The conservative myth
BiggerPockets episode 221 Tim Shiner timeline: 18:20
Tim tells a story describing the conservative myth that plagues society.
He says, “I was sitting next to an American captain on an airplane who was explaining why he hasn’t invested yet in real estate or anything else.” Tim explains, “he said to me, Tim I’m just so conservative.” Tim responded, “Can we just be honest for a minute. You are a W-2 wage earner as a captain for American, and you are right in crosshairs of taxation. I said you think you are being conservative by not investing but the problem is you are really taking far more risk than most people. Tim went on to explain, living with just a W-2 job is like scuba diving with one oxygen life-line (his check from American).
Kind of like this lady…
Wouldn’t it be much better to have 100 or more oxygen tanks? From different businesses, investments, real estate etc..? Living more like this guy.
Does this story sound familiar? Do you feel you are just too conservative to invest?
It reminds me of a quote I love and think of often from American theoretical physicist Richard P. Feynman, “The first principle is that you must not fool yourself, and you are the easiest person to fool.”
This is a classic example of how we fool ourselves. We tell ourselves a story to rationalize why we are doing something.. even if the story is totally false.
Having one job, having one income stream, is the riskiest thing you could possibly do.
I don’t care how great the benefits are, how much they match for your 401k, and how “secure” that paycheck makes you feel.
I’m certain you can talk to a handful of people who had extremely “Safe” jobs around 2007 in real estate, hedge funds, construction… who would quickly find out just how risky their circumstances were because they relied solely on the income from those careers.
Same with employees at Lehman Brothers during that same time… working for a company founded in 1850. The fourth largest global financial services firm..
Or employees at Enron..
That isn’t to say it all can’t work out, and you won’t find a great job, with great benefits, that pays well and never goes out of business.. if that’s the life you want then great.
But even then.. I would strongly encourage you to minimize expenses and invest, because you never know when you will have a change of heart, and you should never feel trapped.
If living off one life line isn’t the life you want… Then make money as many different ways as you can.
Once you do that, learn how to make money even when you aren’t working from as many ways you can.
What I mean is, you eventually become an actual investor.
Robert Kiyosaki covers this in his books, Rich Dad, Poor Dad, and Cashflow Quadrant, where he says the path to financial wealth is moving from employee (you have a job), to self-employed (you own a job), to business owner (you own a system that works for you), finally to investor (you own a performing asset).
The beauty of this “cashflow quadrant” is the further along you go, the more time you free up.. to move into the next cashflow quadrant at another job.
For example. An easy way to envision this is with landscaping. You start mowing lawns for someone.. probably someone who owns their business. Soon enough you realize the potential to earn money working for yourself..
So you move from employee, to self-employed. Now you mow lawns for yourself, and take 100% of the profit. Soon you realize while you are making more money, you are giving up more time. So you decide to transition to business owner. You no longer mow the lawns, because you can hire out that work for a small expense to pay wages. You manage the crew, set them up on their routes, deal with clients, and do other higher level work. You now own the system that works for you.. But.. while you aren’t mowing lawns, you still are working.. a lot.
So next you move to investor. You hire an apprentice, show them how to run the business, train them for a few months, and then when you’re ready.. step away. You don’t sell the business… you own it, you just don’t work IN the business anymore on a day to day basis. You have a business you own, that brings you income each day, week, month.. regardless of the physical work you do each day. Take some time to enjoy this feeling for a week or two.. then move to the next thing. Maybe you diversify into other towns and recreate the same business, but ideally you eventually diversify into different fields.
Perhaps real estate.
You know you can be frugal for a few months to save up the cashflow from your landscaping investment, and you will be able to save enough for a 3.5-20% down-payment. You do this and then buy a multi-family property. Fix it, rent it out, hire a property manager, and refinance to get your money back…. You just became an investor and now have a second steady income stream. And since you hired a property manager, you literally don’t even take phone calls.. you just get checks each month for owning ANOTHER performing asset.
From here the possibilities are endless. Invest in Index funds because it’s another smart option.. or since you have a couple revenue streams now you can take risks and get a job doing something you love that doesn’t pay much. Maybe you want to paint full time, or try and start a breakfast cafe, or even be super risky and go get a W-2 job :)… it’s up to you.
Learn more on this:
Video: Robert Kiyosaki explains Cashflow Quadrant
Blog: Natali Morris:
Video:Michael E. Gerber: turn-key approach, on the business NOT in the business