We haven’t done a life related post in quite some time so here goes nothing. After hitting the exit button on a Company (we’ll have a follow up to this post later), your net-worth typically goes up vertically (step function) assuming you never included the value in your calculations. This means you are now tied more and more to stocks, crypto and Real Estate versus concentrated equity in a single company. As your net-worth goes up, it gets harder and harder to move the needle. While we realize this is a “1% problem” we have no doubt that many of you will run into the same issue. We can even see this issue at a *relatively* low scale.
#1 Scaling… A $3 Million Example: At this level if you’re still working in a Career (highly unlikely), the paychecks and annual income derived from it become less relevant. Keeping the example basic, even if you only generated 7% in after tax returns, this would result in $210K in annual income. In order to make the same amount of money on a post tax basis you’d need to clear ~$335,000 in pre-tax income (assuming you live in New York). This makes the list of opportunities smaller and smaller for you to pursue. Is it worth your time to slog long hours working hard when you can generate the exact same amount of money by doing nothing? No. And. This is exactly why rich people rarely work for anyone else.
What is the Point? This does not mean we should feel bad for rich people (not a single tear should be shed for the rich). Instead, we’re highlighting an issue you’ll face later in life: Scale or Don’t scale. One of the biggest problems with generating more money is you’ll be forced to decide between adding resources (headache) and boredom. If you’re a multi-millionaire, dedicating significant time to a new idea needs to be lucrative, while boredom can be solved with a multitude of hobbies from blogging to sports to traveling (all of which cannot be done 24/7 or else you get tired of them).
The solution to this issue? How much can you generate with the least amount of human resources. When we use the phrase human resources we are using the phrase in its literal form (not the people who protect major corporations). The best solution we have found (so far) is to look for businesses that require the least amount of interaction with new people. The leaner the team, the better the results. You’re not forced to interview new people who unlikely deliver on their promises.
Examples of this include: 1) Internet businesses vs. Brick and Mortar, 2) limited number of products vs. a broad set for reselling, 3) outsourcing ads based on conversions vs. in-house team, 4) re-bill business model vs. one time sales and 5) outsourced property management vs. managing them yourself. In all of these examples, you’re deleting a large chunk of your time from the equation. If you were to choose the latter in any of the examples, you’d lose an exorbitant amount of time with limited scalability. In short, avoid all of those five items unless there is absolute “must have” reason.
#2 Becoming Desensitized: Another 1% problem. As you move up in the game of life, less and less things become exciting. The first $100 you make is not as exciting as the last $100 you make, especially if you’re already a millionaire ($100 is just 0.01% of net worth for a millionaire). This continues as you succeed in any field. If you don’t suffer from extreme amounts of insecurity, you also won’t be interested in telling people how much you’re investing or how much you make either (only the insecure give this information out). So you’re left with a feeling of stability. Most people believe you end up popping Aces at the club all of the time but if you made it in life… you already “did this part” many times in the past. Instead you end up living an up and down life where you sporadically live life very hard before going back into rest and recovery mode (similar to a predator animal).
Fortunately, there are two good solutions to this problem (without the standard drug/alcohol abuse most rich people go through). 1) Go Into a Poorer Country: This is very easy for an American and if you avoid the resorts you can visit lower tier countries and revitalize your appreciation for life. The average American doesn’t know of a world without smartphones, 24/7 food/services and a stable government. By taking a quick trip to a country with worse economics you can immediately snap out of the “desensitized” funk. 99.9999% of problems in a first world country are not problems at all, they are simply fake scenarios that will never occur. 2) Fail (or don’t) with a New Business: This is probably the best solution out of everything in this post. If you start a completely new business in something you’ve never tried before, not only will it be exciting but it could also become a grand failure as well. This will result in either a new form of income or a large lesson in humility. Since you’re already rich, both results are a long-term positive. It also gives you a chance to become intense and focused again (in a different way).
#3 Higher Expectations: This is probably the most annoying. Paraphrasing a common quote “I was an overnight success after 10 years of planning”. This means that people will only see the end result and expect that you’ll somehow provide them with some sort of magical potion that gets them to the exact same stage in life. A frequent commenter and friend of ours (RE Guy) calls this a “life tax” where successful people pay a “life tax” early to get paid later… if someone hasn’t paid the tax then they don’t receive anything in the future. Unfortunately, this logic doesn’t fit with 99.9% of people because they think they deserve to be rich… by giving up nothing.
The second downside to constant attention is the need to keep people “up to date”. For some reason people will constantly check up on you to see what you’re “working on” to try and peek around the corner for a new idea. This doesn’t even include the constant stream of emails and text messages from people you’re no longer interested in. So when you hit your numbers we’re giving you a heads up that many, many people will come out of the wood work to “catch up” (also known as waste your time).
As you can see from the tone of the last two paragraphs, we despise these types of people. The good news is that there is a very basic and simple solution. Only meet people who can add value to your life with 100% certainty. That sounds harsh but it makes a lot of sense. If they are not a close friend of yours (10 year relationship or longer), they are more likely an acquaintance than a friend. This cleans out your phone and you’re now left with people related to work. If someone values your advice but offers nothing… You know what that means… They are going to waste your time.
Interesting Conclusions to the Three Downsides: There are a lot of significant consequences to the three items we listed above. For this reason we’ll outline them in bullet form: 1) making money gets less exciting unless it is going to change your life and changing your life is relative to how high your desires are. If you want a fun life where you travel once a month to a new country… That does not require an enormous amount of capital at all. 2) when you scale you have to come up with a completely new plan or become more “visible”. Marketing is just a fancy phrase for gaining attention and the double edged sword now appears. If you become more visible you’re opening yourself up to more and more annoying noise from people who waste a ton of your time. 3) luckily, life is long and the number of things a person can learn is limited to his/her imagination. This makes the desensitization problem less relevant assuming the person isn’t boring. 4) your friends are going to change rapidly as you move through life. Ideally, you’ll keep a handful over the course of 10-20 years and they will remain within your “success band” preventing a fall out. Don’t regret leaving the bad ones behind and 5) the most mind-boggling one we have noticed due to these three clear issues is the amount of insecurity rich people have. They need to have their ego stroked 24/7/365 for no good reason. We still don’t understand it. Then again the vast majority of well-to-do people grew up in upper middle class households so they never had to work hard in the first place (hence the need to constantly be told how cool/good they are). If anyone has an answer to #5 please let us know since a guy worth $40M and a guy worth $60M live similar lives while the $60M dollar man needs to have his ego stroked 50% more.
With that said, Happy New Year! It has been a fun start to 2018 and we’ll be back with a new post shortly to make up for the delayed book launch and a couple missed weeks of posting.
