Book Review: The Millionaire Fastlane by MJ DeMarco

The Millionaire Fastlane has a clickbait title, but it still offers some refreshingly honest insight for financial independence campaigners.

The general gist of The Millionaire Fastlane

MJ’s main thrust is that millionaires build assets themselves, which they then sell and invest the proceeds. If you set up a business and it works, you’re likely to make more money in shorter time frame than if you work for someone else and simply invest and hope.

He talks about three money paths:

1. The Sidewalk. People who live exactly to their means, watching other people go by making wealth. Honestly? This was me a couple of years ago.
2. The Slowlane. This is your classic personal finance scheme of earning money then growing it with sensible, conservative investments. You’ll become wealthy, but probably be old by the time you realise it.
3. The Fastlane. Entrepreneurship and/or climbing to the top tiers of the corporate ladder. This means building a money tree that feeds an investment scheme, but relying on the investments to pay your bills.

Despite the name, the book isn’t advocating for get-rich-quick. It’s quite clear that “quickly” means many years of hard graft to build a business that’s worth selling.

The controversial (for FIRE) idea in the book is that only people in the Slowlane expect stock markets and compound interest to build wealth. Actual wealthy people in the Fastlane would only use investments to preserve wealth and income, instead building their wealth themselves.

Pay yourself first is futile

Here’s a great quote from The Millionaire Fastlane:

The fact is, advising a Slowlaner to “pay yourself first” is like advising a quadriplegic to climb a flight of stairs. It’s futile.

The Millionaire Fastlane pages 150-151

Depressed yet? MJ is repeatedly sceptical of investing advice, pointing out that it’s pointless while you have a low income.

MJ’s target audience is for people who want wealth to buy whatever they want. That’s his view of freedom, and it’s really a FatFIRE approach. When you consider that this requires millions, he’s right: earning £40k per year and investing £400 a month isn’t going to cut it if you want to buy sports cars.

Sorry to ruin any illusions my reader might have, but he’s right.

I don’t think this applies to what I’m trying to do, though. With a high enough savings rate, it’s quite clear that you can achieve financial independence in around the same kind of time frame.

MJ would probably laugh at my ambitions and ask why I wasn’t power dressing for success while living in a mansion with a swimming pool. The boat plan wasn’t in his imagination when he wrote this book.

I think there’s some truth here, though. While it’s possible to become financially independent through a £20k-a-year job, your chances of retiring before 50 are, let’s face it, quite slim. It’s not impossible, but you’re really making the financial independence campaign difficult.

At some point, financial independence campaigners need to boost their income. Maybe through a side hustle, maybe hunting down those promotions, or maybe through MJ’s chosen route: build yourself something.

Why entrepreneurship pays off

MJ made his initial money by setting up some kind of online marketplace for limousine services. He then made this successful and sold it as a going concern.

Well, he sold it, it flopped under new ownership, he bought it back at discount then sold it again after fixing it. Fine. The principle is the same!

MJ sort-of explains why this works in the book: businesses sell for multiples of earnings, as well as their tangible assets.

I’ll paraphrase, simplify and fill in some of the blanks:

• When you build a business, it generates revenue. This revenue can form income for shareholders through dividends or be reinvested into capital assets. Either one grows the shareholders’ wealth, as shareholders own businesses.
  
• When you sell a business as a going concern, you can sell it as either an asset sale or a share purchase. An asset sale just buys the stuff and transfers it from one business to another (e.g. a website). A share sale moves the entire business, including its income streams and client list, to a new owner.
  
• Think about buying shares: you would expect to pay, say, £100 and receive maybe £5 per year from your shares. That means that you’re paying 20x the amount of income (as £100 / £5 = 20). Logically, if you build a business that’s paying you a dividend of £10,000 and has great growth prospects, you could sell it for, say, £200,000 or more.
  
• You probably don’t have £200k right now to buy the £10k of income. It’s faster to build a business that gives you £10k a year in dividend profit than it is to save £200k working for £40k per year. What if you build a business that generates £50k instead? £100k? This is why the Fastlane works.

What The Millionaire Fastlane suggests here is provably true: if you build a business and can make a successful exit from it, you’re going to be wealthier than your typical worker. I’m not going to even try to dispute it, he’s right.

What MJ misses out though is that you need to build a business that someone else is willing to buy. Building businesses is hard.

Yes, it’s completely doable and the internet makes it a lot easier, but it’s still hard. It takes time and commitment. You also need to eat during this time, which means you need an income (from a job, probably) while building the business.

Many businesses flop. It might take you a few attempts to make one successful.

However, if you have the skills and resilience, building a business and selling it is undoubtedly a lucrative strategy to make big money.

The Millionaire Fastlane mindposts

The Millionaire Fastlane is full of lists and acronyms. MJ is trying to persuade a reader, so it makes sense to put in repetitive lists and mantras. “The Fastlane Mindposts” are one of these.

This is quite a long list, so I’ve put it in headings for easy skim reading.

Debt Perception

Debt is useful if it allows you to build and grow a system (i.e. to scale and use leverage).

Time Perception

Time is the most important asset.

