finances

Your Starting Point

Last updated on August 14th, 2022 at 09:29 am

In the last newsletter, What Is Rich, we talked about the power of having specific financial independence targets, and how to calculate these targets for yourself.

These targets are your “Business system target” and “Money system target.” My targets are $75,000 MRR (monthly recurring revenue) and $6,000,000, respectively.

(There’s also a third target, which I call the “Perfect Tuesday target” and will explain more later.)

I share my targets as a reference point for discussion. There is a formula, so technically you and I could arrive at similar targets. But defining what you want, when you want it, and why you want it is infinitely more complex than can be derived by a pivot table, financial advisor, or Twitter thread.

You have to answer what, when, and why for yourself. Hopefully, my work documenting my process helps.

To best document the journey, you have to understand the starting point. Here’s where I am:

Business System Target

Target: $75K MRR

Progress

To date, I don’t have MRR, (I’m mostly missing the “recurring” part). What I have instead is monthly cash flow, which I’ll use as a proxy. Why?

Because most cash flow is the direct result of trading time for money.

If someone is already paying me for this work, there’s the strong possibility I can productize it and shift the income to recurring.

In other words, take work you’re already getting paid to do and find ways to productize it. This is the most effective way to leverage your time.

When I started consulting, I focused on online education and building courses. Those areas made sense for me, compared to say, learning about real estate or building an Amazon affiliate site. Why? Because I already spent 80% of my time working on education or courses, so it was easy to just apply that thinking to a second surface.

A great example of this is Tommy Griffith’s SEO training, ClickMinded. Tommy quit his job managing SEO for Airbnb in 2017 to build a digital training course on… you guessed it, SEO. Today, ClickMinded is a full digital catalog covering content marketing, email marketing, social media, and more.

To make progress on my Business System Target I’m focused on:

1. Career. If a company pays you a salary, your first obligation is to add commiserate value back to the company.

After that, get selfish.

Fortunately, driving impact in your role produces value both to the company and to your Business System Target:

  1. You build skills to solve larger-scale problems
  2. You build a reputation for driving impact
  3. You earn money that contributes to the Money System Target

Lenny Rachitsky spent seven years at Airbnb, working his way up from product manager to growth product lead. Then he leveraged that experience, knowledge, and reputation into a newsletter with at least 3,300 paying subscribers. Today it generates about $30,000 MRR. He also angel invests and runs a job board.

2. Building an audience. Simply put, this means putting out so much value via content (whether it’s on Twitter, a podcast, or a newsletter) that people pay attention.

Once you’ve built that audience, you have the option to trade that attention for financial capita, which feeds the Business System Target.

The most common example is building an audience on a channel (email, YouTube, Twitter, Instagram), then selling your audience a digital product (ebook, course, printables).

A less common route is the individual investor approach. Shaan Puri did this by first spending years building his audience, then raising a rolling fund. His Twitter followers were able to co-invest in deals with him. In this transaction, Shaan got access to capital and investors got access to curated deal flow.

To build my audience, I’m working on cracking my “consistently” code: how to put value out into the world on a regular basis, through this newsletter, the blog, and Twitter.

3. Consulting. Consulting is a proven entry point to building MRR. You’re trading time for money at the moment, but it’s the fastest feedback loop to uncover a problem you can solve, who you can solve it for, and what mechanisms to best solve it.

Then the next step is productizing yourself to move that revenue from transactional to recurring.

I’m open to the idea of picking up consulting again in 2022 but likely in the second half of the year, so I can focus on Career and Building an audience.

Money System Target

Target: $6M

This one’s self-explanatory. Here’s a snapshot of progress today:

A closer look at current asset allocation:

My focus areas:

1. Increase my savings rate. A high, automated savings rate is the best tool for survival in a world of unknowns. Morgan Housel explains this best in The Psychology of Money:

“A future filled with unknowns is everyone’s reality. A good plan doesn’t pretend this wasn’t true; it embraces it and emphasizes room for error. The more you need specific elements of a plan to be true, the more fragile your financial life becomes. If there’s enough room for error in your savings rate that you can say, “It’d be great if the market returns 8% a year over the next 30 years, but if it only does 4% a year I’ll still be OK,” the more valuable your plan becomes.”

Historically my savings rate has fluctuated from 20-40%. We dipped below that to make the move to Dublin. Now that we’re settled in, I want to re-prioritize this again.

2. Building the Business System to fuel the Money System Target. As described above!

The Perfect Tuesday

The Perfect Tuesday is a framework I first heard from Shaan Puri. It looks like this:

When designing your dream life, focus on creating the perfect Tuesday (e.g. an average day) instead of a “Bucket list” style of aspirations. The thinking: our lives are mostly made up of these average days. Make them great.

Shaan’s Perfect Tuesday included waking up without an alarm, doing research on cool things, and taking long showers.

My Perfect Tuesday looks like this:

This Perfect Tuesday exercise is useful as a counterweight to your Business and Money System Targets. You can balance the wholehearted pursuit of your future state while enjoying where you are today. Anyone can (and should) live their Perfect Tuesday semi-regularly. Living it every day, however, means achieving your targets.

Thanks for reading and following along.

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