MJ DeMarco
I followed the science; all I found was money.
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From the Life in Fastlane newsletter...
Beware of Bold Claims and Stressful Returns...
Ever stumbled upon glittering claims like these?
If you ever catch wind of these grand proclamations, let the shadow of suspicion creep over you. Why? Because they likely are subject to what I've dubbed, The Revenue Razor.
If "razors" sound foreign to you, let me acquaint you with these sharp-minded instruments. Razors are thinking blades that help you carve through information, dissecting the fat of falsehood from the lean meat of truth.
You might know Occam's Razor, the famous blade that prefers the explanation with the fewest leaps of logic. Other versions include:
When presented with revenue or sales information, I present to you the following wisdom: The Revenue Razor.
When somebody claims a large number of sales, income, or revenues on a gross basis, always assume that the net profit, or bottomline, is terribly small and unimpressive.
For example, a guru can easily say, "I sold $1M in week, here's my secrets," and then he pitches you his $10K training course. While the statement "I sold $1M in a week" might be factual, what's missing is the real truth.
His profit could be $1,000 or nothing at all.
If you sold 10,000 $100 bills for $50, you'd enjoy a revenue figure of $500,000.
Impressive eh? But behind the scenes, you also lost $500,000.
What's more tweetworthy and likely to sell $10,000 coaching courses?
I made $500K in 1 week? Or I lost $500K?
Whenever you're confronted with "gross" figures, apply the Revenue Razor—the real truth underneath the hood is not impressive as you think.
I mention this because recently, a Twitter user tweeted the following:
When applying the Revenue Razor, you can bet that the actual profit underneath this seemingly grand boast isn't so impressive. One user thought so as well and asked as much.
Now let's be fair; this is no indictment of ambition. I mean no ill will here for this investing couple other than the teaching moment it provides. While I disagree with the methods, this couple is actively planning their financial future, which is far ahead of the average person.
But let's not dress up a profit of barely $32,000/year as a king's ransom.
When faced with the facts: $16,000/mo might impress many people.
$32,000 a year, a household income that is considered near poverty? Not so much.
Here's another more important consideration than The Revenue Razor itself: The Return on Stress.
This insidious beast (I've heard it called The Return on Hassle) measures the mental marathons and Herculean headaches required to squeeze out your earnings. It's not just about the glittering gold at the end of the rainbow, but the storms and mires you wade through to get there.
Are you truly willing to juggle 11 properties, 11 high-leverage loans, 11 tenants pulling you in all directions, and a never-ending carnival of toilet repairs, roof and HVAC replacements, all for a mere $2,600 a month?
Passive income? To me, this sounds like an unrelenting mental siege. The idea of owning "investments" like these gives me a big freaking headache. On the E/R Matrix (last week's newsletter) this scores poorly in the Stress Spot.
Pay close attention to the reward you're getting for your effort.
Passive income isn't passive if it comes with a huge mental burden.
As I mentioned on the forum, I own several million dollars in real estate, but NOT through apartments or single-family ownership, but through real estate investment trusts.
As such, I truly enjoy passive income monthly without headaches. Here is just one of my monthly paychecks: pure profit without property management nightmares.
Now consider both strategies. If we plotted the two different investment paths on the Return on Stress scale, look at the difference.
Note: This newsletter issue isn't about my REIT preferences over actual property ownership, however, if you want to read a great article on why REITs are preferable as a passive investment, hit the link for a great read.
So let me leave you with this: Your time is your most precious resource, but your mental sanity is a close second. A homeless person struggling to find their next meal might have abundant time, but the amount of stress in their daily life turns their precious time into precarious time.
Some things just aren't worth the stress.
MJ DeMarco, Entrepreneur, Author
Beware of Bold Claims and Stressful Returns...
Ever stumbled upon glittering claims like these?
- I sold $300K of X widgets in 3 weeks; here's my secret...
