The Millionaire Fastlane (41 page)

CHAPTER 37: GIVE YOUR ROAD A DESTINATION

The tragedy of life doesn't lie in not reaching your goal. The tragedy lies in having no goal to reach.
~ Benjamin Mays

What Is Your End?

The Fastlane doesn't care about your ends; it just wants to be the means. Expensive Italian cars and luxury estates might not be important to you. I get it. Maybe you're altruistic and want to live modestly, spread the gospel, or contribute to charity and philanthropy. The end of the Fastlane road trip is to crown your happiness with freedom. Freedom from financial encumbrances, freedom to travel, freedom from bosses, alarm clocks, two-hour commutes; freedom from bad ratios (9-to-5, 5-for-2, 2 weeks every 52 weeks and 8% over 40 years) and freedom to enjoy the world as your playground.

The Price of Freedom: Money

Freedom has a price, and that price is money. Big dreams, from materialistic Ferraris to altruistic nonprofit foundations, cost money. You can't travel the world by swimming in the oceans. You have to pay your way, and if you think money is evil, you've already lost.

On the Fastlane Forum, a user posted this exchange that demonstrates how people want the fruit of the freedom tree but lack resolve to plant it.

I sat around a campfire talking to some people. The subject of money came up. One of the guys told me how life is not all about money, and that money isn't even real-just a socially accepted mirage-and that he wants to be poor and not some corporate asshole. This guy tells me that he's left his life behind in order to “find himself,” so he's interning (for free) at this place in exchange for room and board. Things have been hard since he had to leave his four-year-old son behind-but he needed to “find himself.” After all, life isn't about money; and all he wants is a little house and a horse, like what the neighbors have down the hill.

Everyone around the campfire is nodding and commending this guy for being so enlightened. First, I agree. Life is not about money, it's about time-so why are you throwing away 40 hours a week in pursuit of housing (not even money!)? Second, money doesn't change people; it just makes them more of what they already are. Third, that little house and horse down the hill are worth about $1.5 million. And most importantly, you abandoned your son to find yourself? And you aren't making a dime in the process? Who is subsidizing your journey of enlightenment, and the emotional and financial responsibility of your son you left behind?

I've run into a series of people lately who hate money and everything having to do with money, but they still want the end result: Free time and the ability to live their dream. I won't even get into how this conversation went when he introduced his politics. Suffice to say, that we (not him) should pay for this guy to have a little house and a horse and someone else to raise his son.

No matter how big or small, dreams have a price, and that price is money, responsibility, accountability, and commitment. Yes, it will cost you money, but how much?

Set Your Destination: Four Steps to Starting

Your destination is the lifestyle you desire while having the freedom to enjoy it. There are two strategies to hit your destination. The first is a money system in which you amass a lump sum large enough to earn monthly interest that will support your lifestyle needs. The second is a business system that spawns passive cash flow that supports your lifestyle AND simultaneously funds your money system. To make this happen, you need targets. Specifically, how much money will you and your family need? What is the price for the freedom and lifestyle you want? Find out with this four-step process:

1. Define the Lifestyle: What do you want?
   
2. Assess the Cost: How much do your dreams cost?
   
3. Set the Targets: Set the money system and business income targets.
   
4. Make It Real: Fund it and open it!
   

Step 1: Define the Lifestyle
Define the lifestyle you want and its associated costs. Do you want the big house or the nonprofit foundation? What exactly do you want? Write everything down. For the purpose of this exercise, I will play along.

• Three cars: a Mercedes, a hybrid, and a minivan
  
• A 6,000-square-foot house with a fountain, pool, and waterfall
  
• A small cabin in the mountains
  
• The ability to travel three months a year
  
• Private school for my children
  

Step 2: Assess the Cost
Determine the monthly cost for each, including all associated taxes and insurance.

