How To Become Anti-Fragile (Financially)
The key to becoming anti-fragile financially is Multiple Income Streams. If you lose one income stream, there are others to make up for it. Most people have 1 (or, in corporate America, a weak 1+2 punch). This leaves a ton of exposure to your cash flow/income statement, as all of your eggs are in one basket. If something happens and you lose your primary income stream, you’re not just fragile, you’re ruined.
It’s always best to have options in life, while simultaneously minimizing exposure.
Here are the 4 main ways to build multiple income streams (AKA dramatically increase monthly cash flow) in your life:
1 - W2 / Hourly Work
2 - Investments
3 - Real Estate
4 - Moonlit Businesses
(The numbers below are arbitrary, using them strictly to make a point, so keep reading :)
1 - W2 / Hourly Work - Day Job
Sadly, this is where most people start and end.
This is not enough diversity from an income stream perspective to be anti-fragile. Even if you’re making over 1MM annually with your W2, should you lose that job, you go from 1MM/year to 0/year. That is the definition of risk. We’re trying to avoid that.
This is, however, of utmost importance, especially when starting out. Your career is your cash cow, how you are insured, etc. This NEEDS to be the focal point of your time, effort, and energy. If you’re not exceeding expectations at your day job, none of these other options are possible. (especially in your 20s / before you accumulate any wealth or assets)
It also needs to be strategic, and you want to be in the right type of work, and engaging in jobs that check multiple boxes.
You want to be in fields/industries that are growing and are allowing you to make the most $$ possible. A rising tide lifts all boats.
Who you are working with, what you are working on, and the industry you are working in ARE FAR more important than how hard/the number of hours you’re working. You NEED to understand this.
W2 = $6k / month
2 - Investments
Once you have assets built up, even getting a marginal return adds up over time. ($1,000,000 w/ 8% growth = $80k a year. PASSIVELY. LET THAT SINK IN)
401k
if you work at a decent-sized company, there is a chance they will offer 401k matches. Always but in whatever they match, at the minimum. That’s free money.
It’s cash flow, on a monthly basis, for free
Portfolio (indexes/fixed income/bonds, etc)
This should be working with a trusted fiduciary like ATHOS CAPITAL, and is in addition to whatever your company 401k looks like. Guys in the know here are going to be investing you in far more than just equities.
Angel Investments (in companies/startups)
Companies and people are always looking for capital. If you have expertise in a certain area, you can invest a smallish amount of money, for some equity in a company. A great way to diversify your portfolio, go on a fun run with a founder/team you trust!
Individual Equities (VC bets / long shots)
All it takes is 1 or 2 great investments to change your life. Tesla IPO’d in 2010 at about $19/ share. If you would have invested 5k at $19, that would be worth $530k in August of 2020. Let that sink in.
Lastly - Wage Growth has not even remotely kept up with Stock Market Growth
401k = $250/ month
Personal portfolio (assuming you have a good investment pop) = $1000/ month
^^ Starts to add up!!
3 - Real Estate
From a PASSIVE standpoint - not actively fixing and flipping, but instead buying and holding
This is two-fold. Cash Flow (rent you charge your tenants/month) + Appreciation (the value of the house you purchased going up over time)
This is a great investment (especially when you’re young) because of the LEVERAGE you can get through real estate.
You likely don’t have 1MM sitting in the bank at 27 years old (reference above) and it’s going to take you some time to get there.
What you CAN do at 27, assuming you have the income and savings, is PURCHASE an ASSET worth 260k, with conventional financing for 10% down. Do you see what that gives you access to? You have 100% ownership of an asset worth 260k for 26k down (+ a bit more for closing costs, etc)… That’s extremely powerful, particularly when you’re young and just starting out.
No other investment tool can give you access to 10x the value of your initial cash on cash investment.
The trick here is to remember that you’re not buying your dream house, you’re buying an investment! Make sure that the numbers add up (from a rent/mortgage perspective) and that you’re in an area that is ideally appreciating and growing, etc. Not a problem if it’s not most aesthetically pleasing, you can work on that during your years of ownership!