- My company did $4M last year; here's how you can too...
- Our real estate holdings will earn over $16,000 in rent next month...
If you ever catch wind of these grand proclamations, let the shadow of suspicion creep over you. Why? Because they likely are subject to what I've dubbed, The Revenue Razor.
If "razors" sound foreign to you, let me acquaint you with these sharp-minded instruments. Razors are thinking blades that help you carve through information, dissecting the fat of falsehood from the lean meat of truth.
You might know Occam's Razor, the famous blade that prefers the explanation with the fewest leaps of logic. Other versions include:
- The simplest explanation is usually the best one.
- When you have two competing theories that make exactly the same predictions, the simpler one is the better.
When presented with revenue or sales information, I present to you the following wisdom: The Revenue Razor.
When somebody claims a large number of sales, income, or revenues on a gross basis, always assume that the net profit, or bottomline, is terribly small and unimpressive.
For example, a guru can easily say, "I sold $1M in week, here's my secrets," and then he pitches you his $10K training course. While the statement "I sold $1M in a week" might be factual, what's missing is the real truth.
His profit could be $1,000 or nothing at all.
If you sold 10,000 $100 bills for $50, you'd enjoy a revenue figure of $500,000.
Impressive eh? But behind the scenes, you also lost $500,000.
What's more tweetworthy and likely to sell $10,000 coaching courses?
I made $500K in 1 week? Or I lost $500K?
Whenever you're confronted with "gross" figures, apply the Revenue Razor—the real truth underneath the hood is not impressive as you think.
I mention this because recently, a Twitter user tweeted the following:
When applying the Revenue Razor, you can bet that the actual profit underneath this seemingly grand boast isn't so impressive. One user thought so as well and asked as much.
Now let's be fair; this is no indictment of ambition. I mean no ill will here for this investing couple other than the teaching moment it provides. While I disagree with the methods, this couple is actively planning their financial future, which is far ahead of the average person.
But let's not dress up a profit of barely $32,000/year as a king's ransom.
When faced with the facts: $16,000/mo might impress many people.
$32,000 a year, a household income that is considered near poverty? Not so much.
Here's another more important consideration than The Revenue Razor itself: The Return on Stress.
This insidious beast (I've heard it called The Return on Hassle) measures the mental marathons and Herculean headaches required to squeeze out your earnings. It's not just about the glittering gold at the end of the rainbow, but the storms and mires you wade through to get there.
Are you truly willing to juggle 11 properties, 11 high-leverage loans, 11 tenants pulling you in all directions, and a never-ending carnival of toilet repairs, roof and HVAC replacements, all for a mere $2,600 a month?
Passive income? To me, this sounds like an unrelenting mental siege. The idea of owning "investments" like these gives me a big freaking headache. On the E/R Matrix (last week's newsletter) this scores poorly in the Stress Spot.
Pay close attention to the reward you're getting for your effort.
- Is your effort and the mental bandwidth it requires on an ongoing basis worth it?
- Is there an end game?
- What is the worst-case scenario, its probability, and can it bankrupt you?
Passive income isn't passive if it comes with a huge mental burden.
As I mentioned on the forum, I own several million dollars in real estate, but NOT through apartments or single-family ownership, but through real estate investment trusts.
As such, I truly enjoy passive income monthly without headaches. Here is just one of my monthly paychecks: pure profit without property management nightmares.
Now consider both strategies. If we plotted the two different investment paths on the Return on Stress scale, look at the difference.
Note: This newsletter issue isn't about my REIT preferences over actual property ownership, however, if you want to read a great article on why REITs are preferable as a passive investment, hit the link for a great read.
So let me leave you with this: Your time is your most precious resource, but your mental sanity is a close second. A homeless person struggling to find their next meal might have abundant time, but the amount of stress in their daily life turns their precious time into precarious time.
Some things just aren't worth the stress.
MJ DeMarco, Entrepreneur, Author
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