Over the weekend I had the pleasure to attend an interesting party. I was invited by one of my favorite clients to a quaint house warming party. My client has been in real estate for decades and built up a solid business of rental properties. I thought it would be a great opportunity to socialize with my client outside the job, and just make an appearance.
Now, reading the title you’re probably assuming the party itself cost a billion dollars. It was a mild manner affair, catered of course, but when the other guests began to show up it turned into something I’ve never seen before. The combined net worth of all the guests was in the billions. I was rubbing shoulders with a class I’d never been exposed to before. I took it all in.
When you think of a party of combined billionaires, what do you think of? Maybe what comes to mind is gold jewelry, Crystal poured by the gallon, and whatever else is found in high-budget rap videos. Or maybe your mind is drawn to the more conspiratorial, the secret society of the rich direction, imagining some Eyes Wide Shut affair with masks, cloaks, and ritualistic sex?
The truth is much less extravagant. To me, it looked like most people had just stepped off their yacht. It was shorts and polos for as far as the eyes could see. Some women wore dresses and I only saw one man in a suit. Wearing ‘business casual’ I felt overdressed. The wealth was only obvious in the cars people arrived in; the owner’s driveway contained a BMW, Lexus, and Maserati alone. The house was a thing of beauty — recently remodeled and completely overhauled. But for the most part, the wealthy themselves did not flaunt. No extravagant jewelry, no big watches, no trophy wives. There was no snapping of selfies or showing off.
I was immediately reminded of Stanley and Danko’s The Millionaire Next Door. If you’re not familiar, the authors surveyed hundreds of millionaires across the United States, looking for common statistics among the wealthy. What they found was that almost unanimously do millionaires live modest lives, shopping off brand or generic for most things, buying used cars, and not living extravagant lives.
The other noticeable thing? Most were older.
Why does this matter? It reinforces the idea that to become truly wealthy, billionaire level wealthy, it takes a lifetime of financial discipline. Have you ever seen the ‘hockey stick’ graph of Warren Buffet’s wealth? He didn’t cross $1 billion dollars until he was 56 years old. Unless you invent Facebook or design the Model T, it takes time to be a billionaire.
My mind wandered some more at the party: The extravagant parties (and lifestyles) are usually attributed to entertainment moguls, professional athletes, and…lottery winners. What do all three of those have in common? High bankruptcy rates. Rapper 50 Cent went from a $155 million valuation in 2015 to bankruptcy in 2016, $23 million in debt. MC Hammer went from earning nearly $33 million per year in 1991 to $13 million in debt just 5 years later. Johnny Depp is the latest celebrity struggling with debt and lost fortune. Nicholas Cage had serious financial problems, even blowing a $150 million fortune. According to a 2009 Sports Illustrated article, 78% of NFL players are either bankrupt or under “financial stress” just two years after leaving the league and 60% of NBA players go bankrupt within 5 years of leaving the sport.
And then there are the lottery winners.
According to several studies, 70% of all lottery winners go broke and file for bankruptcy. Here’s another staggering statistic: 90% of surveyed lottery winners believe the money will be gone completely by the family’s third generation. One last one: 44% of all lottery winners spend the entirety of their winnings within 5 years.
What I was seeing at this party was the key to wealth: financial literacy. These were people that built and owned businesses, that invested in real estate, that probably had pretty thick stock and bond portfolios. These were people who made sure that dollars incoming remained much higher than dollars outgoing. Are you paying attention? Because this is the secret to being wealthy.
As Roberty Kiyosaki likes to say, “The poor stay poor.” What he means by this is the mentality doesn’t change, even after winning the lottery or landing the big sports contract. Without financial literacy (with which comes discipline), that multimillionaire still has the mentality of poor person — so they spend on liabilities instead of acquiring assets. They live lavishly, enjoying their new found freedoms with being able to buy whatever they want. Nicholas Cage bought an island. MC Hammer bought a $30 million house. Famous lottery winner Michael Carroll smoked $2,000 worth of crack every day and ultimately ended up in prison at one point. The rich buy assets. Real estate. Businesses. Stocks. They put their money to work to make more money.
Being wealthy is a mindset. And all of these khaki shorts, gray-haired party goers had that mindset. I regret not wandering about more, asking what people did. I would have loved to get a sampling of where their wealth came from. I guarantee you that none of them were lottery winners.
If you want to quit your job and become wealthy, you cannot do it without financial literacy. I wasn’t born into wealth. When it comes to knowing money, the public school system failed me — it fails everyone. Schools do not teach financial literacy. There’s no classroom discussion on debt or taxes or passive income. I plan on writing a post dedicated solely to financial literacy and failure of such in the education system; but for now know that the path to true wealth lies in knowledge.
I leave you with a few tips should you ever find yourself in a billion-dollar party:
Dress the opposite of how you think you should dress. Head to a department store and pick up an outfit in the Ralph Lauren/Polo section. Shorts and a polo shirt.
Unless you drive a luxury vehicle, park a block away.
‘Catered’ does not mean hors d’oeuvres, caviar, and champaign. It means cold beer, margaritas, and steam trays.
Bring a gift, or at least, a bottle of wine.
Don’t be the first one there or the last one to leave
“Many times the hardest part about achieving a dream isn’t actually achieving it—it’s stepping through your fear of the unknown when you don’t have a plan. Having a teacher or boss tell you what to do makes life a lot easier. But nobody achieves a dream from the comfort of certainty.”
To prepare for this post, I looked through reviews of Alex Banayan’s The Third Door and was surprised to see such mixed responses. In fact, there are people who go so far as to give it one star and remark that it’s “a waste of time.” They also accuse Banayan of egotism and name-dropping, of the book being a self-serving tale about nothing.
I believe these reviewers are missing the point of the book.
What I got out of it was that this was a book about failure. I’ve never read a book that exhibited the power and need for failure. Failure is as important in life as success, but the human condition seems to want to shun and dismiss failure. Look as social media: people don’t post their failures and screw-ups. It’s all about what works, what’s successful, and the rewards. I thought it was novel for Banayan to document his journey to interview the biggest names in tech, finance, Hollywood, and popular culture. He didn’t do it to become famous, he did it to find out their paths to success and share it with the world.
He struggled mightily along the way. If he hadn’t shared the journey, the book would have been like so many other “self-help” or “steps to success” books out there. Banayan would have been another Tim Ferriss clone. But instead, Banayan takes us on the journey from dream to reality, fumbling and failing all the way. Some might have considered a lot of what Banayan shared as embarrassing or personal. But that’s what makes the book so important.
I first became aware of Alex Banayan and The Third Door in an interview I saw he did with Tim Bilyeu. He told the story of how Steven Spielberg made his own way into Hollywood, slipping off a Universal tour bus and wandering around the studio before finally making a connection. The “Third Door” refers to finding a backdoor into the world you want to break into. There’s the front door, where most get turned away. There’s the VIP door, where some people use connections to the industry or are born into it through family or wealth. The Third Door is making your own way, finding some passage that no one else has. Spielberg’s Third Door was sneaking into the Universal lot.
In the format of my past “Required Readings,” here’s the 5 biggest takeaways from The Third Door:
#1. Being Persistent is Not Being a Hassle
“You’ve got to stay in the fight. It’s going to get tough. You’re going to hear no. But you’ve got to keep pushing.”
When Banayan first started out, one of his big targets to interview was Tim Ferriss, author of Tools of Titans and (more famously) The Four Hour Workweek. Banayan would badger the hell out of Ferriss via email, always starting the correspondence off with “Hey Tim!” and ending with “Thanks in Advance!” The emails got cringeworthy. Banayan believed Ferriss would see the persistence and finally respond. The problem was, Banayan was being a hassle, writing crappily-written emails and testing Ferriss. Banayan thought the emails sounded warm and cordial. Ferriss thought they were annoying and slobbish.
Banayan finally got a response after sending 31 emails. A phone call was arranged and Ferriss proceeded to explain to Banayan the difference between being persistent and being a hassle. Ferriss was persistent but “balanced.” He never emailed ten times per week; he never ended emails with “Thanks in advance!” because it sounded rude and entitled. Ferriss suggestion something cordial like “I totally understand if you don’t have time to respond.” Throughout the phone call, Ferriss also subtly (but not so subtly) hinted to Banayan to stop saying “Hey so and so!” in emails as well.
By the end of their discussion, Banayan had learned from Ferriss the proper way to send an unsolicited email while looking for a response (and you can find it on page 50 of The Third Door).
#2. Style Comes From Being Yourself
“Sometimes when people are starting out and feel they don’t know how to interview, they look to the people they admire—maybe it’s Barbara Walters or Oprah or myself—and they see how we interview and they try to copy that. That’s the biggest mistake you can make. You’re focused on what we’re doing, not why we’re doing it….When young interviewers try to copy our styles, they’re not thinking about why we have these styles. The reason why is because these are the styles that make us the most comfortable in our seats. And when we are the most comfortable in our seats, our guests are the most comfortable in their seats—and that’s what makes for the best interviews.The secret is: there is no secret,’ Larry added. ‘There’s no trick to being yourself.”
