“Set yourself up to be able to live in a context that maximizes your own personal happiness and comfort and the happiness and comfort of your family.”

Financial Friday: The Next Door Fastlaner; Combining Two Contrasting Wealth Building Strategies

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Welcome to The Wealthy Healthy, the podcast and blog dedicated to inspiring better mental, physical, and financial health. Today’s Financial Fridays episode will be the third and final installment in our three-part mini-series looking at two popular personal finance books that present generally compelling yet largely conflicting wealth building strategies. If you haven’t yet read “The Millionaire Next Door” or “The Millionaire Fastlane,” I suggest visiting episodes 9 and 12 for my summary and a few of my own thoughts on possible pros and cons of each approach. Today, we’ll be taking a look at my own personal philosophy which attempts to marry the overarching concepts behind both of these seemingly at-odds strategies.

So as we saw from The Millionaire Next Door, a majority of self-made, first-generation wealthy Americans built their fortunes on very similar principles: living a lifestyle of frugality and living below their means, saving more than they spend, and being very aware and in command of their spending habits. For these individuals, looking and living like an archetypal celebrity millionaire is not a priority, and instead comfort and financial independence take precedence.

And what we learned from The Millionaire Fastlane is that by taking a risk in trying to build a product or company or service that affects and touches as many lives as possible, it becomes realistically feasible to create an avenue for either growing a self-sustaining money tree or selling your empire early enough and for a sizable enough sum to live out a majority of your life living in intelligent, measured, well-prioritized luxury.

But of course, as we talked about in previous episodes and as you can gather from those two descriptions, there are pros and cons to each. The “Next Door” approach is inherently slower and less lavish. The somewhat more materialistic and indulgent among us will be turned off by this proposition. It is indeed rather unlikely to produce young millionaires, even with a high income and good investment decisions. But on the other hand, it is in relative terms a fairly safe and stable approach that, absolute worst case, builds you some extra savings and awareness of your good and bad financial habits. Best case, you play the game and reap the rewards of playing in a manner that is high-probability. Of course, no path to financial independence or wealth is easy or guaranteed, but if we were to run an experiment with 100,000 identical people attempting various wealth building strategies, the “Next Door” approach almost certainly outperforms any other approach when it comes to rate of producing millionaires. The “Next Door” strategy is probably as close as you can get to guaranteeing yourself a comfortable retirement, and it acts as its own built-in safety net, which will appeal to the more risk-averse among us.

For those who are still completely put to sleep by this and would rather be able to drive nice cars and wear designer clothes and still have enough saved up to live without working or to choose whatever you want for work, you may be licking your chops when thinking or reading or talking about the “Fastlane” approach to wealth building. The “Fastlane” approach is inherently a major risk. You may start off barely making ends meet, or even more likely you will begin in debt to try to chase your dream. That dream may never materialize, either because you were in over your head, or it required more work than you could or would like to commit. If you have no savings to lean on and a family to support, this may prove to be a very dangerous proposition. But on the other hand, the “Fastlane” approach is essentially the only way to become a young millionaire without being born into wealth and without exceptional ability in athletics or entertainment. So if you want more than anything to be a youngster driving a supercar while wearing handsewn Gucci mink fur, you may have to assess whether you can realistically give the Fastlane a shot. And recall, the “Fastlane” is not about simply appearing rich. Recall that even DeMarco himself squandered his first million and went from poor to rich and basically back to poor because of terrible purchase decisions parlayed with terrible saving and investment decisions. The “Fastlane” is about allowing yourself excessive financial freedom and independence at a young age — because if you’re 30 years old and sitting on 10 million dollars, you can spend a few million and invest the rest and still be rich enough to never work a 9-5 again.

But something that both of these very popular finance books ignores is the fact that, in my opinion, one does not eliminate the other. Just because you are taking the “Next Door” path, doesn’t mean you will never come upon or have a chance to chase “Fastlane” dreams. Or, if you are trying to drive in the Fastlane, it does not mean you must be reckless and in debt. For me, this is a more appealing approach, as I am risk averse, but very interested in entrepreneurship, creativity, and financial independence. I would be foolish to close myself off to opportunities to exercise and achieve more in those areas as soon as possible. This is why, after reading both of these books multiple times, I’ve sought to approach my finances with a mindset that incorporates both, which with no originality at all, I refer to as “The Next Door Fastlaner” — the person who is prepared to ride, or is riding, the “Fastlane,” but appears and will continue to appear on the surface like any other “next door” neighbor. No expensive cars, no McMansions, no Gucci coats — but, one way or another, a lot of good financial health, and perhaps wealth as well, for the purpose of fulfillment and happiness, a few of the pillars of good mental, emotional, and physical health.

