

Each would probably suggest something along the lines of:

– Keep your job; times are tough!

– Save as much of your salary as you can (max your 401k’s, then your IRA’s)

– Pay down ALL debt, following a Debt Avalanche or Debt Snowball, whichever is your favorite

– Invest any ‘spare change’ (after all debts are paid off and the requisite ’emergency fund’ has been built up) into a low cost Index Fund

… and, wait until your government-directed – or, employer-forced if you are retrenched and become unhireable – ‘retirement’. This is where that fully paid off home and a lot of candles and canned food stockpiled will really pay off … you won’t be able to afford real food 😉

a) If high – say, more than 10% to 15% (and, I would venture that $7 million in just 13 years would well and truly put Chad in the 50+% required annual compound growth rate category!) – then I would instead point Chad to books like Rich Dad, Poor Dad and The E-Myth Revisited and then towards this blog and its 7 Millionaires … In Training! ‘sister blog’ and suggest that he starts working his way through the back issues (well, posts).

After reading/digesting properly, he should be able to come up with his own plan … something along the lines of:

– Keep your job, but get into active stock and/or real-estate investing – better yet, start a side-business; because times are really tough(!):

i) A mildly successful part-time business might provide additional income to help you weather the financial storm and supercharge your savings, investment, and debt repayment plans

ii) A more successful part-time business might provide a built-in ’emergency fund’, tiding you over should you lose your job and/or unexpected expenses crop up

iii) An even more successful part-time business that can be started and/or survive during a recession may prove to become wildly successful once the clouds of the recession begin to lift, maybe even carrying you directly to your Number [AJC: do not pass Go, but do collect $200 million 🙂 ]

Control your spending, and save as much of your salary as you can to build a war chest for starting / running your business

– Pay down ALL expensive debt, following the method laid out in the Cash Cascade, but keep your mortgage (lock in to current low rates) subject to the 20% Rule and the 25% Income Rule and seriously think about keeping your other cheap debt loans.

– Invest any ‘spare change’ from your job and business (after all expensive debts are paid off and the requisite ‘business startup fund’ has been built up) into quality ‘recession-priced’ stocks and/or true cashflow positive real-estate.

… and, wait until you have reached your Number (through sale of business and/or conservative valuation of your equity in your investment assets).

That’s it 🙂

Would you cash in your 401k to fund your new business venture?

There was a question on Quora that asked something along the lines of “what is the most overlooked factor in starting a business?”.

This applies equally to an online or offline business … and, I was surprised that none of the responses mentioned it:



In order to launch a business, you need to be able to overlook risk.

Even though risk can be managed, if you sat down to think about all the possible things that could go wrong with your proposed business, well, you would never start it.

So, I think you need to be able to overlook risk – and, move well out of your comfort zone (unless you are already into extreme sports and other forms of death wish!) – if you are to think about starting a business that consumes considerable time and/or money (no ‘hobby businesses’ here).

Hopefully, this now paves the way for a sensible discussion around a rather controversial Wisebread article sharing Darwin’s thoughts on How to Start a Business With Your 401(k).

Darwin’s view is that, rather than taking on expensive debt, it may be better to start your business by withdrawing all or part of your 401k using “a little known, but increasingly popular provision in the tax code referred to as the Rollover as Business Startup (ROBS). It allows someone to start up a new business venture with funds from an old 401(k) account without incurring the dreaded early withdrawal penalties meant to deter people from using their 401(k) accounts like piggy banks.”

A sensible – negative – response is offered by one reader:

To avoid going into debt is a pretty bad reason to raid your 401(k). If your business fails you can always declare bankruptcy – bankruptcy can’t touch most 401(k)’s – you’ll still have your retirement savings…roll it over into the business instead, have it fail…and you’ll have nothing.

And, I agree – to a point: your 401(k), although woefully inadequate for its intended purpose (i.e. ensuring your retirement) is useful as an insurance policy when all else in your financial life goes wrong.

Cashing in your insurance policies because you need money is the last thing that you should do!

But, this viewpoint ignores some basic realities:

1. Going into business, for a true entrepreneur (the type that can build a $7m7y business) is a “must do”.

Starting my own business was all I could think of for 4 years (yes, I was slow to act), and risking everything (career, etc.) was simply par for the course. I’m not saying this is ‘right’, just that it’s how an entrepreneur thinks.

2. Raising significant debt finance is almost impossible for a new business.

Sure, you can (and should) tap out your sources of traditional finance: refinancing your house (if you’re not already upside down on your mortgage); max’ing out your credit cards; trying for a personal loan (fat chance once the bank manager finds out what it’s for).

