Read The Millionaire Fastlane Online
Authors: M.J. DeMarco
Tags: #Business & Economics, #Entrepreneurship, #Motivational, #New Business Enterprises, #Personal Finance, #General
The Law of Effection states that
the more lives you affect in an entity you control, in scale and/or magnitude, the richer you will become
. The shortened, sanitized version is simply: Affect millions and make millions. (Grammarians, I can hear you screaming. Relax. I know the difference between “affect” and “effect.” I'm using “effection” as it appears in Webster's Revised Unabridged Dictionary, published in 1913 by C. & G. Merriam Co., as a noun meaning “creation; a doing.”)
A while ago, I wrote an article titled
The Shortest “Make Millions” Article Ever Written
. Guess how long the article was? A paragraph? Maybe a sentence or two?
Nope. Just two words.
And those words?
Impact millions
.
Impact millions and make millions. It doesn't get any simpler than that!
In other words, how many lives have you touched? Who has benefited from your work, your assets, and your handiwork? What problems have you solved? What value are you to society? If you're working the front desk at a hotel, you simply aren't making much of an impact, and your bank account will represent that same fact. The amount of money you have (or don't have) is a direct reflection on the amount of value you have provided (or not provided).
Effection Is Scale, Magnitude, or Both
To exploit the Law of Effection, your business needs to make an impact of either
scale
or
magnitude
, or both. Within our Fastlane wealth equation, “scale” and “magnitude” are implicit to our “net profit” variable.
NET PROFIT = Units Sold
(
Scale
)
X Unit Profit
(
Magnitude
)
An example of SCALE is reflected on our Fastlane roadmap via the profit variable in our wealth equation: units sold.
If you sell 20 million pens and make 75 cents profit on each, you just earned $15 million. This is having an impact on SCALE with tiny MAGNITUDE. Obviously, selling a writing pen doesn't have a major impact on anyone's life. The wealth is transmuted via SCALE, not magnitude.
Conversely, magnitude is having a great impact on a few and within our Fastlane wealth equation is reflected in UNIT PROFIT. Price always reflects magnitude.
If you sell a product that's worth $50 million, you have access to magnitude. For example, if you owned an apartment complex with 400 units and profit $100 from each unit, you'd generate $40,000 in monthly income. Because you are providing housing for 400 families, you are making an impact of magnitude, not scale. Shelter has magnitude. Activities of magnitude have higher profit potential with smaller scales. Magnitude is always reflected by an item's price. High value = high price = high magnitude.
If you can combine both scale and magnitude, we won't be discussing millions but billions. Donald Trump makes an impact on both magnitude and scale and therefore is worth billions.
Scale creates millionaires. Magnitude creates millionaires. Scale and magnitude creates billionaires.
Follow the Money!
Unfortunately, the word “law” is loosely tossed around to represent concepts that aren't really laws. The Law of Attraction isn't a law but a theory. The word “law” is absolute. It works 100% of the time. When you drop a watermelon from your tenth-floor dorm window, the Law of Gravity takes over-the watermelon falls to the ground every single time. The outcome is a 100% certainty.
Unfortunately, positive thinking and visualization don't work with 100% certainty. Belief and manifestation aren't absolute so they can't be classified as laws. However, the Law of Effection is absolute.
Show me any self-made billionaire and I will show you a person who has touched the lives of many in scale or magnitude, directly or indirectly. To Woodward and Bernstein, Deep Throat said, “Follow the money,” and when you do, you find the only one true law of wealth, and that is Effection. Why? Because Effection is rooted in mathematics, and because of this it operates exclusive of any roadmap.
A Slowlaner can use the Law of Effection to escape Slowlane confinement. Pro athletes, actors, and entertainers-intrinsic value explosions happen because of the Effection: Society suddenly perceives your value to be meteoric. Yes, these people are still trading their time for money, but in an unprecedented stratum of value.
For example, over the last decade, Bill Clinton earned more than $50 million in public speaking fees. While speaking is a direct trade of time for money, his intrinsic value is legendary, perhaps more than $100,000 per hour. Underneath the big fee is the Law of Effection.
He speaks to millions and is paid millions.
A rapper sells millions of songs and is paid millions. A housewife sells a million kitchen gadgets and earns millions. A lottery winner wins millions because millions entered the drawing. Daddy Warbuck's son inherits millions because Warbucks Company served millions. A plastic surgeon earns millions because he serves many in magnitude. A star athlete's agent earns millions because his clients serve millions.
Retrace the source of millionaire money and you will find millions of something.
Effection of scale or magnitude always precedes money, either directly or indirectly. The more lives you impact, directly or indirectly, the more wealth you will attract.
Big Wealth Follows Big Numbers
Athletes are a perfect example of Effection.
If you play professional baseball, you're paid a meteoric intrinsic value. In 2009 Alex Rodriguez signed a $240 million contract. How exactly is that justified? Simple. The Law of Effection justifies all wealth. Alex Rodriguez, via baseball, entertains millions. He leverages SCALE. This is the same for any professional athlete. They get paid millions because they entertain millions. A comedian who makes millions laugh gets paid millions. The corporate executive who facilitates a corporation that services millions gets paid millions.
Again, these are glorified power intrinsic-value positions that leverage the Law of Effection. If you want to get rich via intrinsic value, you must do it via the Law of Effection. Get into a position to impact millions. Become indispensable and irreplaceable like an athlete, entertainer, or a top-brass executive.