Alex Bunayan ran into Larry King in a grocery store. It sounds ridiculous, but much of The Third Door is and right from the get go (starting with the crazy Price it Right story, which I’ll get to later). After some persistence, Banayan was invited to have breakfast with King on several occasions, eventually meeting King’s personal circle of friends with whom he had regular breakfast meetings.
The quote from Larry King above illustrates the takeaway. It’s important to be yourself. Being yourself is what makes you comfortable, and being comfortable brings out your style. This rings true to me, because I see so many other filmmakers and writers try to emulate someone famous’ style. This makes them a copy, a clone, and, most importantly, nothing new. If I want to see a Quentin Tarantino movie, I’ll go watch something Quentin Tarantino made. I don’t want to watch someone else make their Tarantino movie. When you try to emulate someone else or their style, you’re never comfortable because you’re not being yourself. Because of this, I could see why so many amateur interviews are so shitty or awkward for those being interviewed.
If you don’t believe me, surf YouTube for celebrity interviews and I guarantee you’ll find some cringe.
If you’re active in the arts, people will always try to find or ask you about your ‘style.’ How do you like to do things? What do you like to convey? What’s your vision? I’m proud to say as a filmmaker that I have no fucking clue what my style is. And maybe that makes it my style. Ask a painter, or a writer, or a filmmaker what their style is and 9 out of 10 times they’ll start naming other painters, writers, or filmmakers.
#3. Failure Leads to Growth
Growth comes from mistakes. You have to cherish them, so you can learn from them. Your mistakes are your greatest gift.”
As mentioned above, the theme I saw in the book was ‘failure.’ Banayan shared his and his mistakes, but never came out and said “failing made me better.” Instead, you could SEE it happening through the course of the book. Tim Ferriss gave him criticism on how he wrote emails, so Banayan began writing more professional emails. He made more inroads to other interviews.
Near the end of the book you could see how much he’d grown. Early interviews were stilted and awkward — as if reading questions from a notecard. By the end, when he interviews rapper Pitbull and Jessica Alba you can see he’s changed. The Alba interview in particular was the moment I saw he had arrived. Banayan was genuinely interested in what Alba was doing with her business and they eventually connected over the loss of a loved one due to cancer (Banayan’s father died during the writing of his book). After so many chapters of interviewees being held up on a pedestal or Banayan struggling to get certain information for his book, it was nice to see that Larry King’s advice on interviewing had stuck.
The unstated lesson from The Third Door is you NEED to fail. “You can’t get an A if you’re afraid of getting an F,” he says. If he hadn’t failed repeatedly, he wouldn’t have pushed himself creatively and found ways to get interviews with Bill Gates, Maya Angelou, Tony Hsieh, or get Warren Buffet to answer a few questions. (This last one was the result of a clever ruse using three of his friends strategically at the Berkshire Hathaway shareholder’s meeting, placing them in various sections where microphones were placed to ask Buffet and Charlie Munger questions.)
#4. Where There’s a Will, There’s a Way OR: How I Learned to Hack The Price is Right
The book opens with a bang. Banayan decides his dream mission is to cultivate interviews from some of the most successful people in the world. He just needs the money to do so. After seeing that USC (where Banayan attended college) had tickets available for The Price is Right, Banayan decided that was his chance to earn his project’s funding.
The only problem was, Banayan had no idea how to play the game.
Instead of studying for finals, he studied up on how to ‘hack’ the gameshow. Banayan found there were patterns to being selected from the audience, namely by outrageous and eccentric behavior that caught the eye of the producer. The producer would then put the person’s name up for being called out of the audience, ensuring an eventful episode of the show. He dressed extravagantly, acted over-the-top (hugging janitors and making scenes), and caught he producer’s eye. When he eventually got in front of Drew Carey to play, he had to ask the audience what to do.
I couldn’t believe the story was real at first. It seemed to extraordinary. A person who didn’t even know how to play the game, who needed money to chase his dream, won over $30,000 in prizes on The Price is Right. But that’s exactly what happened. Banayan found an opportunity and did what he needed to to make the most of it. He didn’t let a small detail like knowing the rules stop him!
#5. Linear Life vs Exponential Life
This one speaks for itself. If you read this blog, you’re not looking for a “linear life.”
“You see, most people live a linear life…They go to college, get an internship, graduate, land a job, get a promotion, save up for a vacation each year, work toward their next promotion, and they just do that their whole lives. Their lives move step by step, slowly and predictably…But successful people don’t buy into that model. They opt into an exponential life. Rather than going step by step, they skip steps. People say that you first need to ‘pay your dues’ and get years of experience before you can go out on your own and get what you truly want. Society feeds us this lie that you need to do x, y, and z before you can achieve your dream. It’s bullshit. The only person whose permission you need to live an exponential life is your own…Sometimes an exponential life lands in your lap, like with a child prodigy. But most of the time, for people like you and me, we have to seize it for ourselves. If you actually want to make a difference in the world, if you want to live a life of inspiration, adventure, and wild success —you need to grab on to that exponential life—and hold on to it with all you’ve got.”
In other words, life is what you make of it. If you want something you have to work for it. Here’s another quote from ‘Sugar’ Ray Leonard, whom Banayan interviews in Leonard’s California Mansion:
“You may have the heart—you keep fighting, you keep fighting, you keep fighting—but your mind is saying, ‘Man, forget this. I don’t need this.’ The head and the heart aren’t going together; but they have to go together. It all has to connect. Everything has to connect to reach that level, that pinnacle…You may have a desire, a wish, a dream—but it’s got to be more than that—you’ve got to want it to the point that it hurts. Most people never reach that point. They never tap into what I call the Hidden Reservoir, your hidden reserve of strength. We all have it. When they say a mother lifted up a car off a trapped child, that’s that power.”
If you’ve ever had a dream or you’ve ever been discouraged by “how difficult” chasing your dream is, then The Third Door is for you. It’s not going to tell you how to be rich. It’s not going to gameplay how to quit your job or become famous. It will remind you that it’s okay to fail, that you should fail, and by failing you grow and get better. Remember, Alex Banayan was just an 18-year-old student a USC before he got to sit down with some of the biggest names on the way to writing his dream book. He found his way and you can to.
Over the past weekend I was traveling when two separate incidents caught my eye and made me start to think about the current push for $15 per hour federal minimum wage. The first was a visit to McDonald’s (my first in 20 years!) I visited a McDonald’s in Columbus, OH and found only a handful of employees working along side a phalanx of automated order machines. The other was an article showing that Bernie Sanders own campaign staffers were making less than $15 per hour, even though a large part of his campaign platform is $15 per hour minimum wage for all. I usually don’t wade into the political forefront, but I thought this would be an interesting thought exercise.
There has been a lot of noise about the Fight For $15 recently since multiple presidential candidates have taken up the banner. The movement stems from November 29, 2012 when over 100 fast food workers walked out of their respective restaurants in New York City to protest, creating the largest strike in the history of fast food. On July 29th of the following year, over 2,200 fast food workers went on strike. Since, the movement has expanded out of just the fast food industry to a national call of the federal minimum wage being raised to $15 (it currently sits at $7.25 per hour).
But is $15 per hour feasible? Is it even responsible? After all, we’re talking an increase of over 100%. According to presidential candidate Bernie Sanders’ campaign website feelthebern.org, he believes increasing the minimum wage actually benefits small businesses and will raise the standard of living. If raising the minimum wage is good for all, why not do it?
I own a business. I have several employees and contractors, and I determine their rate based on what my company is paid for a given job or contract. I also have to make sure my compensation is competitive for their skillset, or else I risk losing an employee to another business. I also have to take into account business expenses incurred to run the business and my own compensation as owner. These three factors play into what the employee is ultimately compensated. I pay too much, I risk the business and my own income; I pay too little, I risk losing the employee to better compensation.
