The Millionaire Fastlane

by MJ DeMarco

  Another potent form of distribution is franchising and/or chaining. When a successful store concept is branded and systemized, it can be replicated and sold to other individuals. Savvy Fastlane entrepreneurs recognize that a successful local business with weak leverage can be made highly leveraged by franchises or chains. Does this path sound familiar? It should; this is what Starbucks did to become the biggest coffee chain in the world.

  Other restaurants deploy a combination of chains and franchises. Dairy Queen and McDonalds have both chains and franchises. If your business operates in limited scale, it can be conquered with chains and franchises. If you own one hot-dog cart and sell at one location, there is no leverage. If you own 500 hot-dog carts and sell at 500 locations through 500 owner-operators, suddenly leverage appears. The Fastlane wealth equation has power.

  Seedling 5: Human Resource Systems (Passivity Grade: C)

  Amazon.com is a distribution system backboned by a computer system and operated by a human resource system. Human resource systems are the most expensive and complicated to run. Humans are unpredictable, expensive, and difficult to control. Ask anyone with a company that relies on employees how challenging it is to keep employees happy.

  I came to the employee crossroads with my own company. I had to either suffer technology obsolescence or hire two more people to scale my company to the next level. Since my business was already 80% passive, I knew adding employees would erode business passivity because employees need management. At a certain level, even managers need managers.

  The other alternatives were to keep my company on autopilot and watch it slowly degrade over the years (web companies need to be constantly reinvented), dig in and return to “startup” mode (long hours in “Chuma” mode), or sell it. After evaluating the options, I chose to sell. In my case, human resource additions would have subtracted to passivity, not added. While I would have made more money hiring more people, I wasn’t willing to forgo my free time for it.

  A year after I sold my company, I examined the possibility of a parking business near the airport. Local travelers to the Phoenix airport could valet-park their car in a neighboring parking lot and get chauffeured to the airport. In general, this was a rental system. People would pay to park their car and I would earn a daily fee for each parked car. It had Internet-like qualities; it ran 24/7 and generated income with the simple passage of time. It was great idea with high potential for passivity. I found land for sale near the airport and it was perfect. I started to run numbers, projections, and scenarios to see how I could make this business a reality.

  The numbers uncovered something important. The business model had the DNA of a “rental system,” but the operation was a “human resource system.” To succeed at this idea, it would have required a payroll of at least two dozen people. That stopped me cold and I didn’t pursue it further. Human resource systems can be unpredictable with management difficulties making “passivity” an unlikely and/or distant possibility.

  A member of the Fastlane community owns a few self-storage facilities. Her business is a rental system. People pay money to store their junk and she receives monthly income. You’d assume that her facility is run by a human resource system—managers, property assistants—but it isn’t. Her properties have automated kiosks that run each property—a computer system. This makes her business 85% passive. Remove the kiosk, add human resource systems, and passivity drops.

  Does this suggest that human resource systems are a drain to passivity?

  It depends.

  First, what is the existing level of passivity to the business as it is now? If you own a coffee shop and work 80 hours a week, you have ZERO passivity. A general manger—a human resource system—would raise passivity by an estimated 40%. In my business, I was operating at 80% passivity. Adding any human resource system would have lowered passivity.

  Good employees nurture money trees. Bad employees pluck the fruit of money trees and require pruning. However don’t let that stop you. If you want to make millions or billions, human resource systems (employees) will be needed. While solopreneurs can make a lot of money, you can’t do everything yourself. At some point, managing your time and growth has to take precedence.

  Chapter Summary: Fastlane Distinctions

  ➡To divorce yourself from the Slowlane’s transactional relationship of “time for money,” you need to become a producer, specifically, a business owner.

  ➡Business systems break the bond between “your time for money” because they act like surrogate operatives for your time trade.

  ➡If you have a passive income that exceeds all your needs and lifestyle expenses including taxes, you’re retired.

  ➡Retirement can happen at any age.

  ➡The fruit from a money tree is passive income.

  ➡A Fastlane objective is to create a business system that survives time, exclusive of your time.

  ➡The 5 money-tree seedlings are rental systems, computer systems, content systems, distribution systems, and human-resource systems.

  ➡Real estate, licenses, and patents are examples of rental systems.

  ➡Internet and software businesses are examples of computer systems.

  ➡Authoring books, blogging, and magazines are forms of content systems.

  ➡Franchising, chaining, network marketing, and television marketing are examples of distribution systems.

  ➡Human resource systems can add or subtract to passivity.

  ➡Human resource systems are the most expensive to manage and implement.

  [20] - Recruit Your Army of Freedom Fighters

  The rich rule over the poor, and the borrower is slave to the lender.

  ~ Proverbs 22:7 (NIV)

  How the Rich Explode Wealth

  I spent a few years chauffeuring clients in limousines, so I heard a lot. I remember Gary, a young 20-something client who hired our limousine several times a month to serve as his personal escort to parties and drunken excursions. Oddly, this guy wouldn’t just hire us on Friday or Saturday; he’d hire the limousine during the week. Every day of his life was his weekend. When he hired us, I knew it was going to be a long and profitable night, since he tipped fabulously.

