What’s the Book About?
It offers a comparison in wealth mindsets between the poor, the middle income and the truly rich. Such mindsets include perceptions that all of us have when it comes to debt, time, education, wealth, and life itself. Of which, MJ encourages his readers to explore various methods to build wealth and live a richer life.
Who Should Read?
The Millionaire Fastlane is most suitable if you wish to:
- Earn extraordinary income.
- Build massive wealth in a shorter time frame (10 years or less).
- Be financially ahead as compared to your peers.
Highlights:
In his book, MJ had offered a description of three roadmaps to financial wealth. Each represents a different belief about wealth. They are as follows:
1. Sidewalkers
Wealth = Income + Debt
Basically, sidewalkers are ones that “look rich” but are financially poor. They are ones who maximise their consumption debt with their active income. The more they earn, the more consumption debt they borrow. They sacrifice tomorrow in exchange for a pleasurable life today.
Common features of sidewalkers include:
- Lifestyle upgrades (car, house, … etc) funded with active income
- Little savings / insurance / investments.
- Few months from becoming broke.
- Expect windfalls / quick monetary gains.
- Have consumption debts: home loans, car loans, credit cards … etc.
2. Slowlaners
Wealth = Intrinsic Value + Compound Interest
Slowlaners are opposites of sidewalkers. They practise delayed gratification and are willing to sacrifice a pleasurable life today for a richer future. Slowlaners are expecting their “pot of gold” after years or decades of financial prudence. Here, I would like to admit that I’m partially under this category. I may build wealth as a hard worker and investor but I’m not living a “rich life”.
From the above wealth equation, “intrinsic value” refers to one’s active income, which are finite, limited, and unleveraged. The reasons for them to be “limited” are as follows:
- One man = one income.
- One man = 24 hours and can only be at one physical location at a time.
- No control on income increment.
Whereas, “compound interest” is an expectation of the rise in investment value over time. Typically, slowlaners aim to grow their wealth via long-term investing for a constant rate of return ranging between 5%-10% per year. There is one big problem with such expectations and that is a volatile stock market which would swing the value of one’s investment portfolio up and down by 50% or more. So, from MJ’s book, I find that it’s not likely for one to become rich quickly by being a long-term investor and I certainly can attest to it as a long-term investor.
Common features of slowlaners include:
- Work hard
- Frugality (Save money)
- No bad debt (credit card, personal loan, or high-interest loan).
- Have investment portfolios.
3. Fastlaners
Asset Value = Net Profit x Industry Multiplier
Fastlaners play the financial game differently. Take a profession like accountants as an example. An accountant who works for a firm can be a “slowlaner or even a sidewalker” as his income is limited by his physical labour. But, an accountant, who builds a company, which sells accounting software which serves thousands of SMEs on an annual subscription basis, is definitely a “fastlaner”.
The first accountant works for $150,000 in annual salary.
The second accountant’s financial equation could be as follows:
Unit Sold = 1,000 SMEs
Unit Profit = $1,500 per year
Industry Multiplier = 5x of annual net profits
Asset Value
= Net Profit x Industry Multiplier
= Unit Sold x Unit Profit x Industry Multiplier
= 1,000 SMEs x $1,500 per year x 5
= $7,500,000
The difference in dollar amounts of wealth is staggering.
And this also applies to their increment of wealth.
The first accountant is happy to get a 10% raise, from $150,000 to $165,000 per annum in income.
Meanwhile, if the second accountant could raise:
- His unit sold by 10% to 1,100 SMEs
- His unit profit by 10% to $1,650 per year
- Industry Multiplier by 10% to 5.5x of annual net profits
The asset value would increase to $9,982,500.
Asset Value
= Net Profit x Industry Multiplier
= Unit Sold x Unit Profit x Industry Multiplier
= 1,100 SMEs x $1,650 per year x 5.5
= $9,982,500
The quantum of increase is almost $2.5 million. There is no way one can save or invest his way in the stock market to generate $2.5 million in a short time frame (less than 5 years), especially if one is starting with little capital.
Conclusion:
Once again, the 3 financial equations offered are as follows:
- Sidewalker: Wealth = Income + Debt
- Slowlaner: Wealth = Intrinsic Value + Compound Interest
- Fastlaner: Asset Value = Net Profits x Industry Multiplier
Key questions to ask would be:
- Which of the 3 resonates most with you financially?
- Would you like to change your financial path?
As for myself:
- I’m still predominantly a slowlaner.
- I appreciate MJ’s work that enlightens me to explore the fastlaner path.
- The process to migrate would take some time.
Link:
The Millionaire Fastlane by MJ DeMarco
