Importance of a Second Income and Finding Talent
Level 2 - Value Investor
Welcome Avatar! Today we’re going to revisit some high-level concepts with math and break the worst advice given to kids for the last 50 years “follow your dreams and passions”. Also. Mainstream media has finally caught up to a lot of the stuff our paid subscribers have known over 2 quarters with Wall Street gearing up for cuts (Source). Perfect timing since the employees can’t “leave to tech” since tech isn’t hiring anyway.
There is a way to estimate that pretty accurately but for now since this is a free post we have to focus on what matters: making you more money and getting you to swallow the truth.
Part 1: Starting a Second Income Stream
No matter what the best time to “start” is today. Yes. Yesterday was better. Unfortunately, the clock only goes in one direction. It’s never backward.
One of the best ways to think about this is to look at your earnings over time. As noted many times here most of our readers are already well off (upper middle class in the $250K income range). The main reason we think this audience is so focused on a second income is because they realize “life costs more than you think”. While FIRE frugal types are able to retire early... The problem is their quality of life is so low anyone with modest ambition/intensity doesn’t want to live on $2,000 a month.
There is one thing you can steal from them though, it is “investment rate” or “savings rate”. The key is to do this in a completely different way. The exact *opposite*.
Their goal is to cut spending to bare bones, your goal should be to increase income as much as possible since there is no ceiling to earnings. You can earn $1K in a month or $1M in a month. There is no “limit”. For the frugality set up, there is always a limit so if you never move your income, you’re stuck with a “flat” savings percentage of say 50%. If you earn an absurd amount say $1M a month, it would be practically impossible to avoid saving/investing 90% of your money since you’re earning so much!
Since that example is extreme, think about it in a smaller increment. If you sold a small e-com business for say $50,000, it makes a dent. This is a pretty reasonable goal for a beginner since it means you have to start something that makes around $2K a month. That’s 100% possible in any niche from pets to online golf coaching (basically anything). *If* you simply saved the $50,000 it would be 10 years of savings for the typical person. Read that carefully. If the typical person saves around 5-10% of their income and makes $50-60K it means $50K saved is about 10 years.
Alternatively, since many of you enjoy working (you should since you will get bored if you ever quit entirely), you can look at it from a cash flow perspective. When you graduate from college and go into Tech, M&A Banking or Sales, you can make around $80,000-$140,000 (not a stretch, we’re using low numbers). Now go back to example one again! If you added an extra $24K a year that’s 24% in income addition if you were making $100,000. That is huge for a percentage change.
As you can see from the table, there is just no comparison. The amount of years you have saved is higher by a factor of about 25% (in just 5 years). Also. Your lifestyle is massively better at $50K spend vs. $35K spend. Percentage investing/saving is also accelerating which makes it even harder for Frugal Frank to catch up by making you wait for him to scan a hundred $0.99 coupons at the grocery store.
One Warning: With the quick maths out of the way, there is one catch though. Go back to sentence one in part 1. If you don’t start early it becomes demotivating. Like everything in life there is a learning curve.
If you want proof of a learning curve, try to take up any new activity (sports, music etc.). Even if you’re generally pretty talented, learning something new takes time and you will have to slowly stack up the experience. Building an online income is the *exact* same as playing any sport. You find out which niche you’re good at. And. In the end, everyone struggles to get the first $100, then $1,000, then $3,000 etc.
Take a look at the table below and you can see why it hurts if you start late.
While starting at a few hundred bucks a month is helpful for a young person… starting there when you are in peak earning years just looks like a “waste of time”. Also. Psychologically, it means you will unlikely put your best effort into the project. “This is pointless” will ring in the back of your head every single day.
To put some finance around it, it means your efforts are getting you “saving account returns” versus your efforts giving you near stock market returns. Enormous difference to compounding.
One final thing to consider is the *value* of your time. Many of you may want to have kids. If you’re spending 100 hours on a project that brings in a few hundred bucks we can assure you that they will grow up to hate your guts.
Part 2: Finding Your Talents
Mentioned here for over a decade. Your passions and interests don’t matter. If you want to be successful you want to be a winner and be the best within *any* field. Yes. We’re telling you the things you were told as a kid = total lie. The only thing that matters is your ability to be the best (or close to it). Winners care about winning and being the best. That’s your “passion”.
Wealth Disparity: This has been a hot topic for years and will only get worse. How can someone claim an individual YouTuber is overpaid if they are a one man show. They can’t. You know this, we know this, everyone knows this. Software and advanced tech will remove all the overhead and push even more income to the person generating all of the value.
The mainstream tries to push the belief that CEOs are overpaid (while true in some cases - golden parachute for running a business into the ground), every single industry looks like this chart.