But for this post, let’s assume I own a restaurant and pay five employees minimum wage. $7.25 per hour x 40 hours x 5 employees costs my company $1,450 per week in labor. The labor cost is factored into the cost of my business, which also includes the lease, utilities, insurance, ingredients, appliances and equipment, etc. My restaurant specializes in hamburgers which cost $1/ea. I take home a salary of $40,000 per year, which isn’t much but it makes running the business worth it to me and allows me to cover my own personal expenses. If minimum wage goes to $15, it would be a 106% increase in my labor costs or $2,987 per week. That’s a $1,537 increase per week, $6,148 a month, or $73,776 a year increase to my business. So now, I have to decide how this new increase can be afforded. I can’t cut back on equipment costs, because I need the equipment to make the hamburgers. I can’t cut back on ingredients, otherwise I won’t have hamburgers to sell. I could cut my own salary, but the increase is more than I even make and if I take a pay cut, I can’t afford to work there either. The lease and utilities must be paid or the restaurant closes down. I could increase the cost per hamburger to make up for the shortfall, risking a downturn in sales or losing customers to competitors (or home cooking) at which point I’m going out of business or cutting employees altogether. The only other alternative is to cut hours or go to automation (just like those kiosks in the Columbus McDonald’s)
Another unintended consequence of raising the minimum wage in Seattle was workers began requestingless hours because their yearly income increased to the point where they were at risk of losing welfare or various assistance programs. But wasn’t the intended effect? Wasn’t one of the speaking points of higher minimum wage to boost people off of welfare?
Another unintended consequence of high minimum wage is that it creates a barrier of entry to unskilled and young workers. If you’re 16 years old looking for your first job, you have no skills or experience. If an employer is required to pay over $30,000 per year for a full-time employee, the chances are they’ll never hire an unskilled teenager. I know I wouldn’t. If I had to pay that much for an employee’s salary, I want the best qualified person — this means skills, experience, and maybe a college degree. It makes it harder for teens to land that first job and begin acquiring skills and experience. From governing.com:
A long line of studies about the minimum wage has revealed that it can drive down employment at the low end of the wage scale, but those losses are made up for by increases in higher-paying jobs. The University of Washington findings, however, suggest that there’s some merit to the usual complaint that gets lodged against minimum-wage hikes — that they’re not only expensive for employers, but threaten to cut the first rung on the career ladder out from under teenagers or others just getting their start in the labor market. “The evidence that we’re picking up is consistent,” says Jacob Vigdor, an economist at the University of Washington. “We’re pricing out low-skill workers.”
“In Seattle, Minimum Wage Hike Comes at a Cost to Some Workers” Governing.com January 2019
This began happening in Seattle after the minimum wage began its journey to $15 per hour. In the linked article above from reason.com, “entry-level job growth stalled”:
Job growth continued in the rest of Washington state but not in Seattle.
“It’s presented by minimum wage advocates as a win-win…no negatives,” complains a skeptical Erin Shannon of the Washington Policy Center in my latest video.
Shannon points out the negatives. For example, stores that once hired inexperienced kids and trained them, giving them valuable starter experience, stopped doing so once Seattle raised its minimum wage.
If it’s not working so great (or, at least, as intended) in Seattle, why are presidential candidates pushing for it on a national level? First, it makes for great political rhetoric. It sounds appealing to low income workers while making the candidate appear as a fighter for the “little guy.” But there is also another reason for the government’s push for $15 per hour that no one is talking about.
It increases taxes.
If you’ve read any of my other posts about Robert Kiyosaki’s The Cashflow Quadrant, you know that employees get taxed the highest rates. A $15 minimum wage means increased payroll taxes from millions of American works. Workers will suddenly find themselves bumped up into higher tax brackets due to annual income increases. A 106% pay raise means a lot more in federal, state, and local income tax. But it’s not just income taxes — Social Security and Medicare taxes are also taken out of paychecks and based on a percentage of the paycheck. So with an increased minimum wage, the government gets a windfall of additional Social Security and Medicare income. According to IRS.gov, the 2019 withholding rates are 6.2% for each employee and employer for social security and 1.45% for Medicare. If you were making $7.25 per hour, your wages would be $290 for the week, $580 for the pay period and you’d pay $35.96 in Social Security and $8.41 for Medicare. Under a $15 per hour rate, you’d make $1,200 in the same pay period, paying $74.40 in Social Security and $17.40 in Medicare taxes. In case you missed it, the employee is only responsible for HALF of their Social Security and Medicare withholding (6.2% is half the 12.4% that is Social Security tax, 1.45% half the 2.9% Medicare tax) Under payroll taxes, the employer is responsible for the other half. So the employee pays $74.40 and the employer must ALSO pay $74.40and$17.40 to the government.
So all governments — federal, state, and local — increase their take with a $15 per hour minimum wage. Maybe the government hopes that the higher wage relieves some of the the looming Social Security trust fund shortage. According to the 2019 annual report by the trustees of Social Security and Medicare, the program is already paying out less than it’s taking in and it will run out by 2035. A $15 minimum wage could help shore up that fund. In theory. But payroll taxes also incentivize employers to keep hours down to reduce their 50% share of the Social Security/Medicare tax cost.
Back to my little restaurant: If I cut back hours to compensate for the increase in wages, I suddenly don’t have enough coverage. I was paying $7.25/hr for 40 hours, but with a $15/hr wage, I’d have to cut it to 20 hours to get labor back to where it was in order to keep my hamburger price consistent. Now I have a shortage of 100 hours (5 employees x 20 less hours). What can I do now? I can either make up the 100 hours as the owner (working 140+ hours per week is equal to working almost every single hour of every day) or I cut back the restaurant’s hours. This means less hamburgers sold. Which means less revenue. Which means it becomes difficult to pay my 5 employees and myself. If I fight to keep the restaurant open, the next step is to cut an employee (I can’t raise hours because I can’t afford it and I can’t stay open longer because I can’t physically do it myself). Now I have 4 employees, and I’m forced to cover even more myself.
Do you see the death spiral here? Eventually, I’ll close either by insolvency or it not being worth it to me anymore. If I’m working 100 hours per week, it’s not definitely not worth it plus I’ll never have the time to expand my business or open a second location. And I’ll never be able to find someone to take over, because no one wants to work 100 hours in a struggling business. Eventually, I’ll shutter the restaurant and all of us will be unemployed.
The other alternative to cutting hours is to raise the price of my hamburgers to sustain the increased cost. Imagine being a customer of my restaurant: years of $1 hamburgers when suddenly you come in one day for lunch and find it costs twice (or more) to eat there. You’ll likely not come back or tell your friends. The human consumer is quite perceptive to price changes. Raising the cost of my hamburgers will expedite driving customers away…and less money coming in from sales. Which causes me to cut another worker…which causes me to reduce the hours the restaurant is open…which reduces sales…
The other question I began to think about is “Why do we have a minimum wage?” I mean this in the purest of thought experiments. Where did the minimum wage come from? Essentially, it’s a social safety net, ensuring American (or other national) employees make a certain amount of money. The first minimum wage appeared in the United States in 1912 in Massachusetts. Eventually, the federal government established a national minimum wage in 1938 under the Fair Labor Standards Act (FLSA), set at $0.25 per hour (adjusting for inflation, about $4.45 today). It was basically a protection for American workers during the Great Depression. The argument for raising it is that the current $7.25/hr isn’t a “livable wage.” Or, in other words, it doesn’t cover the cost of living.
Essentially what the government is doing is setting price controls — they dictate the absolute lowest an employee can be paid, regardless of skill or experience. So where did they get $15 from? Who chose this number? The only origin story I could find comes from SeaTac, Washington in 2013. It was the first city to have a $15 minimum wage and was a byproduct of an attempt by union organizer David Rolf to unionize workers at Sea-Tac airport. The $15 per hour rate was part of a bluff to get the airport to allow unionization. From the same Marketplace article:
There’s the $15 number itself, nice and round, easy to fit on a bumper sticker. The figure first came to people’s attention in a series of strikes by fast-food workers that started in 2012. The workers didn’t achieve their goal of unionization, but $15 stuck.
“The Accidental Origin of the $15 Minimum-Wage Movement” Ben Bergman, Marketplace Jan 30, 2015
So $15 was arbitrary: a randomly chosen number used by a union organizer to play hardball with an airport in Washington state. Eventually it caught on. To some, $15 isn’t enough. Just this past week Representative Rashida Tlaib (D-Mich) began calls to make the federal minimum wage $20 per hour. Jeff Spross of The Week published an article this week called “Is There a Case for a $20 Minimum Wage?” where he mentions that by some productivity measures, the minimum wage should be $22.49 per hour by 2024. If we’re chasing arbitrary numbers, why stop at $22.49? Wouldn’t $50 or $100 per hour cure all poverty? Wouldn’t we all be rich?
Part of the problem is such a high minimum wage disrupts a larger portion of the workforce. If you’re a McDonald’s worker making $20 per hour, that’s $40,000 per year over a full-time schedule. According to Glassdoor.com, the average McDonald’s Store Manager annual salary is $46,354. Someone taking orders or flipping burgers at McDonald’s makes almost as much as the Store Manager! The inevitability is that the Store Manager will now seek an increase as well. He has a lot more responsibilities, a higher skill set, and is in charge of several other employees, but his compensation now lags compared to those that work under him. To maintain the previous ratio, his salary would need to double to match the workers’ increase. Worse, it could lead to disillusionment or de-incentivizing to move up or learn new skills.
