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- Jul 25, 2016
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I'm just starting to read TMF again now that I'm starting my journey in entrepreneurship (more details on that in my intro thread here).
First of all, it is hitting me SO much harder this time, now that I'm more bought in to the entrepreneur mindset. Some people call this the growth mindset, I think they are pretty similar though. But also, it made me realize pretty quick that I've already had my first success, and it wasn't even as an entrepreneur. On the back cover of TMF it lists one of the benefits of the fastlane as "How you can make net worth explosions of 400% or more". Now, I've increased my net worth by 472% in the last 3 years. When I bought my house 3 years ago it was 46k. Now 3 years later I should close out the year at 217k. I don't own a business yet. I did this solely working at a regular W2 job. I did not get a promotion. My wages did not increase significantly in the last 3 years. In fact, one of the reasons I am leaving to work for myself is that they will likely be declining slightly next year if I were to stay.
What changed was my mindset. I've now realized I was almost acting unconsciously as an entrepreneur doing the best I could where I was. I wasn't doing that before. So before I shove off on my journey I thought I would make this post to help out anyone who maybe is still in the slowlane but is looking to expand. I'm going to chronicle all of the distinctions I can remember in how I did this. I really think anyone in the slowlane but especially anyone at an upper level white collar job can use these strategies to massively explode their wealth if they just shift into the growth mindset (ok, maybe not massively, but I'm part practicing my sales copy here, jk).
1. Pay your self first (most critical)
Divide your paycheck into two components. Cut your expenses to the bone, then sum them. That is one component. Then come up with a figure that you think represents ALL the rest of your paycheck. Total paycheck - expenses = AMT paid to you first. Wire that money directly into a savings account every paycheck. (You can set up dual account direct deposit on most payroll systems). You are not to live on that money. You only touch it if you find yourself short of your required fixed expenses (I have touched it a few times for that). This is such a change in mindset. Before I did this most/all of that money would eventually disappear on useless shit. I currently have $2k going into my savings account every paycheck, so that's $4k in net worth increase every month just from my base pay. When I look at my total income, I keep close to 80% of my after tax paycheck as NW increase at this point between this savings portion, and 401k match, etc. An obscene savings rate WAY above what all of the "best financial practice advice/calculator/guru" have the number at. I'm convinced this also builds great practice for when you are on your own and have to control expenses in the beginning of a business.
2. Max your 401k up to the match, ESPP, track your finances
Ok, I know you all have heard these before. Not much to say here. Don't throw away free money. If your company has an ESPP do it. Also, the ESPP return is never actually 15%. That is wrong but it's the number that always sticks in people's heads. That is the WORST you can do. My company had a nice run the last few years and people made a lot more than that. I only was in a couple of them but I was kicking myself when I left money on the table in the ones I wasn't. Also make sure you are tracking your monthly finances closely. I use the program Banktivity for Mac. If you have made it into the growth mindset, you get to see your net worth trending upward, even as you slave away at the job you hate. This does amazing things for your mood even when you are down.
3. Buy a (relative to your income) inexpensive house that you can afford, rather than rent.
My house is large for a single guy but is not extravagant. It's 3/3 about 2200 sq ft. My net outflows on this house (owning) is about 1500 per month. If I were renting this house the rent would be about 2800. That's quite a bit more I'm keeping each month buying instead of renting. I know this may not be the case for everyone in every area though. Also, this calculation doesn't even include the nice $40k profit I've gotten on my house appreciation in the last couple years, just that represents about 23% of my total gain over these 3 years. Buying a home also builds trust and reputation a bit I think which can serve you in future business relationships. You go through a lot of financial vetting to get a loan, so the fact that a bank trusted you with a large sum of money before and you honored your promise to pay it back says something. It also improves your credit score assuming you make your mortgage payments (different credit type). If you are going to build a business that is going to scale, you'll likely need to use OPM at some point so this is also a good first run at seeing how a loan process works.
4. Have little to no debt
Part of the reason I was able to do this is that had already paid off most of my debts entering this period (though I eliminated all except mortgage debt by the end of it). I don't have a car payment. I don't have a car insurance payment (ok, I have one every 6 months, but I save some doing it that way, and it allows me to ignore it for purposes of monthly expense calculation since I just pay it out of savings). I don't have a student loan payment (though it did take me 10 years to pay those off). I don't have a gym payment (my company pays for that for free, but this is becoming more popular, maybe encourage your employer to offer this if they don't). Naturally I don't have credit card payments. I'm single so I don't have any payments supporting other people (not saying everything about this post will apply to all, but to many). I do take vacations occasionally but in general I don't spend a lot of money on lifestyle.
Now I'm not saying slowlane is so great here, this only worked for me one time. I needed to get in the fastlane if I wanted to grow my net worth 500% again from this point, and that's what I'm doing. But if you are still in a job (which I know many are on this site), then you can go pretty far along improving yourself just from shifting your thinking with what you have available to you. I'm probably forgetting some stuff here and I don't want to write all night so I'm gonna end it here but happy to answer any questions people have. I just thought I would post this as my first success. Rapidly increasing your net worth by 472% is for obvious reasons a type of phrase usually associated with the fastlane, so I just wanted to offer a quick example from the slowlane of what you can do even if you are not going into entrepreneurship (or not yet).