I do not think cost of the debt is an issue (if it’s available TAKE IT because it’s deductible and you’ll pay it off if your business is successful). I do think access to debt is … I think you’ll find it’s just not available; at least, not in the amounts required if your business requires access to substantial capital (e.g. for shop fit-outs, software builds, stock purchases, etc.)

3. Equity Capital can be equally difficult

The first place you should go for funds for your new venture is the 4 F’s: Founders (see above), Family, Friends … and, Fools. These days, Fools are very hard to find (they’ve already had their pockets emptied in the crash!) and Family and Friends are less likely to dig into their pockets than ever before.

So, that may leave your 401(k).

If that’s the only source of funds for your new venture, what will you do?

Anatomy Of A Startup – Part VIII

It seems that most of my readers are happy for me to – at least occasionally – talk about startups.

So, with your blessing, I thought that I would answer the most common [Internet] startup question that I come across:

How do you develop an idea into a startup? I have an idea that I think would be a very good startup but I am new to this industry and trying to figure out how to better develop this idea into a startup.

Here’s a summary of my process:

1. Spend 1 to 5 days on Google keyword searching EVERYTHING I can about my idea, possible competitors, available research (if anything), market size and so on. Basically, I want to absorb the available knowledge around my idea. Others may consider this step non-productive and do it in 2 hours.

2. I then formulate my idea into my first real attempt at a Unique Selling Proposition; fill in the blanks: “_(Name)_ is _(keywords)_ just for _(who should look for it)_ who want _(best thing)_. There’s no other _(category)_ like it because _(name)_ has _(what makes my eBiz different)_”

3. The next step is to create a 2 page executive summary of your idea, with one paragraph or so under each of the following headings: 1. problem (being solved) 2. solution (being offered 3. business model (i.e. how you intend to make money 4. sales and marketing (how you intend to get your product to market 5.the competition (come on EVERYBODY has competition!) 6. the team (please say you have a cofounder and that one of you is tech!) 7. financial overview (I don’t necessarily do any financial modeling at this stage, but you can add this para if you like).

The reason why I do this document is that it forces you to summarize all that you think that you know with the benefit of a) honing you elevator pitch (you DO have one, right?!) and b) having something to send people if, by some miracle, some investor or strategic partner falls into your lap. That’s also ONE of the reasons for taking the next step:

4. Create your first powerpoint pitch deck; I base mine on Guy Kawasaki’s Art Of The Start http://blog.guykawasaki.com/2005…
(but, you can go online and find any number to copy; just keep it short).

The second reason for having one of these pitches is so that you have something to show (with little screen mockups that I create with Paint but you can create with Photoshop or one of the myriad prototyping tools out there like bo.lt).

Now that the background stuff is out of the way, I like to waste even more time by creating ‘wire frames’ (a fancy term for sketches) of what the main screens and workflow will look like.

[AJC: the new ‘lean startup’ movement pioneered by the likes of Steve Blank and Eric Ries will tell you that this step is way premature, and should be done after you have interviewed lots of potential customers to see if they even want what you are thinking of building and – if not – what they would rather you build. I’m slowly coming around to their way of thinking]

5. Then I create a landing page in LaunchRock (there’s NO reason why you shouldn’t make this page as soon as you have your USP / Step 2 … it’s just that I’m a procrastinator. [DISCLAIMER: I am an investor in LaunchRock).

Don’t forget to grab your domain names, and FaceBook and Twitter handles (HINT:fiverr.com is a great resource for getting the necessary ‘likes’ if you are short on friends)

6. Create a short Google Adwords campaign and/or FaceBook advertising campaign and see if you can get anybody to signup to your Landing Page.

7. Talk to and/or survey some real people (potential customers, not your Mom and Dad) about your idea.

8. Go back to 1. until you have Proven Kick Ass Idea With Real And Tested Market Potential.

9. NOW you can stop procrastinating and DO IT.


Reader Poll: Are you a fellow blogger?

Do you blog? If so, what is your PRIMARY reason?

View Results

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PLEASE feel free to elaborate via the comments (or, via e-mail [ajc AT 7million7years DOT com] should you choose to remain anonymous) 🙂

The perfect side business?

My good blogging friend, Kevin, mounts a good case for – naturally – taking on blogging as a side business.

Because I don’t monetize my blog at all, nor do I expend any effort on promoting it or driving traffic to it, I can’t really comment.

But, I can say that for my audience it’s probably not the right type of business for you.

Well, let’s backtrack a little; as I once said: “you can’t save your way to wealth“!

So, the only reason for starting a side business is so that you can build up an investing war-chest to use elsewhere.