“We all earn the same. I earn the same as the girl who presses a button to open the door,” said Arcaya, who has worked at the university for 19 years. “I studied and I worked hard. And now it turns out none of that was worth it.”
Workers at hospitals, the Oil Ministry and insurance companies all said the pay hierarchy had been distorted following Maduro’s shock measure.
“‘We All Earn the Same’: Venezuela Minimum Wage Hike Angers Skilled Workers” Corina Pons, Reuters September 26, 2018
The other part of the problem has to do with economics, as countries like Venezuela and Greece can attest to. Let’s say that the minimum wage does go to $15 per hour and no jobs are lost. Let’s say every business can afford it and all low-wage labor gets a bump. (We can do this because it’s a thought experiment) This means that the amount of spending by millions of workers has now increased. More bills are paid. More loaves of bread and gallons of milk are purchased because they can be easily afforded. There’s a lot more money going out and spending is up. Prices will respond in kind. This “excess liquidity” will be mopped by up prices of goods and services. You have more money chasing the same amount of goods and services, the result inevitably being price inflation. In addition, companies will raise prices to maintain the higher hourly wage. This is called Wage Push Inflation. Soon, the $15 wages don’t buy as much as they used to and we’re back where we started. Why are politicians and workers complaining that the current $7.25/hr isn’t enough?
Because it doesn’t buy what it used to.
In effect, raising the minimum wage is a result of currency inflation. Because the value of the dollar decreases, it requires the minimum wage to be raised or else things become unaffordable. If things become unaffordable, they don’t sell. The choice is to lower the price so they do sell, or that item is replaced by one that does sell. Raising the minimum wage will ensure that goods becoming unaffordable remain purchasable. Investopedia gives an example of Wage Push Inflation: “If a state raises the minimum $5 to $20, that company must compensate by increasing the prices of its products on the market. But because the goods become more expensive, that raise isn’t enough to propel a consumer’s purchasing power, and the wage must be raised again, therefore causing an inflationary spiral. “
So what’s the takeaway from this thought experiment? My fictional little restaurant didn’t do so well. There’s no economic or logical choice for a $15 per hour minimum wage; I couldn’t find any economic studies that could show why that specific number is valid as a target. It seems to be chosen only because of the PR value and catchiness of “Fight for 15.” The other question is, will $15 per hour minimum wage really solve anything? The consequences could outnumber the (temporary) gains, and Wage Push Inflation and price inflation could quickly negate the sought after results.
I don’t deny the catchiness of “Fight for $15” or the hero status it gives political candidates. It sounds good to many people. But the math behind it just doesn’t seem to work. When it comes to government setting prices we must remember The Laws of Unintended Consequences: The actions of people, and especially government, always have effects that are unanticipated or unplanned for. On July 18, 2019 the House of Representatives passed a bill to raise the minimum wage to $15. The Congressional Budget Office reviewed the bill and admitted that the bill would produce a financial boost to nearly 30 million workers…but that “it would also result in 1.3 million jobs lost by 2025.”
Update Edit: Just after originally publishing this post, I came across the story of Emeryville, California’s minimum wage hike. Emeryville (home to Pixar animation) has the highest minimum wage in the country at $16.30 per hour (as of July 1, 2019). According to a Wall Street Journal article, Emeryville is the scene of a standoff between restaurant workers and their employees over the high minimum wage:
The economy is booming in the Bay Area, but at Patatas Neighborhood Kitchen, located in this small city just north of Oakland, owner Marcos Quezada recently eliminated the dinner shift and laid off six of his 10 workers.
He struggled with the decision but felt he had no choice after Emeryville increased its hourly minimum wage in July from $15 to $16.30, the highest in the U.S. “I just didn’t see how I was going to survive it,” said Mr. Quezada, who opened the eatery in 2017.
Remember what happened to my fictional restaurant? In several other cases mentioned in the WSJ article, the menu prices sharply increased to offset the new cost — in the case of Emeryville cafe Rudy’s, the price of their Crunchy Asian Salad went from $10 to $15.50, a more than 50% increase. From the same WSJ article:
“There is a tipping point,” said Erik Hansen, the owner of Moomie’s, who is deciding whether to raise sandwich prices by as much as $1.50 or lay off one of his three employees. “We may have the highest minimum wage, but I don’t think the people in Emeryville will feel like paying the highest prices in the country.”
Things have gotten even more complicated recently. In June 2019 Emeryville instituted a ‘pause’ in the wage hike for “small, independent restaurants.” The city council voted to halt increases for select restaurants meeting various criteria. So now the new minimum wage rate is only applicable to a certain size restaurant or above (according to July 26 update to the HR watchdog article, this ruling is now “in flux and may not be valid.”)
This article has been expanded into several parts. You can continue reading Part 2 here.
I recently came across this video of Joe Rogan and Gary Vaynerchuck talking about quitting your job. Both are people I follow and listen to and read regularly. What Joe Rogan is saying in the video is the epitome of this blog and why I started it, so I wanted to share. Listen very closely to what he’s saying.
The YouTube video is above and I’ve also transcribed Rogan’s text below:
Most men live lives of quiet desperation.
It’s one of my favorite quotes ever, because it’s true.
You’re in this world where you just can’t wait to run away.
But I think one of the reasons why people have this deep seated anger and resentment is that there’s a bunch of people out there that have these lives that are deeply unsatisfying because I think there are so many people that are working all day long doing something that is deep unsatisfying and almost painful to them.Soul killing.
You’re stuck in traffic all day and then they’re stuck in a cubical after that. They relish the time to take a shit in the bathroom and look at their phone. That’s a highlight of someone’s day. They get in traffic on the way home. They get home after that they’re watching television.
I think if people have a regular day job, if you can just find one thing you do as a passion project and just keep building on it. Keep watering it. Keep adding fertilizer. Keep giving it attention. Keep giving it focus and you can escape and you can be self-serving. You can be okay. You’re gonna be okay.
Look man, making furniture feels good. If you can do that, you could cut those corners perfectly and sand everything down nice and stain it. And then it’s done and you get the satisfaction. And you sell it to someone and that pays your bills. That is infinitely more satisfying than being stuck in some fucking cubicle working for someone you don’t want to work for, having these stupid fucking office meetings, talking to people in Human Resources, sitting down with your supervisor, where they evaluate your job performance: “You really need to be enthusiastic about this company.” “This company is your future.” You’re like “Fuck. Kill me now.”
You know there’s a lot of people out there that would way rather do something else and I hope they understand that they can. And people that are trapped in bad situations, one of the problems is, you feel like this is your future and you can’t get out of that. There’s no hope. There’s no light at the end of the tunnel. There’s no rainbow. And if you feel like that, that alone can be incredibly defining and limiting. But if you can look at, if you can look at yourself objectively and say “Okay, I’m in credit card debt. I’m working in a shitty job, I don’t like what I’m doing. But I have some ideas. I need to feed those fucking ideas. I need to feed them. And water them. And I need to set aside a certain amount of time everyday to just try to make those things happen. You can do that.
Everyone has a different personality. They have different interests. Different things that they would be really satisfied pursuing. That’s not encouraged. What’s encouraged is go find a job. What’s encouraged is go find some place, that you can shove yourself into, go find a square hole, you can stick your round peg and just fucking jam it in there and shave down the top and bottom so you slide in with all this extra space on the sides and feel like shit the rest of your life. Because you need a job. Because you’re in debt. Because you have credit cards. Because you have student loans. Because that’s what everybody does. And so you do it too. That’s what’s wrong. You have an apartment you have to pay for. You have a car you leased. You have a wife you need to feed. You have a child you have to raise. You have to. You have your mortgage. You have your this, you have your that. And that’s where it all comes from.
Well the opportunity takes place usually when you’re young and you don’t have any responsibility. That’s when you have your options. Well your options are severely limited the more you gather responsibilities. Like if I had to as a 51-year-old father of three, married man, pays taxes, has a house and a mortgage, and a business and all that jazz, if I had to quit everything now and struggle as I struggled as a stand-up comedian, it would never work. But, the only way I could be this person now is if I took that chance when I was 21. When I was dead broke and had my cars repossessed and all that stuff. That’s the only way you ever get where you want to go. You have to take a path that’s dangerous, and most people want to take the safe path. And the safe path leaves you stuck in quiet desperation. Almost every time. It’s hell.
The way you can change is you have to put aside enough money to give yourself a window. And then you have to have a plan, and you have to spend all your waking hours outside of whatever shit job you do planning your escape. And you have to come to the realization very clearly that you fucked up. And you got yourself stuck. So whatever you’re doing, do it like your life depends on it. If you’re going to try and be an author and you’re working eight hours a day, plus commuting, plus family responsibilities or whatever else you have, whatever time that you have, you have to attack like you’re trying to save the world. You’re trying to save your life. You don’t want to drown. That one and a half hours a day that you have to write — Goddamn you better be caffeinated and motivated. You gotta go. You gotta get after it. And you gotta have discipline. Most people don’t have those things. Most people don’t understand what it’s like to really go for something. And to know the consequences of not doing that are horrific.