Can't get access to millions like an athlete? Then go directly to the source and serve the source. For example, agents of high-profile athletes are as rich as the athletes themselves because they have indirect contact to the Law of Effection. Real estate brokers who specialize in the homes of the rich become rich themselves because they indirectly connect themselves to arbiters of the Law. The Law of Effection doesn't care about roadmaps or time trades or anything but the
mathematical power of large numbers
. Make a giant impact a few times or make a small impact millions of times.
Joe Magnitude owns a company that develops commercial real estate. He develops 14 office complexes and partitions the offices into condos. Each complex sold profits him $400,000. 14 (scale) X $400,000 (magnitude) equals $5,600,000.
Joe Scale writes a book detailing a diet of the stars. He sells 8 million copies (scale) and earns $7 per copy (magnitude). He earns the same amount: $5,600,000.
The closer you get to the source of large numbers, the closer you will get to wealth. To serve millions is to make millions. Think big to earn big.
Chapter Summary: Fastlane Distinctions
PART 6:
Your Vehicle to Wealth–YOU
CHAPTER 22: OWN YOURSELF FIRST
Events and circumstances have their origin in ourselves. They spring from seeds which we have sown.
~ Henry David Thoreau
The Paralysis of “Pay Yourself First”
Fastlane success demands a well-tuned vehicle primed and prepared for the journey that awaits.
You
are the vehicle to wealth. You are mechanism for movement. You are responsible for making the journey and the first step in taking charge of you, is to own you.
Surely you've heard “Pay yourself first,” a common Slowlane declaration born from the classic 1926 book,
The Richest Man in Babylon
by George Clason. A good read, but fundamentally flawed.
If you aren't familiar with “pay yourself first,” it's a Slowlane doctrine that urges you to save your money (pay yourself) before all else-food, gas, car payments, and other bills. This supposedly forces the Slowlaner's savings rate to accelerate their putrid wealth acceleration vehicle: compound interest via market investments.
The fact is, advising a Slowlaner to “pay yourself first” is like advising a quadriplegic to climb a flight of stairs. It's futile.
If you have a job, examine your last paycheck.
Is your gross pay that same as your net pay? It isn't and for some, it may be as much as 35% less. Additionally, pre-tax saving weapons such as 401(k)'s and IRA's severely limit your contributions to infantile amounts where creating wealth on a pre-tax basis in a job becomes organizationally penal.
If your primary income source comes from a job, your ability to pay yourself first is paralyzed because the governments are paid first! For “pay yourself first” to be legitimate, you truly need to pay yourself first in infinite amounts and the government last.
You must own your vehicle.
To Pay Yourself First, You Must Own Yourself
You can't pay yourself first if you don't own yourself. Your vehicle (you) must be free and clear. When you have a job,
someone owns you
. And when someone owns you, you aren't paid first, but last.
The first step to controlling your vehicle-you-is to own yourself so you can truly pay yourself first and the government last. That is accomplished by shelling your business into a corporation that you control.
The corporation serves as the Fastlane frame because it offers the immediate tax benefit of “pay yourself first” versus “pay yourself last.” When you own a corporation, net profits are reduced by expenses. The remaining profit is taxed, and those taxes are paid to the government. Additionally, corporations exist separate from their owners and survive time. It's the
surrogate structure
that serves as your business system.
When you own a corporation, the government is paid four times a year, once every quarter through estimated taxes. If you have a payroll, taxes are paid each time you pay your employees. I pay myself first 365 times a year while the government is paid four times a year. Doesn't that sound like a structure that is conducive to not only “pay yourself first” but also wealth?
How to Own Yourself
Like many entrepreneurs, I made the horrific mistake of getting into business as a sole proprietor. Any “adviser” who recommends a business structure as a sole proprietorship or general partnership should be avoided like an airport toilet. These entities are risky because they don't protect you and catapult unlimited liability onto you and your personal assets.
If you're a plumber organized as a sole proprietor and you accidentally leave a pipe cutter at a client's house and the client's three-year-old kills himself with it, guess what? They're coming after you because you chose an ill-protected business entity. Instead of suing a corporation, they sue you and everything you own is up for grabs. The best business structures for your Fastlane business are:
Each has its advantages and disadvantages, but all share two common benefits: limitation of liability and tax efficiency.
The C Corporation
The C corporation is a business structure that survives time and can be easily transferred. Corporate profits are taxed at corporate income tax rates, with net income distributed to shareholders.
Some C-corp owners use this structure to deploy a strategy known as “income splitting.” The strategy is to partition the business's income to both the owner and the business, effectively lowering the tax bracket of the two, versus a large income for just one. While it's not within the scope of this book to dive into tax strategy and corporate formation, it does offer up a Fastlane component, which is control.
While C corporations and their owners are subject to double taxation (tax on corporate profits and dividends to shareholders), they are advantageous for larger corporations and corporations with an “asset growth” strategy. In other words, if you don't plan on distributing profits and are focused on building “asset value” over “net profit,” C corporations do the job. The majority of publicly traded companies are C corps that do not distribute dividends to their shareholders. They grow revenue and asset value.
The S Corporation
An S corporation is like a C corporation except that it isn't taxed as a separate entity. Considered a “pass-through” entity, taxes aren't paid at the corporate level, but at the individual level and reflected on the owner's personal tax return. S corporations also have some tax advantages because profits are not subject to the hefty self-employment tax that comes with sole proprietorships. However, unlike C corporations, which can have limitless owners, S corporations are limited to 100 owners and will have additional filing requirements.