Sexy Savings vs. Building Income Streams
How do you ‘Sexify’ saving money when you’re growing a business? Dan and Ian are discussing three ways both of these communities make saving money ‘sexy’ and how this can help build your income streams.
Today’s discussion should be put into the context of the relationship between entrepreneurs and the financial independence retire early (FIRE) community. The conversation is guided by an email from a listener. The listener, known as Kevin, writes about his family’s transition from nomadic life to the United States. In the email, Kevin brings up interesting points on the ‘sexy savings’ vs ‘building income streams’ that help define the three main points of the conversation. (We've shared Kevin's entire email at the bottom of this post.)
Check out the full conversation above.
Point 1: Difference Between Making Money and Saving Money (7:31)
The business world doesn’t discuss as much about saving money when growing a business. Usually, the conversation is focused on making money in terms of CRO, SEO, marketing, etc. It’s possible that saving money isn’t discussed because it’s not as ‘sexy’, leading a fundamental tension between the two concepts.
In order to make money, you may need to be saving money. If entrepreneurship and developing an income stream is like baking a cake, the saving money part isn’t the frosting or the sugar (it’s not the sexy ingredient). It’s the flour and sprinkle of salt that is required.
Point 2: Making Savings Sexy (14:00)
One of the reasons the FIRE community has grown and its lessons are easily followed is because they have figured out how to make the concept of savings sexy. When your life comes to a turning point and you must start saving money, there are two major paths you can take:
Baseline
Live frugally
The entrepreneurs are usually encouraged to move to a location with lower living expenses to ‘baseline’ while FIRE members learn how to ‘live frugally’.
The difference between ‘baselining’ and ‘frugality’:
Baselining: When you go somewhere to save money (i.e. moving somewhere cheaper)
Frugality: An active effort to spend less (i.e. I’ll rent a movie instead of going to the movies)
Frugality has its benefits, but it can also cost more you more. When you’re starting a business, it’s not always wise to spend your Sunday cleaning and doing things yourself when you could pay someone to do that work for you. With extra time, you can go and grow that business.
One of the main differences between the FIRE and entrepreneur communities is how they value time. Entrepreneurs deeply value their time and are careful about how they exchange it.
More ways to ‘sexify’ saving money:
One way ticket to a country where you can baseline
Hiring remotely, building teams in other countries
Design a business model leverage all of this i.e. taxes
There are also unsexy side effects of saving money. One common thing that can happen is losing friends. As your lifestyle changes, it becomes your identity, and many of the things you used to you’ll no longer be able to do. That could be because of trying to save money, reallocating your time, moving somewhere new, and isolating yourself from friends who no longer understand your new lifestyle.
Point 3: Making Money (20:51)
After three years (also known as the 1000 day principle) is usually when your income from your business can replace your main income. Six to seven years is when things start ‘popping’ with the business. But what happens when your business stagnates and you can no longer increase the revenue?
If things aren’t going well with the business at this point, it’s possible that the business isn’t going to be able to continue to grow and your income may stay level. This can be disappointing, but there are still benefits to this income stream over having a normal job. You have luxuries that many people will never have in life. These luxuries have to do with you being a ‘free’ person.
These luxuries include:
You’re free to know what it takes to make $1
Free to be the person you want to be.
Freedom to visit more places and be in control of your time
Here's Kevin's full email that inspired this conversation:
Hey Dan,
Really enjoying the new format of these recent daily YouTube Lives! It’s one of the few ways to feel connected to a larger community right now as we’re locked in.
This is a bit late but I just wanted to send a few thoughts about last Friday’s show regarding the FIRE community. First, I loved your points about some of the advantages of the TMBA community’s approach to wealth-building and good-living as opposed to the FIRE community. The notion of accumulating a lot of cash to live off the interest residuals without having to work might seem attractive at first, but as you both pointed out, it’s dependant on people outside of the FIRE community NOT living that way, but spending non-frugally to keep the engine of the economy hot enough to ensure your interest returns keep coming.
In 2014, Alyssa and I started dabbling in the digital nomadic life when we moved to Thailand and joined the DC. We felt lucky and thrilled to be living a life of remote-work, online business, and being our own bosses. Yet last year, we realized that we still had not built the kind of wealth we expected we would have by now when we started down this path.
We’ve done well for ourselves, and our two businesses have consistently brought in combined revenue over 6 figures, but the cash-store that we expected to have by now simply isn’t there.
Last year, as I looked back, I realized there were probably a few reasons for this:
While we’ve had a solid source of revenue, growth sort of stopped there, especially for our primary business due to it being such a niche market such that efforts to grow revenue have not made much of a dent.
When we lived in Thailand and even Portugal (both places offering a much cheaper lifestyle than the U.S.), our cash reserves increased - we were doing great and were on our way to building real wealth. Yet the moment we moved back to the U.S., long-term wealth building basically came to a halt.
My thought is this now: when living abroad as digital nomads, we were able to have the best of both: we could live it up in terms of lifestyle - dining out every day, living in beautiful high-end apartments, drinking lattes all day long - all while still saving money and building wealth. However, when we got back to the U.S. we really didn’t change our behavior too much. While we found an affordable apartment to live in, we still kept dining out, still kept drinking lattes (actually fancy $5 cold-brews for me), and went on lots of little mini-vacations around the country.
Basically, we lived a great life in terms of working remotely, having no bosses breathing down our necks, and enjoying the freedom of working when we wanted, but our wealth building was stagnant. We recently welcomed our 2nd daughter to the mix and it’s no surprise that adding the costs of children has made wealth building on that same income even harder. Last year, out of necessity and frustration, I started getting interested in *some* of what the FIRE movement teachings in terms of frugality, which is so much more important when you’re not living in a place like Thailand or Vietnam and when your business is not currently bringing in revenue in the mid to high 6 figures. Deciding to bunker down and get serious about frugal living - reducing dining out, reducing $5 coffees, reducing min-vacations - has put us back on the path to building long-term wealth again here in the U.S. while we simultaneously work to increase our business revenue into that higher range where storing cash should be way easier. The main difference is that before, we focused mostly on making more money as the solution to building wealth, and paid little attention to the leaky faucet which was our poor spending habits. Following leaders in the FIRE community has at least helped reframe our mindset on how we spend unconsciously on things that we don’t need and made us aware of a somewhat unhealthy spending and debt-based culture here in the U.S. that we had bought into without really being aware of it.
I think that the lifestyle design and business coaching worlds really focus heavily on the “making money” side of things (product-market fit, marketing, SEO, conversion optimization, etc.) but perhaps don’t talk enough about the “saving money” side (personal frugality especially, not just business), which is vital for wealth building. It’s the other side of the equation. Perhaps it’s not discussed because it’s not as sexy and interesting. Thus I’m guessing that there are lots of folks who are indeed killing it from the income point of view, but my suspicion is that many of them are also blowing a lot of the money they’re making, especially if they’re living in expensive countries. That’s one area where the FIRE guru’s are filling the gap, they’ve figured out to make the concept of “saving” sexy, and that’s important.
That said, y’all are right on for calling out the FIRE movement on some of the nonsensical aspects of its teachings.
Thanks for all you both do and for who you both are - you guys always live what you preach, unlike many “gurus” out there and it’s much appreciated!
-Kevin