  Being broke and a student of wealth, I couldn’t bottle my curiosity. I asked the limo company owner, “What’s Gary’s story?” He told me that Gary was semi-retired and just sold his administrative office company for millions. Wow. This guy couldn’t have been much older than I and he was already retired and living large!

  The next few times I chauffeured the man, I eavesdropped on his conversations hoping to catch a tasty tidbit of the rich.

  And I did.

  To his club wingman, I heard Gary drunkenly declare: “Thanks to municipals and treasuries, I never have to work another day of my life.”

  Another piece of the wealth puzzle solved.

  The Best Passive Income Venue in Existence

  In the prior chapter, I neglected to mention the best money-tree seedlings in existence. I omitted it because it isn’t really a business seedling but a seed you already possess. Whether you’re broke, in a dead-end job, or without a business, you already have the raw materials for the best money-tree seed in existence.

  What is it? Guess. Real estate? An Internet business? A network marketing company? Licensing an invention? No. No. Hell no. And no. The best money tree in existence sits right in your pocketbook: The good old-fashioned buck.

  Yes, money. Money is the king of money trees.

  How is money passive? If you have a lot of money, you’re given the gate key to switch teams from consumer to producer. Specifically, you move from borrower to lender. You move from employee to employer. You move from customer to owner. In other words, people pay you to use YOUR MONEY in the form of interest or ownership.

  For example, let’s examine interest, which is a fee earned to lend money. Right now you’re probably someone who doesn’t earn interest, but pays it. Someone lent money for your home mortgage, and in retur
n you pay the note-holder interest. That interest is profit or income to someone else.

  While the act of becoming a lender sounds complicated, it isn’t. Anytime you buy a certificate of deposit from a bank, you become a lender. Anytime you buy a municipal bond, either directly from the source or indirectly via mutual fund, you become a lender. When you deposit money in the bank, you become a lender.

  As a lender, you don’t administer the loans; you just sit back and collect checks. It’s super easy and super passive. Gary, my rich limousine passenger, was a lender who never had to work another day in his life.

  Savers Become Lenders, Owners, and Producers

  I once heard a radio commercial from a “Two-Dad” guru who was pushing a seminar. He declared: “Savers are losers!” I couldn’t believe my ears. Savers are losers? And who are the winners? The people you advised to borrow millions on risky real estate investments? Savers aren’t losers. Savers are winners because they eventually become lenders. Savers are winners because they become owners in companies. Savers are winners because they become producers and build assets.

  Open your wallet and look at a dollar. One buck. It doesn’t buy much but it is the embryonic start to a passive income stream. One dollar has the power to give you a nickel of passive income for life. Yes, for life. While one nickel buys squat, it unlocks the DNA implicit in money—it’s fully passive.

  I retired in my thirties because of this simple reality. I’m a lender, and when you have a lot of money to lend, you live free because passive income arrives every month.

  If you had $10 million and lent it at a mere 5% interest, you’d enjoy a passive income of $41,666 every single month. At 8% your monthly income would be $66,666 per month—fully passive. Over $60,000 every month! This is WITHOUT touching the principal. You can do this for years and still have 10 million dollars left over!

  Imagine opening your mailbox every month to a $40,000 check—and you didn’t have to do anything for it. What kind of trouble can you get into earning $40,000 per month? I bet a lot. Unrealistic? It isn’t. This is how I live. Even in this low-interest-rate environment I can find safe investment yields in the 4%–6% range, some tax-free. While most people shudder at the thought of an interest rate increase, I love it. I get a pay raise. A 1% interest rate hike translates into thousands per month for me. And since inflation rises in unison with interest rates, my income has an element of inflation protection. If inflation rises, so do interest rates.

  So how does all of this become a reality? I created a passive income stream via my Internet businesses (a business money tree seedling), which funded my passive income system from lending. While my Internet business was 80% passive (yes, I had to work several hours per week), my lending passivity is 99.5%. I do virtually nothing and the checks arrive.

  Instead of trading my time for dollars, I invested my time into an autonomous system simultaneously capable of passivity and capable of funding my money system. It was a dual-flanked attack where passive income was both the short and long term goal.

  Amass Your Army of Freedom Fighters

  Every dollar saved is another freedom fighter in your army. If your money is fighting for you, your time is freed and you break the equation of “time for money.”

  Money is your army. The more you have, the more they will fight for freedom. Slowlaners focus on the expense variable in the wealth equation when they should be focused on the income variable. Income is the key to growing your army of freedom fighters. You aren’t going to recruit a massive army detailing cars down at the Jimmy’s Auto Salon.

  And I’m not referring to just the U.S. dollar, but all international dollar-denominated assets. As I write this, much of my income is derived from non-U.S.-dollar assets in other countries with stronger currencies and better yields. Fastlaners think globally, not locally.