Rental Income = $400/ month
Appreciation = $500/ month
^^ Begins to add up over the years!!
4 - Moonlit Businesses
The most straightforward are online businesses/services. They allow you to build once and sell many times, so you’re making money in your sleep. But this can be any area in which you have expertise and people will pay for your services.
Influencing (capitalizing on internet followers - you may laugh, but people are cleaning up in this space)
Online Education Classes (huge at this time)
Consulting
FIGURE OUT WHAT YOU LOVE - AND LEAN INTO THOSE!!
For me personally, I love to sell stuff and build stuff.
Sales is extremely fun for me. It’s the most challenging and dynamic environment professionally, IMO. The process is a ton of fun. I think and write about it in my spare time (see - itschriskeith.com). So that is going to be important to me, always.
I love building products, or, more importantly, businesses. They’re the best. Business is the ultimate 4 dimensional game of strategy known to mankind.
So, I’m going to focus the majority of my personal effort/hours available on W2 (selling technology) and on building online, moonlit, businesses.
Please keep in mind, you ALWAYS need to be focusing on the W2 - it is your cash cow
This ALSO means that you need to find the right PARTNERS for the other 2 paths, so that you can make them more passive, yet still successful.
So - I have real estate resources that I work with that are rocks stars in finding deals on houses to buy / handle the property management.
On the investment side, I’ve got a perfect resource in Henry Miketa and ATHOS CAPITAL / a father who grew up in the finance world, so I’ve got a finger on the pulse. Honestly, I love spending time, effort, and energy, this space as well, and Robinhood has made making investments extremely cheap and not time-consuming at all!
It makes sense to closely monitor financial markets at all times, no matter what type of position you’re in. Investing touches all parts of the world, economic and financially most obviously, but it’s deeper than that. Societal, macro/micro trends, industry trends, commodity prices, etc. Everything ties back into financial markets.
Time spent monitoring/talking about/learning about this space is never time wasted.
As you get to executive levels of management, this becomes, arguably, the most important part of your job .
If you wanna move up the corporate ladder = know and understand this stuff. You have to be able to speak the language and have a deep understand of cause and effect at from a macro financial standpoint.
Moonlit Business = $650/ month
Back to our initial point:
If you were only a W2 employee, and not purchasing assets or ownership pieces of companies through financial investments, not buying any real estate assets, and not moonlighting any businesses, here’s your monthly cash flow:
W2 - 6k x 12 = 72k
That’s a nice living! But if you lost that job, you’d quickly end up at 0k. That’s exposed.
However - IF you’re working to be anti-fragile, Here is what that looks like with multiple income streams:
W2 - 6k x 12 = 72k
401k - 250 x 12 = 3k
Personal portfolio - 1000 x 12 = 12k
Rental income - 400 x 12 = 4.8k
Appreciation income - 500 x 12 = 6k
Moonlight business - 650 x 12 = 7.8k
= 105.6k
^^ That gives you a lot more wiggle room. Once you get these income stream flywheels started, they too begin to compound. The toughest part is getting em started. Once they’re built, they take on a mind of their own! (and less time consuming, as they should also be heavily automated, by design :)
Now you’re probably thinking, “whoa that’s going to take a lot of time.” And yeah, you’re right. It’s not going to happen overnight, it's going to take years/decades. Think about this from the real estate perspective, it takes 30 years to pay off a mortgage… But once it’s paid off, you own an asset, worth hundreds of thousands of dollars, free and clear.
This isn’t a get rich quick scheme, lol. But it’ll work. You’ll get rich, or at least, become anti-fragile financially.
Keep chopping wood.
Also know/understand, that the above activities are legit my favorite things to do. They are my main hobbies. They get me out of bed early in the AM and keep me awake late at night. When I’m working on this stuff, I feel the most fulfilled and energized possible. Some people love to ski, to travel, escape to the mountains for months at a time, or watch a lot of TV.
That’s all good! But I love this stuff. This is what I do.
It Will Never End.
If you like the article, follow me on twitter @itschriskeith.