Nobody ever got rich working for a living. —My dad, to me, frequently
What in the world can it mean that working doesn’t
make you rich? Well, how many of those fabled bad guys our progressive
left obsesses over, the dread “Top One Percent,” punch a clock, do you
think?
To be sure, you will work hard in order to get
rich, and the harder and smarter you work, the better your chances. As
my dad would explain, “It’s okay to work eight hours a day for someone
else. Just work eight hours a day for yourself too… and twelve hours a
day on the weekends.” And that’s exactly what he did, all his life.
Selling your time by the hour will not get
you ahead. Human resources departments know to the dime what they have
to pay per hour to acquire requisite talent. Even if you degree from a
prestigious law school and catch on with a leading firm and can bill at
several hundred dollars an hour, by the time the expenses are extracted,
you’ll be lucky to be grossing a third. Even if you work yourself into
an early grave by billing out 3000 hours a year, you’re not, by that
effort alone, putting yourself on a track to get wealthy.
So, what do you have to know to become financially wealthy?
Probably the first insight you need is that you are out to get wealthy, not financially
wealthy. Financial means pertaining to money, but you’ll need to
recognize that money is simply a “parking place” for past production.
The economy runs on “you buy the production of others with your
production.” Land and production and equity in those things underlies
wealth. Money is just a convenience for wheeling and dealing.
Here’s what you need to understand if you want to
not miss the turn that gets you to the intersection of Luxury Lane and
Big Bucks Boulevard.
Know what you are after
Having a big operating budget is not wealth. You can be “churning” millions of dollars a year, but you are only getting wealthy to the extent you are profiting on that churning. A lot of churning with little profit is actually worrisome. A huge house of cards falls just as fast as a small one.Financial leverage (also known as Other People’s Money)
A business acquaintance mentions he needs 200
reciprocal capacitors (or whatever) to keep his production line going.
He’s desperate and willing to pay $2 each. You’ve got $100 and know
where you can get such capacitors for a dollar each. You could double
your money! Or, you can borrow, $100 paying back $110, and almost triple
your money. Even better, you can get your acquaintance to pay in
advance and clear an even bigger cut without putting your money at risk.
Labor leverage
At one point in my retail career, I took on a new
window washer. The next time he showed up in a suit, took my $20 from
petty cash and left his associate behind to do the window washing. I
started seeing his associates around town, at least three different
ones. I idly started calculating what he could potentially make with
three window washers under him while he concentrated on selling and
coordinating–maybe there could be a little money in cleaning glass. When
it dawned on me the guy could easily be grossing $120 an hour with a
labor cost of at most $21 an hour (35 years ago) and additional overhead
of at most $2 an hour, I was shocked that he was netting about four
times as much as I was as a partner in a thriving retail business, and
with significantly fewer headaches! and employees!
Spotting opportunity
The productivity cycle that creates all the goods
that actually represent the economy begins when an enterprising person
looks to the future and sees the opportunity to make a profit. Think how
easy it would be to start a window-washing business. So, why then do 99
percent of all casual window washers go about it all wrong by doing all
the work themselves? Understanding how to spot situations that can be
turned into profit-generating opportunities is an acumen that must be
cultivated. Most people don’t start their own business; they create a
job for themselves in addition to which they have to function as boss,
secretary and marketing person–four jobs in one, a burnout track rather
than leverage.
Make money with money
How did Mark Zuckerberg make $4B in one day last
week? How did Jeff Bezos make $6B in twenty minutes a couple of days
ago? Was it by increasing their hourly wage? No, as you know, it was by
equity. You are frail. You’ve got something like 100,000 to 150,000
working hours in your entire life (multiply that times what you can net
per hour, and there’s how rich you will potentially be). Money/equity
can work 24/7/365 and not break a sweat. The trick is to live as
frugally as possible when starting out young, forgo every non-essential,
and set aside every dime you can. Putting your money to work for you
can make money for you even while you are sleeping. You can eat out at a
nice restaurant and make the money to pay for the meal while you are dining. (Better yet, you can have your fellow diner who wants your business pick up the check.)
And how did it turn out for my dad?
Dad is now 94 and comfortably off. He got a bit
wealthy late in life. He played the real estate game and spotted a huge
opportunity back in the early 60s. The new Interstate headed through
Dallas would create rapidly-growing suburbs. We moved to a small town
when I was 12, and he plunged his savings into buying up a couple of
square blocks in the poor part of town but near the intersection of the
two main roads. I can still remember how bullish he was to score such a
coup.
And then all the growth took place, not in the old
downtown area as he had assumed, but in the cattle pastures on the
other side of the new highway, land he could’ve owned for a mere $50 an
acre at the time (and worth as much as $2M and up now). To make matters
worse, just when he realized he needed to be across the highway,
interest rates went up to double digits; too high to make money. He
spent 20 years feeling like a bug trapped in sap, unable to budge, and
that changed him into a very sour man.
The final lesson then, is you have to be cut out
for a life spent trying to acquire wealth. There are risks. There are
pitfalls. You can get everything brilliantly right, make one deft move
after another, and still end up worse off than you started.
Not everyone is cut out for such stress, strain
and uncertainty, and this makes a job working for someone else at a
reasonably secure salary look pretty good.
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