“Give a man an education and he will build a new world. But give that man a loan, and you can own that man forever.”
According to a CBS article published last month, two-thirds of American employees regret their college degrees, referring to a PayScale survey of 248,000 respondents. Given the national price tag (now nearly $1.6 trillion), the average American with a college experience is suffering from buyer’s remorse. When you look at the lifetime of repayment, is it any wonder why?
Just this past spring I paid off my student loans. It wasn’t easy and it sure as hell wasn’t fun. In fact, the chest-thumping euphoria died out rather quickly. I’m still relieved the payments are over, but life quickly got on with itself. So I now have the opportunity to look back at all of it: Now that it’s paid for, was college worth it?
At the end of my senior year in high school, I began the process to prepare to go to college. Why was I going to college? I had no idea. It was just expected of me. The mantra was “Do well in high school so you can go to college so you can get a good job.” What the hell was a “good job?” No idea. What was I going to study in college to get this good job? Who knows. In retrospect, it’s disturbing I was herded to a major life decision that involved tens of thousands of dollars and fifteen years of repayment because of a stupid mantra. I had no guidance, no plan, and no ambition to it.
So I went to college. For four and a half years I studied stuff. I took the math requirements, but the majority of classes were heavy loaded with history and film classes. I eventually majored in both. I’ve always loved film and made films in middle school and was a camera junkie. I was excited that I could actually study film at the University of Pittsburgh. I was going to have a career in film.
When I graduated, I found myself on the street with two sheets of paper and a huge loan. So where was this “good job” I was supposed to get? How was I going to pay for my loans with a piece of paper that said I understood the philosophies and influences behind French New Wave cinema, or the historical impact of the Magna Carta? I did what many adrift humanities scholars do: I got a job in retail. When I started my retail career at Apple in 2005, I quickly found myself at home amongst various creative people that had also gone to college but never found that “good job” promised to them if they went to college.
So the short answer is “NO” I wouldn’t have gone to college if I could go back to that moment. At least not until I had a plan. Or understood the breadth of tens of thousands of dollars in interest-bearing loans. If I wanted to be a filmmaker, I should’ve gotten a job, saved up, and made a film. When I did finally make my first film in 2012, it was the greatest education I’d ever had — something no classroom could ever compete with. Sure, not going to college would’ve roiled my household, my parents ranting about how I would become a bum or homeless if I didn’t go to college.
Just to be clear: I’m saying college may not have been the best choice for me personally. My success in recent years came from knowledge and learning I provided myself through reading and experience. None of it came from anything I learned in a classroom. I have the utmost respect for those attending college for engineering, science, and medical fields. There’s no way round it and it’s not even up for discussion. If you’re one of these fine people, please continue your scholastic journey. Not surprisingly, the group most regretful, according to the CBS News article, were those that studied in humanities.
How much do these things really matter in the 21st century? Technology has changed so many things and knowledge flows freely through the internet. Does a degree mean anything (except for the aforementioned science and medical fields) anymore? I’m 37 years old and a lot of people in my generation are creating their own careers through side hustles and startups. Does having an MBA make you a better entrepreneur? Do you need a four year degree to come up with a gizmo or product to make people’s lives better? How many successful YouTubers or Amazon FBA businesses went to college to learn how to do it?
I think over the next generation or so, people will begin to shun college. It will become cost prohibitive. Why take out $30,000 in loans with interest when you can look up what you’re interested in online? I don’t believe colleges will adjust to the drop in admissions well, either. I suspect most colleges have a lot of bloat, raking in tuition that’s easily supplied by private and public loans, their students not really aware of the true cost. When those tuition numbers start to dip, will colleges be prepared to adapt? Recall that LSU was exploring bankruptcy just a few years ago. They’ll likely hike tuition to try and make up for it, and even more will walk away. The cost of college has grown out of control — much like the housing market in 2008 or the tech market in 2000 — and a reset is inevitable.
“Free college for everyone” is not the answer, either. Are the professors going to teach for free? Administrators file paperwork as charity? These employees must still be paid, so someone has to pay for it. “Free college” will be paid by the taxpayer or through government loans that add to the national debt. It doesn’t fix the problem. It also doesn’t guarantee everyone gets that “good job” upon graduation. I also believe you should pay for your own choices, not have others pay for it or else there’s no real value in it.
Be smart about your choices, particularly when they involve loans and interest. College is fine if that’s what you truly want to do, but understand the risk.
If I could only give one, single, solitary piece of advice to anyone here on how to grab control of their life, quit their job, and put themselves on the path to success and fulfillment it would be wake up early. My life completely changed when I started getting up early and built a morning routine. In fact, I directly believe I was able to finally quit my job because of rising early.
I start my day around 4am. I love telling people this and have them call me crazy. They say they could never do it. I just smile and tell them it’s changed my life. And it has.
The idea of waking up early and building a morning routine came about after reading Tools of Titans by Tim Ferriss. This was the very first book I read after beginning my ‘Renaissance’ and started looking to reshape my life. Ferriss notes the importance of having a morning routine and included some of the behaviors of both himself and successful people interviewed in the book. You build a routine from this behaviors that have a positive impact in your daily life; some of them are as simple as just making your bed every morning as Admiral William McRaven suggested in both his University of Texas commencement speech and later his book Make Your Bed: Little Things That Can Change Your Life…And Maybe the World.
Making your bed first thing in the morning scores you a win. You’ve accomplished something. Regardless of how the day goes and whatever happens, you’ve accomplished one thing. Psychologically, this leads you to want to accomplish something else, then again and so on. The chain of productivity begins by making your bed.
After Tools of Titans I created my first morning routine based on what I wanted to do each morning and what was important. My gym schedule was erratic at the time, and I usually would only go on days I started my shift later in the day. I wanted to go to the gym more consistently, so I added that. I wanted to eat out less at lunch, so meal prep time was added. I also added something that Ferriss talked about in his book, what he called “Morning Pages.” This is writing three pages of whatever is in your brain in a notebook when you first wake in the morning. With these pieces, I set my alarm for 5:30 and started off on this new lifestyle.
It wasn’t easy the first week, but it certainly got easier and easier. I went to the gym every morning, regardless of when I started my shift. Combined with eating protein (egg whites) before the gym and after (oatmeal), my body ended up being supercharged for the day. I found I could go all day energized before hitting a wall at 9pm. I never got tired in the afternoon. The Morning Pages worked amazingly as well. If the gym gave me stamina all day, Morning Pages gave my mind clarity for the day. By waking up and dumping out whatever was in my brain — anxieties, stresses, things I had to do, things I wanted to do, whatever came out — it cleared up the noise in my brain. Once those things were written down, I didn’t have to keep them in mind anymore.
These two routines prepared me physically and mentally for the day. Mind and body were both exercised and ready to take on whatever came at me.
I watched my co-workers drag themselves into work in the morning, sleepy-eyed and downing coffee to function. I was wide awake, energized, and already full speed (and I am NOT a coffee drinker!). This gave me an advantage at work. Waking up early also gave me time to work on my business, do freelance work, work on personal writing projects, and handle emails and finances. By the time I got to work, my personal affairs were done for the day. All I had left to do was work. I could come home from my retail job and do nothing the rest of the day and I still went to sleep with a sense of accomplishment.
Waking up early became my favorite part of the day. It’s dark outside, everyone is still asleep. I’m alone, cat on lap, with nothing but my thoughts and a notebook. It’s incredibly peaceful. I don’t have my phone, I haven’t checked any messages, emails, or social media. That stuff all comes later. Waking up early and having a morning routine means prioritizing yourself; you are in control of your life and not reacting to others and letting them dictate your life for you.
In the two years I have woken up early, I have never wasted a single day. In fact, I’m writing this right now at 5:15am. You may be asleep but day is already up and running. This is how I could work on a business while having a day job. People always complain about “not having enough time to do things.” The time is there, you just have to find it. If you really, truly want to do something, you can make time for it.
“Either tell your money what to do, or end up wondering where it went.”
I used to hate budgeting. Not that it seemed like too much work…just something about that damn “B” word used to cause me to groan and not want to do it. Maybe there was some stigma attached to the “I’m on a budget” mentality. It made me feel poor, cash-strapped, and destitute. The truth is, I can’t live without a budget now. I’m not poor. I’m not cash-strapped or destitute. I’m in control. Every month I fill out my budget and my money gets to work.