[AJC: another perfectly valid reason might be so that you can grow it to one day replace your day job. Another reason might be to gain experience in business. All valid reasons, but not directly in the context of getting you to $7m7y]

If you do that, then you’re essentially beefing up your Pay It Twice strategy, so I have little more to add here.

But, if you do want to reach $7m7y (or some other large number / soon date), then I do have the perfect side-business for you:

If you are a programmer, go find a friend with some online marketing experience (here’s where a blogger can come in real handy!) … if you’re a fellow blogger, go find a great programmer who also likes to burn the midnight oil.

Then go and build your own startup!

If you come up with a cool idea aimed at small businesses or the self-employed, then you can build up a neat revenue stream and end up with something quite salable.

Just like the guy/s at Freckle (an online time accounting tool) who took their site from $1k/mth revenue to $20k/mth in just two years.

Firstly: SaaS (Software as a service, which just means tools that run online without needing to download software) companies typically operate on high gross margins (70% – 90%) and ‘in the cloud’ (which means that they don’t need to run or maintain their own hardware or operating systems) using ‘open source’ software (which usually means they’re free).

This means the owners make good income, with few (if any) fixed overheads, be it full-time or part-time.

Secondly: Unlike blogs, eBay businesses and many other types of online/offline ‘side businesses’, these types of internet businesses can scale; that means the sky’s the limit as to how much income they can generate.

Thirdly: They can be financed (by angel investors and, later, venture capitalists) for expansion.

Lastly: They can be sold … for a lot!

Just ask the guys who are financing Airbnb (started by just three regular guys) or Groupon what they think those businesses are worth 😉

[AJC: actually, these are not examples of SaaS businesses, but they also generate revenue, so there’s nothing wrong with going down that path, either, but you really need to be lucky to find the right ‘slam dunk’ niche]

Now, you may not be as successful as any of these guys …

… but, I submit to you, that you are just as likely to be successful in a true / salable online business as you are in any other kind of part-time business (including blogging) and that it takes just as much work.

So, why wouldn’t you try the one that has a chance of getting you to your – shall we say, audacious – financial goal?

The Pay Yourself Twice Wealth Strategy!

As you have no doubt worked out for yourself paying yourself twice is in itself just a stepping stone to financial success.

Let’s just quickly recap for new readers:

The likes of David Bach (The Automatic Millionaire) like to tell you that you needn’t do much more than ‘pay yourself first’ (i.e. save) 10% – 12.5% of your gross salary in order to live an idyllic life (well, at least retire well) … going so far as to call this “A Powerful One-Step Plan to Live and Finish Rich”.

The reality is that this is actually a dangerous financial strategy to pin your financial future on.

Whilst the idea of saving money is to be commended – in fact, saving is absolutely necessary – the sad reality is that you would need to pay yourself first 75% of your gross income, starting now and continuing for the next 20 years, just to maintain your current standard of living in retirement.

Clearly, my solution – which is to Pay Yourself Twice 15% of your gross salary – does little to bridge the gap.

Of course, it’s what you do with the money that counts:

I assume that your current ‘pay yourself first’ savings are going into some sort of employer sponsored, tax-advanatged retirement plan …

… which we already know cannot possibly be enough to support your current lifestyle in retirement, let alone set you up for that hammock in the Bahamas with free flowing Pina Coladas that you crave 😉

However, I do want you to keep your retirement fund going – and growing – because it is insurance, if all else fails.

But, it’s the “all else’s” that will make the difference between an austere retirement in 20 – 40 years or a certainly more memorable (and, very early) retirement with $7 million in 7 years … or a happy medium, if that’s more your speed.

And, that’s why you need to Pay Yourself Twice:

– Once to maintain this insurance policy, and

– The second time to build your investing war-chest.

If the power of compounding at bank to mutual fund rates of return (i.e. 4% – 10%) is not sufficient, then it stands to reason that you need to start investing at (much) higher compound returns.

This means building up a modest starting capital amount and ‘rolling the dice’ with higher risk / higher reward investments e.g.

A few minutes with a good compound growth rate calculator will (a) confirm how well your current strategy is doing against your desired retirement needs, and (b) tell you how deep into the above table you need to dive to bridge the gap.

It goes without saying – so, I’ll say it anyway (!) – that I hope that you all succeed with your investments, be they in stocks, real-estate and/or businesses. However, if you should fail … well, by continuing to Pay Yourself Twice, it won’t take too long to build up enough starting capital to have another go.

And, it might take one, two, five times before you are successful …

All the while, you have a 20 year backup plan (by also continuing to pay yourself first) just in case 😉