• Three cars: $2,000
  
• House: $5,000
  
• Cabin: $1,000
  
• Travel: $1,000
  
• Private School: $1,000
  

• Lifestyle Cost = $10,000/month
  

Next, determine your monthly allowance and other unknowns. This is for stuff like clothes, gadgets, toys for the children, health insurance, etc. Add this to your Lifestyle Cost to arrive at your Gross Living Cost.

• Gross Living Cost = $10,000/mo (Lifestyle Cost) + $4,000/mo. (Allowances)
  
• Gross Living Cost = $14,000/mo.
  

Next, determine your Net Living Cost by dividing Gross Living Cost by .60, or 60%. This will account for potential taxes.

• Net Living Cost = $14,000 / .60 = $23,333/mo.
  

Step 3: Set the Targets
The goal of this step is to set your two targets: the business system income target and the money system target. To calculate your money system target, multiply your Net Living Cost by 12, then divide by .05, or 5%. Five percent is the minimum expected yield on a money system.

• Money System Target = ($23,333 X 12) / .05 = $5,599,920
  

For your business system target, multiply your Gross Living Cost by 5.

• Business System Target = ($14,000 X 5) = $70,000/mo.
  

These are your two targets.

First, seek to create a business system that generates $70,000/month in passive monthly income. Of this income, 40% goes to taxes, 40% goes to fund your money system, and 20% pays your lifestyle. This delivers your target lifestyle AND simultaneously funds your money system. The other target is your passive income from a lump-sum money system. To enjoy your designated lifestyle supported by a money system, your target number is $5,599,920.

Five percent interest on this amount is roughly $23,000 monthly, which covers lifestyle and taxes.

This dual-flanked attack builds a passive income stream from a business that funds a money system. The result is like warping the destination to you. You can experience retirement without being retired. For example, my Web business routinely earned $100,000 per month, month after month. Yet, in those instances, I didn't have $20,000,000 lying around, but the lifestyle was an option because my business system cash-flowed the equivalent of that lump sum. Excess income funded my money system. Then, later, I liquidated the asset to arrive at my “money system” number. If your business system generates passive income, you can use it to fund your lifestyle and your money system simultaneously.

Step 4: Make It Real
Get started today by looking three feet in front of you, not three miles. A long gaze at the mountain crest will overwhelm you, so stop looking at it. The key to achieving enormous tasks is to break them down into their smallest parts. You can't run a 26-mile marathon by focusing on the 26th mile. You attack the first, then the second, third, and so forth.

I see this repeated at the Fastlane forum (
TheFastlaneForum.com
): “I'd like to make $5,000/month; how do I do this?” Aside from the flawed “money chasing” logic, the first step is to make $50/month.
You can't make $5,000 per month until you learn how to make $50 per month!
It's amazing how people love to skip process and want events.

To start your money system, find a quarter and drop it into a coffee can. Congratulations, you are 25 steps closer to your goal. No, I'm not kidding. Your goal isn't 5,600,000 dollars but 560,000,000 pennies. Drop your loose change into your can at the end of each day. Find 60 cents there, 25 cents there, 115 cents there; it adds up and, albeit small, you move closer to your goal daily. Ridiculous? Nope, this is how I started, and yes, I still practice this today because this exercise has three conditioning purposes.

First, when you drop change into your bucket daily, you train yourself to visualize your goal moving closer. You get a daily reminder. Certainly you won't accumulate 560 million pennies in this fashion, but the objective is repetitive progress toward a seemingly distant goal. Second, it forces you to evaluate: Have you applied pressure to that goal, or is your change bucket the only weapon in your arsenal? Are you pursuing a Fastlane business or still confined to a job?

The third purpose is to change your relationship with money. If you are serious about a money system, you're going to need a big shift in your beliefs about money. What is money to you? A medium to get the latest World of Warcraft release? Or the soldiers for your army of freedom fighters?

The final step is to fund your money system at a brokerage firm. Designate an account that represents your money system. Typically, most brokerage accounts require a minimum $1,000 deposit. If you already have an account, pick an income fund that yields at least 5% yearly and move the funds there. Or alternatively, you can open a trading account and leverage cheaper and regularly traded Exchange Traded Funds (ETFs) instead of a traditional mutual fund. Here are the brokerage houses I recommend to fund your actual account.