I started budgeting in December 2017. I was doing a good job of putting every spare cent towards my debt. The bills got paid first, then everything left went to credit cards or student loan. When December 1 hit, I knew I had to set some aside for Christmas presents, but I wasn’t sure how much I’d have. I knew I DID NOT want to use credit cards for gifts (and undo all the payoff work I had spent the past six months accomplishing) so I made a budget. I determined all the “had to pays” like bills, gym memberships, and minimum student loan and car payment. From there I determined what I could spend on gifts and then what extra I could pay on credit cards (I was not going to let up on my momentum).
The next thing I knew, I had done my first budget.
I used that formula for the next month, then the next, and all of 2018. I still use it. It became more intricate. I put in formulas. I began to estimate what I thought my paychecks would bring in and budgeted accordingly; I was always conservative on my income estimates so I didn’t actually over budget. And you know what happened? I ALWAYS had money left over each month.
So let’s walk through it. For the columns, I have “Expenses”, “Budget”, “Actual”, “Percent Met”, and “Notes.” The first column is self explanatory. “Budget” and “Actual” are my estimated amount and actual amount I end up paying or can afford. For some of the expenses, like “LA Fitness” and “Hulu”, those are the set amounts every month which I just pay (LA Fitness is on there twice because I pay for my wife’s membership). That’s why the Budget and Actual amounts always match. “Percent Met” is just math porn for me: I like to know how far over or short I am on my estimate. For example, my savings this month I was able to pay extra to so I was way over 100% to my estimate. Lastly, notes are for personal comments or reminders. The $100 to my emergency fund was replenishment (I keep $1,000 in an immediate emergency fund for when shit breaks…not sure what I had to use it on back then but the $100 was to make up the shortage).
The second group of rows starts with “Current Bank.” Current bank is what I’m starting the month with. Because pay days didn’t always fall on the 1st of the month, I had carry over money from the previous month. This row shows what I’m starting with. The next two rows are pay days with my estimated pay and actual pay (I was wage plus commission, so it was impossible to predict my actual paycheck). The fourth row is money made from freelance work. I also have a row reminding me to pay myself 10% — I’m a huge fan of this ‘rule’, where I immediately put 10% of my income into savings. This line had a formula to determine immediately what 10% of my income that month was. “Remainder at end of month” showed me what I had left over, so I knew this was money I could either spend, save, or invest. I also tracked retirement contributions, and how much of my expenses were mandatory (i.e., gym memberships, hulu, stuff I couldn’t miss payments on or were on autopay) and optional (putting money aside for a movie project or E-Trade).
You may have noticed that some of the big bills were missing: mortgage and car. How about utilities? Food? Gas? For those bills, my wife and I split them. We have a joint bank account for paying those bills. Long ago we determined the monthly cost of our mortgage, car payment, utilities, and estimated food and gas costs. We each contribute the same amount from each of our paychecks into the joint account, which then pays those bills. This ensures 1) we don’t mix all our money and end up arguing over personal purchases and 2) all those bills get paid first. This is why my income looks so low on the spreadsheet — I’ve already deducted the amount that goes into the joint account. The rest are my personal bills.
Regardless of how you do it, those bills still need to be paid! So if you’re making your own budget, please make sure you include them on your month budget. I guarantee if you make a budget, you will find money. Maybe you’re overspending somewhere. Maybe you can cut an expense out or save somewhere. When I was trying to determine my wife and I’s monthly expenses for the joint account, I tracked every purchase for a month: grocery bills, gas for the car, weekly take out meal…I kept all the receipts and determined what we spent on average per month.
Budgeting is about being in control. You’re in control of you money, which helps you be in control of your life. It doesn’t have to be a rigid lifestyle either. Budgeting doesn’t mean not doing anything fun or enjoying yourself. Every month I allocate $100 to blow on whatever I want. It can be more if there’s leftover money in the budget. Or, I can save it away for a future larger purchase or trip. It’s not a monastic lifestyle. I don’t wear ratty clothes and have an empty house devoid of furniture and appliances. If you’re going to Quit Your Job, you must be in control of your finances!
If you’re interested in learning more about building a budget or getting control of your finances, check out these books below:
If you’re reading this blog, I imagine you’re unhappy with your current employment. Why do you want to quit your job? Maybe it leaves you unfulfilled. Maybe it’s your co-workers, your boss, the company you work for. Maybe you just don’t want to work in retail, or in a cubical, or weed gardens. You want to dance, or sing, or paint, or maybe your wish is to join the circus or run your own nudist colony.
Maybe you don’t have a calling, you just know you can’t work for anyone else any more.
Believe me, I feel your pain. I spent over a decade working jobs (they were good jobs too, paid well with excellent benefits), trading time for paychecks. I spent years staring out windows, burning spare time reading about my passions, and never fully committed my brain to anything. All I know is, I wanted out.
Know why you want out. It leads to setting a goal. That leads to making a plan. A plan gives you steps to follow to lead to the goal.
Still lost? That’s okay. The Matrix has you. If you take a moment to really look around — look at your coworkers, your neighbors, your friends and family — how do they live? Maybe they all meander in jobs too. They don’t talk about quitting to live their dream, they talk about their next vacation, what they just bought, or that new promotion at work. They are trapped in The Matrix too. Together, you serve a company with your time, energy, and mind. As Seth Godin says in The Icarus Deception:
“The overwhelming impact of more than a century of cultural indoctrination can’t be overstated. We have embraced industrial propaganda with such enthusiasm that we have changed the very nature of our dreams…Being a human today means more wealth, better health, and the leverage to influence others. But it also a fundamentally different existence from the one we had for a millennia before this…The industrialist needs you to dream about security and the benefits of compliance. The industrialist works to sell you on a cycle of consumption (which requires more compliance). And the industrialist benefits from our dream of moving up the corporate ladder, his ladder. [Godin’s emphasis]”
What Godin means by “industrial” and the “industrialist” in his book is the large, “too big to fail” type companies that are the byproducts of the Industrial Age. This Age has shifted the company culture many decades ago, and includes the Baby Boomer’s mantra of “go to school so you can get a good job to stay at until you retire at 65.” While this advice may have been prudent in the 1940s and 1950s, today it is a TRAP.
There are many reasons to quit your job. Probably countless personal reasons. But if you want to escape the Matrix and an outdated work culture, here are five of the biggest reason to do so:
#1. You Are A Replaceable Part
Most companies are built around systems. What is a system? To borrow an example from The E-Myth Revistedby Michael Gerber, McDonald’s is the perfect example of a business system. To build it, McDonald’s designed policies and procedures to dictate how their burgers were to be made, the items on the menu, how their restaurants were to be run, and every employees job responsibilities. The idea was to have it all in place so ANYONE could be hired and plugged into this system. You didn’t need a college degree, you just had to be able to follow policy.
This makes opening McDonald’s restaurants that much easier, and it ensures a similar experience to the customer regardless of which location they visit. McDonald’s had consistency across the board. For the employee, this means you can be replaced. Sure, you know the policies backwards and forwards, you have lots of experience and can handle pretty much anything that pops up. But if you quit, they can plug anyone in to replace you. You are not special. You hold no power over the company.
Back to Godin: “In the industrial age, the age of standardization and interchangeable parts, it’s all about being safe. The system is so valuable, the processes to polished, that safe guarantees productivity and profits. Keep it moving. Keep it efficient. Keep it reliable.”
#2. You Have No Control
I worked for two large companies in Apple and T-Mobile; I’ve seen the games played in the ranks of middle management. I started out at the lowest rung of both companies: part-time sales representatives in retail stores. As soon as I poked my head up to explore the possibility of moving up, I could quickly see the games and politics being played. Give a former entry-level employee a little bit of power as a manager, and it quickly goes to their head. Suddenly, they are POWERFUL, they make the decisions and rule over the lives of those under them (in making the schedule dictating raises and pay, etc). It only gets worse for their managers and the managers above them.
If you take an entry level job, there is always the hope or plan to move up. To make more money, be bequeathed that meager amount of power, to carve out a little larger piece of life. But the truth is, it’s not always up to you.
Not long before leaving T-Mobile, I applied for promotion to a regional business sales position. I had the best business sales in the market, plus I owned my own business so I could speak the language of business owners and their needs. Moreover, not long before I applied I had had an awesome month of sales: In May 2018 I finished second in the company in sales numbers. Out of nearly 15,000 retail sales reps, I was number 2 overall. I thought these qualifications would make me a shoe-in for the job. Furthermore, the position had been open for months as no one else applied. I threw my hat into the ring, followed up with the manager who opened the position, and waited. And waited. And waited. I followed up again and was assured interviews were happening the following week. They never came. Months later I found out the manager of the position I applied for didn’t want to hire anyone. Hiring someone meant his sales quota would go up, which he didn’t want. It was easier to leave the spot vacant to protect his numbers. Were there any repercussions? Did T-Mobile care one of their successful, achieving employees was denied a promotion because of a manager’s covering of their own butt? Of course not.