  What does a dollar represent to you? A mechanism that gets you bottle service at the club every Friday? Or is it the seed of your money tree? Is it your freedom fighter? Make money fight for you instead of you fighting for money.

  How Fastlaners (the Rich) Use Compound Interest

  While examining the Slowlane, I impugned “compound interest” as an impotent wealth accelerator because of its attachment to time. When the Slowlane media bootlickers read that assertion I’ll be crucified. Lambasting compound interest is the pinnacle of financial blasphemy. But I also exclaimed it to be a powerful passive income generator when leveraged against large sums of money. Contradictory?

  Just like education, Fastlaners and Slowlaners leverage compound interest differently. Slowlaners (the middle-class) use compound interest to get wealthy while Fastlaners (the rich) use it to create income and liquidity. Slowlaners start with $5; Fastlaners start with $5 million.

  Compound interest pays me a lot of money. It’s a tool I use. It’s a great passive income source. Yet, compound interest is not responsible for my wealth. This is critical. Fastlaners aren’t using compound interest to build wealth, because it’s not in their wealth equation. The heavy lifting of wealth creation is left to their Fastlane business.

  When a rich politician or public figure discloses his finances, notice the common themes. Their wealth comes from business interests, while liquid cash reserves are tied into fixed-income securities like municipal bonds, treasuries, and other highly liquid investments. The rich aren’t using the markets to create wealth; they’re increasing their existing wealth with leveraged business assets. Remember, that 25-year-old multimillionaire who got rich investing in indexed-funds is a fairy tale. The millionaires are the guys running the funds! They’re the producers!

  How to Really Use Compound Interest

  Would you rather have $5 million right now, or a penny doubled every day for forty days? No-brainer, right? You’d take the $5 million bucks. But that would be a serious mistake. Accept $5 million now and you forsake nearly $5,500,000,000. That’s $5.5 BILLION dollars. The chart below demonstrates the force of doubling.

  Now transform the previous chart and replace the days with YEARS. Make day-one a person—you—at 21 years old.

  The transformed chart is indicative of a Slowlaner’s journey where compound interest doesn’t enforce power until most of life has evaporated. Big money doesn’t hit until your fifties and sixties, and this is with 100% returns year after year. Average market returns would be 7%. Yet at a doubling, at age 40 you have barely six grand. Again, this is the Slowlaner’s predicament: Imprisoned in time and uncontrollable yield.

  Fastlaners understand this weakness and realize that the compound interest weapon is most effective with large sums of money. For compound interest to be effective, you must bypass 30 years of mathematical ineptitude by riding the crest where it is effective.

  The Tidal Wave of Compound Interest

  Like a tidal wave far out to sea, compound interest’s strength isn’t visible until it moves near land. As the wave approaches land, its force becomes incredibly powerful.

  Most Slowlaners ride the compound interest tidal wave a million miles out at sea. And guess what—nothing happens. They float aimlessly, going nowhere. Ten percent interest on $5,000 doesn’t make millionaires. Saving $200 a month from your paycheck in a 3% savings account isn’t going to make you rich fast. You simply can’t ride a wave miles out at sea.

  The Fastlaner observes the tidal forces near land and seeks to meet it at the shore. At the shore, the tidal wave can be ridden with impact.

  To activate compound interest’s power, start at the shore, with a large number that can be leveraged. Ten percent interest on $10 million is $1 million a year—$83,333 every single month.

  The point of this illustration is to show that the rich aren’t using compound interest to get wealthy; they’re using it for income, liquidity, and capital deployment.

  A 5% tax-free yield on $10 million suddenly creates a $500,000 per year passive income.

  Like a tidal wave at the seashore, compound interest rears excruciating force when pitted against lar
ge sums of money. This is where money transforms into a fully passive income stream.

  As for earning your $10 million (or more), that solution lies in exponential leveraged growth stemming from a Fastlane business—net income plus asset value—NOT in expenses, NOT in the stock market, and NOT in a job.

  Chapter Summary: Fastlane Distinctions

  ➡One saved dollar is the seed to a money tree.

  ➡A mere 5% interest on $10 million dollars is $40,000 a month in passive income.

  ➡A saved dollar is the best passive income instrument.

  ➡Fastlaners (the rich) don’t use compound interest or the markets to get wealthy but to create income, preserve liquidity, and deploy capital.

  ➡A saved dollar is a freedom fighter added to your army.

  ➡The rich leverage compound interest at its crest, applied against large sums of money.

  ➡Fastlaners eventually become net lenders.

  [21] - The Real Law of Wealth

  Try not to become a man of success, but a man of value.

  ~ Albert Einstein

  Effection, Not Attraction

  The Law of Effection. Nope, not a misprint. Mathematics is the transcendent language of the universe. It cannot be controverted or debated. Two plus two equals four. The number 10 million will always be greater than 24. These statements are facts and not subject to interpretation by some mystical theory of philosophy.