There are a few reasons this approach appeals to me more than either one approach. First, it helps mitigate risk. I’m reasonably risk-averse. I’m not a gambler, and won’t even bet hard in areas where I feel fairly knowledgeable. So I personally formulate most of my life around “Next Door” principles of frugality and saving intelligently, which I take to the extent of saving around 50% of my post-tax earnings. This helps me stay on the path to building financial independence at a faster pace. If you’re curious about the math behind financial independence, be sure to revisit Episode 2.

Second, this intersection of the two strategies appeals to me because with aggressive and responsible savings and low lifestyle overhead, I place myself in a better position to take advantage of potential “Fastlane” opportunities in the future. I will admit that there is a weird form of survivorship bias here. I am fairly young, have no kids, am unmarried, own no property, and of course have not yet achieved any mathematically real form of financial independence. However, say in a few years I should either have an idea for a business, or be presented with an intriguing one by someone else, I may have enough saved to be in a situation of partial financial independence that can allow me to earn much less for several years without worrying about food or rent. In this way, I could pursue that potential “Fastlane” opportunity by working fewer hours, changing careers to something less demanding, or leave my primary career altogether. If it doesn’t work out, it would be a bummer to have depleted those savings, but it would not leave me in a state of financial ruin, and with some due diligence and a decent economy and job market I could likely fall back into my primary career in some capacity. If it did work out, I’d be glad for having saved those years prior because without that buffer, it’s unlikely that I could overcome the emotional hurdle of jumping into a risky proposition.

There are also two approaches to take even within this approach, which I think of as active or passive. To be an active Next Door Fastlaner would be to maintain focus on the primary career while living the “Next Door” lifestyle of frugality and investing, while creating and pursuing opportunities supplementary to that primary career. This could mean spending nights and weekends working on a product or service, putting together websites that can become passive income streams, or starting an Amazon business. Active pursuit can also include making concerted efforts to network with entrepreneurs and future entrepreneurs to be in the position to, if you choose, be an early employee or executive in a new company that you feel has a high ceiling.

Being a passive Next Door Fastlaner looks more like regular “Next Door” living, but while keeping a very close ear to potential “Fastlane” opportunities. Many “Next Door” types are not ever keeping options open or keeping a finger on the pulse; several of the entrepreneurs I know work in what one would think of as “dull-normal” jobs, and they’ve worked these jobs their entire lives with no interest or attempt at a “Fastlane” option. These individuals have done incredible jobs building wealth, but they tend to fit more in line with the straight-up “Millionaire Next Door” approach of steady and smart saving. A passive approach to Net Door Fastlaning could take form in a few ways. One example might be simply talking to friends who might be in a better position to create a product than you are. In my own case, perhaps because of my residence in the Silicon Valley, I happen to have several close friends who are software engineers. Now, of course, I didn’t make friends with these people because they are software engineers, but the fact that they are places them in a stronger position to independently bring a technological idea to life, such as a website, app, or software.

By having these folks as friends, I’m not actively doing anything to pursue “Fastlane” opportunities, but I am at least marginally increasing my chances of being aware of anything those individuals may try to build, that could eventually turn into a “Fastlane” opportunity. Other passive examples would be reading articles about certain markets to think of unique solutions, or simply involving yourself in projects that have some chance at financial upside even if that chance is small, and even if financial upside is not the goal. For example, perhaps you regularly upload videos to a YouTube channel because you simply have a passion for video editing or sharing some particular type of content. A majority of individuals posting videos in this manner aren’t treating it like an early stage business that will eventually become a fruit-bearing money tree. Most are doing it just for fun. But by simply doing something extra, you are increasing your probability, however small, of stumbling upon a potential “Fastlane” opportunity.

So I hope you’ve been able to gain something from this three-episode “Millionaire” series. Think about your lifestyle now and your ideal lifestyle later to strike whatever balance of present-day spending and future stability suits your desires and values and health best. And of course, work hard to apply whichever sets of strategies suit those ideals and your own personal skills best. Perhaps you take a totally different approach than I do in seeking to combine the two. There are tons of ways to live your life, which is perhaps one of the most beautiful things about it. Set yourself up to be able to live in a context that maximizes your own personal happiness and comfort and the happiness and comfort of your family.

As always feel free to share your thoughts, your praise, your criticism, it all serves to make the show better.
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