You may be the most qualified person for a promotion in the world, but there’s no guarantee you’ll ever get it. Here’s another one: My brother-in-law worked for a Brazilian restaurant for 14 years. He loved it, loved the company, and wanted a career with them. He had moved up from server to head waiter. He knew a lot of the company brass. Last year he was fired from the company by a newly-hired regional manager. The reason? The new regional manager just didn’t like him. Job lost. Career derailed.
You can work as hard as you want, but there are no guarantees. You do not control your own destiny when you are an employee.
This was always the biggest one for me to quit my job. Maybe your job isn’t terrible. Maybe you like your co-workers. But the truth is, your job eats a lot of your time. It eats hours, days, weeks, and years of your time. It eats away the best years of your life — years of good health and energy. If you work until you’re 65, you’re finally released back into the wild but with less energy and health. Maybe you retire and immediately spend more time in the hospital. You’ve traded away your time for a steady paycheck.
One of the most prescient (and scary) things I’ve ever heard about working as an employee is “Your paycheck is your bribe to delay your dreams.” It hit me like a ton of bricks because it’s TRUE! I think the greatest sin in the world is people giving up on what they truly want to do with their life out of complacency. The system has made it easy — and socially acceptable! — to enter the workforce and not pursue what we want most. There’s no stigma to it. How many times have you heard someone say “I always wanted to be…” but they never did it because they “had to work.” They looked around and everyone else was doing the same thing. Giving up on your dreams has become a herd mentality.
#4. You Are Being Fleeced
You’ve heard me mention The Cashflow Quadrant in this blog before, but I always go back to Robert Kiyosaki when it comes to the “E” quadrant and taxes. As an employee, you will always be in the WORST tax situation! Employees have no tax deductions. Employees have no write-offs. Employees are paid in wages, which are taxed at the maximum levels. Employees collect their pay AFTER taxes are taken out.
It’s not just wages. Worked hard for a project or event and made some overtime? Taxed at the maximum level. Do a great job and get a bonus? Bonuses can be taxed even HIGHER than earned income. Does your company offer free stock? T-Mobile did, and when the shares vested, nearly 40% were taken for bonus taxes. Then, if you sold the shares you did get, you were taxed again for capital gains. Invest in company 401k? If you draw from it after retiring, it’s taxed upon every withdrawal. If you pull money from it before retirement age, it gets taxed PLUS penalties.
When working people complain the rich don’t pay enough (or none at all) in taxes, I always have to laugh. The rich aren’t doing anything illegal or unsavory, it’s the tax code that’s designed to be that way. If you remain an employee, you will always be taxed the hardest. The rich are not employees. Still not hitting home on you yet? Imagine you make $40,000/year for 40 years (leaving out raises and bonuses). That’s $1.6 million dollars in earned income over a career. Nearly $500,000 of that will be paid in income taxes. This also assumes taxes don’t go up for 40 years (which they ultimately will). Don’t forget you’re also paying additional fees like unemployment insurance, which, if you stayed employed for 40 years, you never drew from and ultimately never used.
Next time you get a paycheck, take a good look at the withholdings. Your end of year W2 is also a good statement of how much you’re losing to taxes and withholdings.
#5. The Worst Thing That Could Happen is You Get Promoted
So you work a job at a company. If you’re lucky, you’re putting in 40 or so hours and you get your weekends off. Some people refer to this as the “5/2 rule” or “5 for 2 rule.” You work five days to get two. (Again, this is a product of the industrial age as the M-F 9-5pm American work week coincides with the child’s school schedule) But, you’ve committed to your job and career (even if you hate it). You hope to move up, get a bigger office with a little more pay. Maybe you get to make some decisions. You finally get a little control.
The problem is you’re now working way beyond 40 hours a week. In retail, you’ll find the pay structure changes at the management level — managers are salary. Why? Because they work way beyond 40 hours and have to be on call at all times. There’s no escape.
When I was promoted from my Apple retail store to Apple corporate, I was given a laptop and an iPhone. Awesome! The catch? I had to have them both with me AT ALL times — even vacations! I once took a conference call on Christmas Eve just before family dinner. I was hunkered in my childhood bedroom on a call while the rest of the family enjoyed themselves. Getting promoted makes you a larger piece of the machine. You’re a bigger cog. The bigger office and more pay sound appealing, but you’re trading even more of your life away.
At T-Mobile I had been promoted to assistant manager in a retail store. Pay went slightly up, while commission went down. But I was suddenly responsible for a lot more, went to more meetings and sat on more calls. I had to come in on days off if a sales person called off. More time was lost for an minuscule increase in compensation. I stepped down after 6 months, going back to sales. I didn’t notice the change in my paychecks.
Honorable Mention: You Will Be Replaced
Not everyone is (currently) at risk of this, but automation and robotics are beginning to threaten those in the lowest level of the labor pool. For so many companies, human labor is the most costly element. Outsourcing jobs to foreign countries was only a half-measure. Complete computer automation for companies is coming very soon.
A kiosk that takes orders at McDonald’s is not paid a wage. It has no overtime, no workers comp. It never needs to take a break and will never call off. It doesn’t have a 401k or medical benefits package. Sure it may break down, but the cost of repair or replacement is certainly less than an employee requiring medical leave or surgery. If am employee costs $40,000/year and a machine that can do the same job costs $40,000 and lasts for 10 years than the machine is the better investment. It may sound cold, but it’s a numbers game: $40,000 vs $400,000 (not including medical benefits and perks).
It’s the 21st century and human machines will be replaced by metal ones.
Savings is a key component of having a healthy lifestyle. Having savings means not worrying about the “what ifs” — What if the car breaks down? What if I need a new roof on my house?
It also means having money when opportunity appears — whether to take that vacation or invest in a startup idea. Having money waiting in the wings gives you freedom.
#1. Pay Yourself First
If you take away anything from this post, let it be this one. I saw my savings grow exponentially when I started paying myself first. The idea comes from the book The Richest Man in Babylon, a book of financial advice told through parables: take 10% of what you earn for yourself.
This means save 10% of everything you make BEFORE bills, expenditures, and anything else in your budget. If your paycheck is $1,000 you save $100 before anything else. The $100 goes in to savings, and you have $900 to spend on bills, entertainment, etc. If you do nothing else to save, you’ll have tucked away quite a bit in a year. I love this rule and I follow it every time I get paid or make money.
The psychological effect of this is huge. I know what it feels like to get a paycheck and it’s gone. You feel like you’re not getting anywhere, you work for bills. When you pay yourself 10% first, it gives a sense of accomplishment and more importantly — worth.
#2. Keep the Change
No 8,000-year-old Babylonian wisdom here; I came up with this one myself. When I began my financial transformation, I started using a budget to keep track of spending. I would estimate my next paycheck (I was wage plus commission, so no two paychecks were ever the same), determine what bills must be paid during those two weeks, and determine what I could spend. I always gave myself a $100 buffer from each paycheck — this gave me breathing room so I wouldn’t fret about every penny plus if a friend wanted to grab lunch or something small caught my eye, it came out of the $100 buffer.
That way, I wasn’t living like a monk every two weeks.
But I rarely spent the full $100. Sometimes there was a dollar left, sometimes much more. When the next payday came, I would take whatever was left in my checking account and move it into savings. By sweeping up the leftovers, it would eventually build up in my savings account. $10 may not sound like much, but when you put it into savings every two weeks, before long you’ve got $100s in there.
#3. The Waiting Game
A big part of building wealth is knowing yourself. That means knowing your (bad) habits, like for me impulse purchases was something that got me into trouble. It plagued me throughout my 20s, and helped run up big balances on my credit cards. Amazon made it easy to get anything in two days and it was so easy to put things in the cart and hit “buy now.”
I knew my weakness. I knew how I behaved. So I made myself institute a waiting period on Amazon purchases. Any thing I add to my cart I wait three days to buy. What happens in three days? The impulse dies away. I forget about stuff I put in there. When I go back in, a lot of times I’ll delete things or move them to “save for later.” I have literally hundreds and hundreds of items “saved for later” in my Amazon account…but I didn’t buy them. It’s money well not-spent.
It’s an added bonus that sometimes Amazon will lower the price of things in your cart to draw you back to buying! So if there is something you plan to buy, Amazon might put it on sale to get you to pull the trigger.
#4. Think on a Full Stomach
This may sound dumb, but going to the grocery store hungry will cost you a fortune. I noticed a big difference in grocery bills just by going after a meal instead of before. I mean, it makes sense, right? But it’s one of those things you never think about. I certainly didn’t, but I was looking at my own habits to find out where I could cut down on spending, I started to study my grocery shopping.