As you can see the “the victor gets the spoils”. In every single industry from CEOs to athletes to musicians, the top 10 or so is really where the money is. Earnings are a Knee Curve. Write that down over and over and over again if you need to. Being in the top 10% is not comparable to being in the top 5% which isn’t even close to comparable to the top 0.1%.
You Want to be as close to 3 Standard Deviations to the Right as Possible
No Magic Filter System: As with anything in life there is no magical way to know what you’re going to be good at on day one. One of the easiest ways to start is by trying 10 different things and giving them 6 months of solid effort. 99% of basic fundamentals for any activity have already been solved.
People will claim “I want to be Elon Musk”. Cool. Even Musk learned all the basics back in his 20s with various companies before he started Tesla. Until you know the basics of anything: lifting, swinging a golf club, sales and even code… You have no idea if you’re any good.
Once you take the activity seriously (can be any activity), you know you’re decent when the instructor/employer tells you that you’re doing better than average. Any professional is going to be thrilled to work with someone who learns quickly. Most of the time a college employee takes 3-6 months before they are even helping the company (usually a loss leader since they don’t have any skills the first few months).
After that it gets more qualitative. Are you able to compete “up”. Are you better than people with 3-5 years of experience when you have one? You’re probably 2 standard deviations above average. Are you able to compete with 10 years of experience when you have 2-3 years? You’re probably 3 standard deviations above (you should take it seriously). And. You’ve really made it when you’re so blatantly good that people tell you you’re good (no your parents don’t count)
10,000 Hours of BS: While this was popularized by a book back in the day (Gladwell) it just isn’t true. Sorry to burst the bubbles! If you’re not talented at something 10,000 hours of concentrated effort won’t make you 3 standard deviations above average. It *WILL* make you about 1 or maybe 1.5 standard deviations above average. That’s because that much effort is all but guaranteed to make you above average.
For fun we trolled Twitter (do this once a year) and used the latest US Open champion as an example. The guy won at age 19 and actually *looks* 19. That last part is key because it means he hasn’t even gone though serious muscle development (still a true teenager).
Do the math here: Pro athletes practice at least 30 hours a week (likely more). Men typically peak performance wise around 27-28.
Make the math simple and say 8 years of extra practice. At 30 hours a week that is 12,480 hours. Well beyond 10,000 extra hours and yet the vast majority of elite players can’t even win a single game against him. That’s pure talent. Tom Brady another great example for NFL, Jordan/Lebron for the NBA and Tiger for Golf… so on and so forth.
Focus on Your Talent Not “Hope”: The above wasn’t meant to discourage it was meant to get you to focus on finding your own skills. It’s your job to figure out what you’re good at and go from there. You’re doing the world a disservice by focusing on things that you’re not good at.
Focus on what you’re good at and the world will reward you since you’re giving the world the best version of yourself.
Don’t waste your valuable time juggling 10 different projects. You can start with 5-10 projects when you’re 20 but they should be cut *rapidly* as feedback in a few months will tell you if you’re any good at it.
Small Note: If you’re one of those excuse makers who says “I’m not good at anything” then *follow the money*. The money is in Tech, M&A on Wall Street and Enterprise high-end sales. Even if you’re mediocre, you’ll make a good living to start.
Some great side news, just learned how to send PDFs via this platform so we may utilize that from time to time for overview type items for free subscribers. Can create some easy to save down checklist type items ranging from E-com to stocks to computer coins.
Disclaimer: None of this is to be deemed legal or financial advice of any kind. These are *opinions* written by an anonymous group of Ex-Wall Street Tech Bankers and software engineers who moved into affiliate marketing and e-commerce. We’re an advisor for Synapse Protocol and on the JPEG team.
Hard work is pointless in the face of real talent. I know from experience.
Worked like a madman for 4 years in Sales, read every book, did seminars, speech training, grinding 50+ hours every week. Got to FAANG lvl company in Dublin. Just to get crushed in sales by a drunk high roided out of his mind Irishman. Who wasn't even trying...
Turned to tech. 9-month bootcamp in 3 months. 2 years in a Faang company getting promoted every 6 months due to whining about how bored I was. Now I've got my own consulting cloud company making 15k/m for 10h/w.
1/4 of the effort, 20x the results. I found my talent lol.
the most fascinating aspect to starting a second income stream is (a phenomenon bull talked about long ago in the WSP days) where your performance *materially improves* in your day job after you start your side business. a combination of adding skills to make you more well rounded in the business world and a newfound confidence since you're digging your tunnel out of Shawshank... a rare golden ticket to navigate the simulation of life.