• Fidelity (Fidelity.com/1-800-FIDELITY )
  
• Vanguard (Vanguard.com/1-877-662-7447 )
  
• T. Rowe Price (TRowePrice.com/1-800-638-5660 )
  
• TDAmeritrade (TDAmeritrade.com/1-800-454-9272)
  

If you don't have $1,000 to fund the account, you can do it once you hit the $1,000 milestone. Your change bucket should yield about $500 per year. With an actual account, you can witness the real-time passivity of your money system. If you have $50,000 in your passive money system (not leveraged in a Fastlane pursuit) you can literally see your passive income stream every month in the form of either interest or dividends. For example, if you invested in a world bond fund for your money system and it yielded 6.5%, from $50,000 you'd generate $270 per month in passive income, each and every month.

Now, I reiterate,
Fastlane wealth is created by the net income and asset value
-not by the stock market or compound interest. Your Fastlane business should fund this account, not savings from your paycheck.

The Rules of the Road: Financial Literacy

After my sister turned 21, she bought her first new car-a Nissan Pulsar. It was her first mistake in the world of finance and my first exposure to the world of financial illiteracy. My sister had trouble making the car payments, and when I asked to read her loan documents, I was floored. I investigated. I asked, “How did you buy this car? How did you negotiate?”

She replied, “I told the dealer I wanted a payment of $399 per month.” Her tragic mistake wasn't negotiating weakness, but financial illiteracy. The dealer gave her exactly what she requested, and by doing so, she got ripped off. She bought a car for thousands above sticker and borrowed at near illegal rates. The dealer gave my sister exactly what she wanted: a car payment at $399/month, and all they did was fill-in the blanks. Her loan was 60 months (when it should have been at 48) and at an interest rate of 18.8% (when it should have been 9%).Ultimately, she'd pay twice the cost of the car because of one error-the error of being financially illiterate.

Managing a Money System Demands Financial Literacy

You can't build a financial empire if you're ignorant of basic finance and economics. These disciplines are the building blocks to a financial empire, and without them the Sidewalk becomes a danger. Remember, more money doesn't solve money problems. If not educating yourself after graduation is one step on the Sidewalk, the other is not educating yourself on basic finance and economics.

The world is full of financial illiterates; they've failed driver's education and don't know the rules of the road. As kids, we aren't taught money management or basic financial discipline. We're abandoned in a financial jungle swarming with predators. Many perfectly intelligent people lack rudimentary knowledge of basic financial concepts such as:

• Interest rates
  
• Taxable and non-taxable yields
  
• Amortization of mortgages
  
• The balancing of a check book
  
• Basic percentage calculations
  
• Calculating return on investment
  
• Why stocks rise and fall
  
• Why a guaranteed 15% return on a bank CD is screaming, “scam!”
  
• How stock options work, such as calls and puts
  
• Why insurance exists
  
• How a mutual fund works
  
• What bonds are and how they rise and fall
  
• Global currency
  

To successfully leverage a money system for passivity, you have to familiarize yourself with financial instruments that fuel the money system. Do you know how to calculate simple interest? Return on investment? Do you know what happens to the price of a bond when interest rates go up? Can you figure out the difference between a tax-free yield and a taxable yield? These concepts harden your road to wealth. Financial illiterates can't manage money systems. To succeed on your roadtrip, you have to know the rules of the road and pass wealth “driver's education”-basic finance and economics.

Live Below Your Means-Slowlane?

The first rule of financial literacy: “Live below your means.” Yes, a pragmatic doctrine echoed from Slowlane dogmaticians that is an affable replacement for its mathematical equivalent of “Keep expenses under your income.” Earn 10 bucks and don't spend 20. But is it Fastlane relevant? Absolutely, with one distinction:
Live below your means with the intent to expand your means.