If you’re hungry when you push the cart down the aisle, EVERYTHING looks good. You’re shoveling extra snacks into the cart. Fantasizing about giant meals you’re going to make — all of which need massive amounts of ingredients. By the time you get to check out, you’ve blown up the budget.
If you’re full, however, you don’t really want to think about food. You just want to get out of there. Get what you need and get out. It’s much easier on your cart – and your wallet.
#5. Separate Your Savings
If you haven’t caught on by now, each of these things has a psychological component. “Save more, spend less” is really just a mind game. You have to know yourself, how you are, and what you can do to beat yourself to the punch.
I recommend separating your savings from all your other money. Make it hurt to draw from it. When I first started saving, my first $1,000 was in cash. Why? Because cash feels real. You have it in your hands instead of seeing a number on a computer screen. You don’t want to part with it. I also kept it in $100s, because I didn’t want to break any of those nice, big bills.
When it was time to move to an actual savings account, I opened up a savings account with the same bank as my checking. It was easy to funnel money back and forth. So easy, in fact, the savings account became an account for several things (like where to put aside my tax withholdings). It got so convoluted I didn’t know what my actual savings were — what was savings and what was meant for taxes? How much of it was set aside for an upcoming big purchase? Money was coming and going, and my savings was getting caught up in it.
I finally got my savings its own account, isolated from everything else. I have a nice, easy number to look at and know “that’s how much I have saved.”
“The only difference between a rich person and a poor person is what they do in their spare time.”
One of the segments I want to do with this blog I’m called “Required Reading,” which essentially is a combination book review and recommendation. I’ll write a post on a particularly educational or useful book and break down the top 5 takeaways.
If you’re reading this blog, you’re probably familiar with the name Robert Kiyosaki. He burst on the scene in 1997 with Rich Dad Poor Dadand has built an empire around financial literacy and education. Cashflow Quadrantwas the follow up in 2000 to the hugely successful 1997 book and the Kiyosaki book that had the biggest impact on me.
I usually recommend this book very early to people who want to change their financial lives. It’s not a how-to book. It’s not a “baby step” book that tells you what to do. It’s a book that rewires your brain and changes how you think about money, jobs, and wealth. Kiyosaki breaks it down in very simple terms, exposing the reality behind things we take for granted, such as being an employee and the tax system. Cashflow Quadrant is very much required reading for anyone looking to break out of the rat race. Below are my top 5 takeaways from the book (but you should really read the whole thing):
#1. As an Employee, The System is Against You
The said ‘quadrant’ of the title is made up of four types of income: “E” (Employee), “S” (Specialist or Self-Employed), “B” (Business Owner), and “I” (Investor). The vast majority of people are “Es” and are also the most disadvantaged of the four. As an employee, taxes (income, social security, medicare, etc) are taken from you before you get any money. You pay taxes and get what’s left. As an “S” or “B” you have tax advantages, such as deductions and depreciation. These lower the amount that’s taxable; you spend money and pay taxes on what’s left. To make matters worse, “Es” are also taxed at the highest rates!
“Your boss cannot make you rich,” Kiyosaki writes. “The reality is, your boss’s job is not to make you rich. Your boss’s job is to make sure you get your paycheck.” Which is then taxed. If you remain an employee, you’re working hard for taxes and what’s left. Being an employee also usually takes away a lot of your time. You’re at the whim of a manager or company — you must adhere to their schedule and demands. If you’re unwise about your money skills and budgeting, “then all the money in the world cannot save you…if you budget your money wisely, and learn about either the “B” or “I” quadrant, then you are on your own path to great personal fortune, and, most importantly, freedom.”
What’s even more messed up is the fact that The System only gives tax breaks for “Es” if you go further into debt. Think about it: as a business owner, your expenses and the “cost of doing business” are deductible from your income, reducing what you pay taxes on; as an “E” the only tax breaks you get are from taking on debt like a home mortgage or student loans. These two (usually large) loans have tax deductible interest. But you have to go into big time debt just to get the deduction. Simply put, you want to get out of the “E” quadrant as fast as possible.
#2. In Debt vs Indebted
“The more people you are indebted to, the poorer you are. And the more people you have indebted to you, the wealthier you are. That is the game.”
This one is brilliantly simple. If you owe a bank a mortgage, another bank credit card debt, another institution student loan debt, your parents $100 you borrowed, you are in debt to someone else. Your earned money is taken away by these debts. However, if someone owes you, you earn money by these debts. As a property renter or bond buyer or lending via a Peer-to-Peer lending service, people are indebted to you. “We are all in debt to someone else,” says Kiyosaki. “The problems occur when the debt gets out of balance.”
“The world simply takes from the poor, the weak, the financially uninformed. If you have too much debt, the world takes everything you have…your time, your work, your home, your life, your confidence, and then they take your dignity, if you let them. I did not make up this game, I do not make the rules, but I do know the game…”
#3. Mind Your Own Business
Kiyosaki shatters “Industrial Age” adages and beliefs against the rock of reality that is the 21st century. “Go to school and get good grades, so you can find a safe, secure job with good pay and excellent benefits,” he points to as out-of-date advice. “Work hard so you can buy the home of your dreams. After all, your home is an assent and is your most important investment.” “Having a large mortgage is good because the government gives you a tax deduction for your interest payments.” “Buy now, pay later.”
As Kiyosaki points out, people who “blindly follow” the advice above often end up as employees (“making their bosses and owners rich”), debtors (“making banks and money lenders rich”), taxpayers (“making the government rich”), and consumers (“making many other businesses rich”) The people following this advice are making everyone else rich but themselves! “They work all their lives minding everyone else’s.”
To break out of this, you must move into the “B” and “I” quadrants. Move from the employee to the employer. How do you do this? Start a business. Offer a product or service. To enter the “I” quadrant as an investor, learn about finance and investing. Buy stocks or bonds that generate income. Or buy an existing franchise! Don’t work at McDonald’s, own one. It may seem like a leap, but as Kiyosaki will repeat over and over, it’s about financial education. Don’t grow other people’s businesses, grow your own.
#4. Assets and Liabilities
Find any YouTube interview with Kiyosaki (or read any of his books) and I guarantee you will hear him mention these two things. “An asset,” he likes to say, “puts money into my pocket. A liability takes money out of my pocket.” He punctuates this always by stating “your home is NOT an asset!” The mindset is that buying a home with a large mortgage is an asset — this is archaic thinking — because the mortgage interest is tax deductible. But you still have the monthly mortgage payment. And property taxes. And Private Mortgage Insurance (PMI) if you put down under 20%. Plus you have renovations and repairs. But a home becomes an asset when your rent it. The rent brings in monthly income. The repairs and renovations become tax deductible as business expenses.
Thinking more about these two things really changed my focus on spending money. When I spend money now, I think “is it an asset or a liability?” “Will it make my money or cost me money?” I get excited when I buy a new stock or more shares of a stock I already own. They’re going to go to work for me and make money. I had to buy a new car not long ago and groaned about the new liability — but if I use it to Uber or Amazon Flex, now it’s an asset because it puts money in my pocket. The gas I use and tires I purchase are now business expenses.
Assets and liabilities are as core to wealth as supply and demand.
#5. Other People’s Time and Money
“OPT” and “OPM” as Kiyosaki calls them are “found on the right side of the quadrant.” A “B” Business Owner and “I” investor become wealthy using other people’s time and money. It sounds sinister, but think it through. If you’re an employee, you have a job because someone built a business around an idea or product. Your paycheck is the direct result of someone else’s time and money. Put yourself on the other side of the equation: by putting in the time and money to start a business, you begin to earn back both at the expense of someone else’s who works for you.
The “I” quadrant is the most unique. In the “I”, Kiyosaki says “money works for you.” This is why I love investing so much. If I buy shares of Coca-Cola, the company is doing the work for me. The stock may increase in value, making me money. Then, every quarter, they pay me money in the form of a dividend. I don’t work for Coca-Cola. I don’t attend any meetings or drive anywhere. I don’t even get a paycheck from them. I get increased asset (there’s that word again!) value and a dividend. Best of all, I still have all of my time to dedicate to something else (or nothing, if I chose).
Kiyosaki: “A few years ago, I read this article that said most rich people received 70% of their income from investments, or the “I” quadrant, and less than 30% from wages, or the “E” quadrant. And if they were an “E”, chances were that they were employees of their own corporation.”
I have barely scratched the surface of Cashflow Quadrant with this post. It was one of the earliest books I read when I wanted to change my thinking on finances and wealth and it had one of the greatest impacts. It pulled back the curtain. It shook me out of a sleepwalking daze of going to work day in and day out, collecting a paycheck that was heavily taxed and withheld. It put me on the path to financial freedom. I cannot recommend it enough! To help you on your own personal wealth journey, I added a link to buy a copy below by clicking on the cover or here.