Education Perception

The idea of growing through constant expansion of knowledge.

Money Perception

Money is a reflection of value provided and the lives you’ve touched, and it’s abundant.

Primary Income Source

Earn income through business systems and investments, rather than through a job.

Primary Wealth Accelerator

The will to build business assets from nothing (well, raw materials) that add value, or to buy assets and add value to them.

Wealth Perception

Building business systems for cash flow and capital value growth.

Wealth Equation

Wealth = Net Profit + Asset Value

MJ uses these throughout The Millionaire Fastlane to compare the different approaches of the Sidewalk/ Slowlane/ Fastlane. It’s a bit weird but I thought it worked quite well.

Strategy

The more you help, the richer you become in money, time and fulfilment.

Destination

The goal is to achieve lifetime passive income through businesses or investments.

Responsibility & Control

Taking responsibility for your own financial plan is key, as is how you react to circumstances. Life is what you make of it.

Life Perception

Dreams are worth pursuing, and you must understand that it might take time and money to make them reality.

Phew! What a list! The key thing is that to follow The Millionaire Fastlane, you would want to believe that you can succeed and you would understand the core things that would make a business successful.

I don’t know why he couldn’t have abridged it to just that, but then again I guess his way is more persuasive.

Producer first, Consumer second

The Millionaire Fastlane approach requires you to become a net producer of assets first and foremost. The idea is that you make stuff for other people to consumer: you generate the value that they are willing to exchange their hard-earned cash or time for.

This makes sense. If you’re writing books, you’re selling to readers. If you’re making games, you’re selling to players. However, if you’re reading you’re not writing, and if you’re playing you’re not selling.

Well, freaky blockchain play-to-earn games aside, playing generally doesn’t involve making money.

This makes a lot of sense and I suspect that’s why a lot of the personal finance twitter accounts parrot it incessantly.

It’s not wrong, though. If you have stuff to sell and are using your time to sell it, you’re going to be much more likely to build a business than if you have nothing to sell and spend your time not making or selling anything. That’s just probability maths in action.

What makes a good business?

Like Tim Ferriss’ The 4-Hour Work Week, MJ sets out a clear vision for what a good business should be.

Not all businesses can be Fastlane businesses, although you can in theory scale them up to be over time and simply become and owner rather than a manager. Still, MJ refers to businesses that generate income divorced from time as “money trees” and suggests five “seedlings” that can grow into money trees:

• Rental Systems – e.g. real estate, equipment rental, royalties licensing.
• Computer/Software Systems – build once, they run on automation indefinitely.
• Content Systems – information products, including books and websites.
• Distribution Systems – things like online marketplaces or selling franchises.
• Human Resources Systems – he means having employees that do the work for you.

The idea is that a business structured in one of these ways is more likely to meet your millionaire ambitions.

There’s also the CENTS framework that MJ proposes. The idea is that a successful business has the following characteristics:

1. Control of the system. For example, when you sell through Amazon, it’s Amazon that has the control – not you. An Amazon FDA or Kindle publishing business lacks control. Try to have control where you can.
2. Entry – you want a business that’s hard for someone else to get involved with, or to produce something that’s harder for others to compete with. Upping quality might work.
3. Need – There has to be a need for the product or service. How many fidget spinner shops do you see now?
4. Time – ideally you want a business that’s automated, or otherwise divorced from your time.
5. Scale – sell many things to more people, or sell expensive things to a few people. Either way, a business needs some kind of scale.

MJ is quite honest about breaking the CENTS framework from time to time, especially control.

This part of the book was the bit that I found most helpful. I mean, I still don’t have that business idea, but at least there is a practical framework you can apply instead of the simple “MaKe A BuSiNesSeS!” tone of many writings on entrepreneurship.

Overall thoughts

The tone of the book was a little irritating, but it’s a book aimed at the mass market and I can’t deny that it made for fast and relaxed reading.

In general, I think MJ’s right about building assets. If you want the big wealth, that’s how you’d do it. Having worked in my job with a few billionaire families I can confirm that the secret is to build a business that you own if you want that generational mega-wealth.

MJ is a bit overly-disparaging of investing, which he eventually refers to near the end. Then again, he’s trying to sell the idea of big wealth to the audience, rather than simple financial independence.

I thought that the book lacked much emphasis on the risks of building businesses. Most businesses fail, sad but true. It might take several five-year project attempts before you find a business idea that actually succeeds, and this is something that a general audience needs to consider.

Still, the upside risk of building an asset is worth considering for a financial independence campaign.

How I’m using this in my financial independence campaign

At the moment, I’m not really using The Millionaire Fastlane.

That said, I deliberately career changed into law because of the scale factor. I can bill much more for my time as a solicitor than I ever could in the public sector.

I’m still considering making the jump to building a business asset at some point. As we’re relocating this year, it’s not the year to do it (see my 2022 campaign plan), however it’s something that I am keeping tabs on.

I guess this blog is sort-of a business, but blogs fail the criteria of entry and scale, because anyone can do them and they’re not big money-generators. That’s not really the point of this blog, though. Perhaps I will leverage the skills from this blog to build a money-making business in the future? Who knows!