What You Should Know About Your Capital & Growing Rich

There’s an old expression: You’ll never get rich working for other people.

That’s mostly true, even today.

In fairness, I must note there are CEOs of major companies that are getting rich through outsized salaries, bonuses and stock options, yet they work, technically, for others. However, they are relatively rare.

You get rich by deploying capital, yours and other people’s. Let’s start with yours.

Let’s say you choose to drive for Lyft or Uber. You are providing a lot of capital to your joint enterprise. Your car, your insurance, your gasoline, your maintenance fees are all capital investments in your vehicle.

Your human capital, i.e. knowledge about the rules of the road and how to drive are also investments.

And there is an investment, actually an expense, that is something Uber and Lyft don’t discuss much with prospective drivers. That is the aging, wear and tear, and depreciation of your vehicle.

By putting on an extra 1,000 to 1,500 or more miles a month, your vehicle will lose more value upon resale than it would when parked in your garage. If it is a nice, comfortable, late model car, this extra 12,000 to 18,000 miles a year could easily cost you $4,000 in actual cash value, every 12 months, or more.

If you’re only netting $1,000 a month, you’re giving away four months of capital each year for free.

Not to mention the wear and tear on you from fighting traffic and bending your schedule to be on-call at a moment’s notice.

Now let’s add your opportunity cost. This is the money and assorted other benefits and advancements you could be making at other places, working for non-Ubers and non-Lyfts that don’t require your car-capital.

With these car service models and their breakneck scheduling, you won’t be eating regular, balanced and well-chewed meals, and you won’t be sleeping on a typical timetable.

These aspects of normalcy will be bent to accommodate customers like late evening bar crawlers that can barely spill themselves into your backseat after their revelries.

So, what’s the good part? I can’t say. There is no way to get rich driving for a living, unless you drive NASCAR and can beat everyone else on the track.

The minimum return on your money to remain in business is a breakeven return on your cost of capital, and it probably isn’t going to happen with Lyft or Uber.

But they will make out because they have externalized most capital costs to you and to others like you.

Uber and Lyft are taxi companies without taxis, limousine companies without limos. In the same way, Airbnb is a hotel company without hotel rooms.

Capital idea of theirs, isn’t it?

Or more to the point, it is a how-to-avoid-investing-your-own-capital idea. This is how some people get uber-rich.

The best tip one of your passengers could give you would be to warn you away from the ride hailing services if you truly want to make money, or prosper, however you wish to define this.

I have no personal gripe with these companies, though I am a little taken aback by their promises about earning extra money. As I pointed out, these earnings are nullified by your unaccounted-for costs, such as depreciation.

Essentially, I’m saying that all companies, especially these days, strive to be Ubers. They want income without capital risks, employees that are really independent contractors without paid benefits, and wealth without responsibilities.

If I walked up to you and asked, “Can I have some money?” you’d think of me as a panhandler, a ne’er-do-well or a parasite feeding on productive society.

Yet if that questioner is a businessperson or is incorporated, and asks, “Will you enrich me without enriching yourself?” We accept that offer each and every day and label it “gainful employment.” Certainly we are being employed, as in being used. But is it gainful? Apart from their gain, I would say “No!”

Are we better off from our toil, more capable of earning, saving, and investing more money tomorrow? When you’re stressing your way to a buck, wealth is invisible, or at least heavily cloaked during waking hours. And if you’re toiling for no noticeable financial gain, you’re only pushing wealth away. In these so-called “sharing” businesses, ride-sharing, car sharing, home sharing, we are actually paying for the privilege of whitewashing their fence! Let me explain. In Mark Twain’s classic, Huckleberry Finn, Tom Sawyer was ordered by his aunt to paint her fence. Being lazy, yet also ingenious, Sawyer conned his pals into thinking fence painting was an honor, and not everyone was qualified to do it.

Building it up this way, Tom enticed his buddies to paint Auntie’s fence for him. Brazenly and without regret, he actually charged them for the privilege of doing this hard work.

This tale has become a huge allegory for me. I see it in so many areas of labor economics.

For example, let’s look at today’s book publishing world, where there is a widespread effort to make money without having most of the responsibilities publishers used to bear.

Chief among those duties is promoting the books they take on. This entailed securing publicity, getting book reviews, and courting chain booksellers and independent shops. Nowadays, effective promotion can often be accomplished mainly through pay-per-click and social media advertising.

In days gone by, publishers had works printed on actual paper with real ink. Today, having press runs is rare. If there is a paperback version it may be issued in a print-on-demand format. As each order comes in, it is printed and fulfilled on a custom basis.

This saves publishers from having to guess how many copies to produce while saving themselves from a reasonably large outlay to pay for advance printing. Publishers used to serve a number of critical functions. They selected certain titles for publication, and this required editorial know-how. They were important curators of content and gatekeepers. They also copyedited texts for errors and inconsistencies. They printed volumes, making sales estimates in the process. They put money into titles, by offering advance-against-royalties deals to authors. Then they’d invest more time and money in promoting titles through ads, publicity, book tours and channel sales to bookstores, large and small.

Today, because of eBooks, publishers can “choose” more titles than ever if they plan to eliminate or shortcut the other duties they performed. There is no practical limit to books they can feature on their lists because they will be made and sold electronically. With more titles being housed, by necessity each title will receive less editorial attention.

But most significantly, publishers are excusing themselves from paying advances to authors and from promoting the titles they take on. Publishers are Tom Sawyering, too.

Authors are asked to write their titles and to pitch them to publishing houses. They are then being required to promote their own titles, selling copies to speaking audiences, to social media contacts, and to corporations. Publishers are lending their prestige and really nothing substantially more to the mix.

In the next chapter I will share my secret for how the publishing world has increased my personal and professional capital.