First of all, it is hitting me SO much harder this time, now that I'm more bought in to the entrepreneur mindset. Some people call this the growth mindset, I think they are pretty similar though. But also, it made me realize pretty quick that I've already had my first success, and it wasn't even as an entrepreneur. On the back cover of TMF it lists one of the benefits of the fastlane as "How you can make net worth explosions of 400% or more". Now, I've increased my net worth by 472% in the last 3 years. When I bought my house 3 years ago it was 46k. Now 3 years later I should close out the year at 217k. I don't own a business yet. I did this solely working at a regular W2 job. I did not get a promotion. My wages did not increase significantly in the last 3 years. In fact, one of the reasons I am leaving to work for myself is that they will likely be declining slightly next year if I were to stay.
What changed was my mindset. I've now realized I was almost acting unconsciously as an entrepreneur doing the best I could where I was. I wasn't doing that before. So before I shove off on my journey I thought I would make this post to help out anyone who maybe is still in the slowlane but is looking to expand. I'm going to chronicle all of the distinctions I can remember in how I did this. I really think anyone in the slowlane but especially anyone at an upper level white collar job can use these strategies to massively explode their wealth if they just shift into the growth mindset (ok, maybe not massively, but I'm part practicing my sales copy here, jk).
1. Pay your self first (most critical)
Divide your paycheck into two components. Cut your expenses to the bone, then sum them. That is one component. Then come up with a figure that you think represents ALL the rest of your paycheck. Total paycheck - expenses = AMT paid to you first. Wire that money directly into a savings account every paycheck. (You can set up dual account direct deposit on most payroll systems). You are not to live on that money. You only touch it if you find yourself short of your required fixed expenses (I have touched it a few times for that). This is such a change in mindset. Before I did this most/all of that money would eventually disappear on useless shit. I currently have $2k going into my savings account every paycheck, so that's $4k in net worth increase every month just from my base pay. When I look at my total income, I keep close to 80% of my after tax paycheck as NW increase at this point between this savings portion, and 401k match, etc. An obscene savings rate WAY above what all of the "best financial practice advice/calculator/guru" have the number at. I'm convinced this also builds great practice for when you are on your own and have to control expenses in the beginning of a business.
2. Max your 401k up to the match, ESPP, track your finances
Ok, I know you all have heard these before. Not much to say here. Don't throw away free money. If your company has an ESPP do it. Also, the ESPP return is never actually 15%. That is wrong but it's the number that always sticks in people's heads. That is the WORST you can do. My company had a nice run the last few years and people made a lot more than that. I only was in a couple of them but I was kicking myself when I left money on the table in the ones I wasn't. Also make sure you are tracking your monthly finances closely. I use the program Banktivity for Mac. If you have made it into the growth mindset, you get to see your net worth trending upward, even as you slave away at the job you hate. This does amazing things for your mood even when you are down.
3. Buy a (relative to your income) inexpensive house that you can afford, rather than rent.
My house is large for a single guy but is not extravagant. It's 3/3 about 2200 sq ft. My net outflows on this house (owning) is about 1500 per month. If I were renting this house the rent would be about 2800. That's quite a bit more I'm keeping each month buying instead of renting. I know this may not be the case for everyone in every area though. Also, this calculation doesn't even include the nice $40k profit I've gotten on my house appreciation in the last couple years, just that represents about 23% of my total gain over these 3 years. Buying a home also builds trust and reputation a bit I think which can serve you in future business relationships. You go through a lot of financial vetting to get a loan, so the fact that a bank trusted you with a large sum of money before and you honored your promise to pay it back says something. It also improves your credit score assuming you make your mortgage payments (different credit type). If you are going to build a business that is going to scale, you'll likely need to use OPM at some point so this is also a good first run at seeing how a loan process works.
4. Have little to no debt
Part of the reason I was able to do this is that had already paid off most of my debts entering this period (though I eliminated all except mortgage debt by the end of it). I don't have a car payment. I don't have a car insurance payment (ok, I have one every 6 months, but I save some doing it that way, and it allows me to ignore it for purposes of monthly expense calculation since I just pay it out of savings). I don't have a student loan payment (though it did take me 10 years to pay those off). I don't have a gym payment (my company pays for that for free, but this is becoming more popular, maybe encourage your employer to offer this if they don't). Naturally I don't have credit card payments. I'm single so I don't have any payments supporting other people (not saying everything about this post will apply to all, but to many). I do take vacations occasionally but in general I don't spend a lot of money on lifestyle.
Now I'm not saying slowlane is so great here, this only worked for me one time. I needed to get in the fastlane if I wanted to grow my net worth 500% again from this point, and that's what I'm doing. But if you are still in a job (which I know many are on this site), then you can go pretty far along improving yourself just from shifting your thinking with what you have available to you. I'm probably forgetting some stuff here and I don't want to write all night so I'm gonna end it here but happy to answer any questions people have. I just thought I would post this as my first success. Rapidly increasing your net worth by 472% is for obvious reasons a type of phrase usually associated with the fastlane, so I just wanted to offer a quick example from the slowlane of what you can do even if you are not going into entrepreneurship (or not yet).
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