A successful entrepreneur shares her thoughts on business success and failure.

Four Huge Pitfalls of "Lifestyle Design"


lifestyle design pitfallsWhat if you didn’t need more money to live the life you want? What if you could live on less, spend less time on your business, and still be happy?

This is the founding principle behind “lifestyle design”–a term that has become popular since Tim Ferriss released his book Four Hour Work Week. The idea behind a “lifestyle business” is to grow a business that sustains your daily lifestyle while allowing you the time freedom you need to pursue what interests you.

Here’s what my optimal “lifestyle design plan” looks like:

Stage One: Build A Business to Sell

I already did this for my web hosting company. Work your butt off for 5-7 years growing a business that you can sell. Then sell it and let it go fully from your life. In this stage, you have to have a product or service that you can outsource or hire out. This sort of business can’t be a consulting business or something that isn’t saleable 5-7 years down the road.

Concurrently with this stage, practice living as frugally as possible. Track both business and personal expenses down to the penny. Know where your money goes every month. (This is what most people don’t do, so when they get a huge cash infusion, they squander it.)

Stage Two: Sell Your Business

Sell, then take the money and use it as a nest egg.
Here’s what I’d do with the money:

  • Set aside 30% for taxes.
  • Set aside 30% for “future”. Use this money and learn how to invest wisely. Invest in assets that pay out dividends. Fully fund your IRA if you haven’t already. (I like dividend stocks or Lending Club at this stage. Real estate is another option…but never put 100% of this fund into a single asset class.)
  • Set aside 20-30% for a house or as “sustainability cash.” Buy a house outright with cash, or invest this money conservatively in a highly-liquid account with an eye to use it for living expenses for a while. Do not lock yourself into a mortgage.
  • Use the bit of money you have left over to buy yourself some nice things. (When I sold my business, I used $60,000 to go on a fantastic vacation, buy a new car, buy some custom hand-made crafts, and buy some art.)

Stage Three: Take Some Time Off

Use your well-worn frugality skills to either travel the world for a while, or alternately settle down and relax for a bit.

Also, use this time to explore other passions and hobbies. For instance, one of my life goals is to learn another language, so I’m learning Spanish. I take a class 1-2x a week and plan to travel to more Spanish-speaking countries in the future so I can learn the language more quickly.

Stage Four: Make Enough Money to Survive

Depending on your exit from business #1, you may not be able to quite live off the proceeds of the sale of your business. Also, I know from experience that you will get bored with “relaxing” after 6-12 months. So, for your second business run, focus your skills on creating a business that will sustain your lifestyle–what you really want to do–while remaining low on time commitment. Just like you didn’t lock yourself into a mortgage above, you don’t want to lock yourself into a huge time commitment now.

Your biggest goal should be to start a business that sustains your ideal lifestyle while you work only a few hours a day.

This is where the Four Hour Work Week starts out, but I prefer having the nest egg of a business I’ve sold.

Four Pitfalls of Lifestyle Design

Most people struggle getting this plan set up in their lives. Here are some of the pitfalls I’ve seen people encounter along the path of lifestyle design:

  1. “Magic bullet” syndrome. “Erica, I want a business where I never have to work again and it just keeps generating money month after month!” Well–I don’t call that a business. I call that investing. Whether it’s real estate, dividend stocks, or Lending Club, those investments are out there. I currently have over $26,000 in Lending Club and it returns over $200/month in passive income; my net annual return is 11.75%. Awesome.

    But you have to set up the automatic transfer every month into Lending Club (or dividend stocks, or a savings account) to see the returns. You can’t spend all your money on consumer junk every month and have a huge credit card debt and then whine that you “can’t afford” the transfer. (The folks with “magic bullet” syndrome often have huge piles of consumer debt to go along with it.) Get your financial picture straight, and you will see returns. And get realistic about what it’s going to take to get those returns.

  2. Starting a business that isn’t saleable. Many people start out by selling crafts, tutoring, or attempting to turn a hobby into a side gig. If your goal is to earn a few hundred extra dollars a month, that’s fine; it’s just not the topic of this post.

    In order to make lifestyle design work, you have to have a business that other people value even without you working in it every day. It doesn’t matter whether you sell a product or a service, as long as you’re not selling “you.” Selling “you” means the business has no intrinsic value without you in it. (That goes for you bloggers, too, unless you could never write a post again and leave the blog alone for all eternity and it will continue to generate income that sustains your lifestyle. Better create a standalone product with its own URL if you don’t want to blog every day…)

  3. Not knowing where your money goes. You need to know what your expenses are, and be able to reduce them as necessary. Learn to distinguish between wants and needs. How much more productive will that new computer make you? What about that new shirt? When in doubt, don’t buy it.
  4. Wanting to jump right to the part where you retire. Similar to “magic bullet” syndrome, but this is where you start a business, and because you see a popular blogger or guru bragging about how he or she only works two hours a week, you think you can do the same. You’re over the “magic bullet” at this point, but still fully convinced that it only takes a couple hours a week to make big money. You easily forget all the parts of the guru’s stories where they talked about how they spent two or three or ten years creating content, learning marketing, and figuring out how to sell stuff–and encountered numerous dead ends and false starts.

    Don’t be fooled. Even if they don’t work now, they’re reaping the rewards of the time where they worked a huge work week for little or no gain. And many of them, while appearing to have a “no work” lifestyle, are out there sending emails, working with their employees, tweaking ad campaigns, doing teleseminars, and posting blog posts every day. They just tend to forget that that’s “work”. ;)

Which Path is Right for You?

My plan for lifestyle design isn’t set in stone. There are different ways to approach lifestyle design and be successful. Some people use their earnings from a lifetime of work instead of building and selling a business. I like building a business because it’s far faster.

And some folks go right to working their butt off, but instead of selling their business, they simply use their business as a source of somewhat-passive income. Nothing wrong with that as long as you can achieve it. I like selling the business because it guarantees you will never have to work for that money again, and it gives you 100% time freedom, but if you’d rather start at step #4 of building a lifestyle business, that’s fine.

With a solid financial education, perseverance, and a good understanding of what makes people buy a product, you can reap the rewards of creating your own lifestyle. Don’t be fooled, though; it will take a lot more work than you expect–but the rewards may also be greater than you expect!

Recommended Reading:

  • Lending Club. I started investing in Lending Club over a year ago, and many people have asked me how my investments are going. I’m pleased to report I have a nearly 12% annual return. I would highly recommend Lending Club; you can get started with as little as $25 and watch your money pay dividends every month. I really love the whole concept. The link above will give you $25 to get started, so you really have nothing to lose by trying it out! (Note: This link gives me a few dollars too, which I invest back in my own portfolio in Lending Club. By signing up, you’re helping to support erica.biz…thank you!)
  • The Complete Guide to Creating an Information Product. Here’s a step-by-step guide to creating a product that will help you generate passive income online.
  • How to Start a Business with No Money. One of my most popular posts; shows how I built a business to $1 million without having a “nest egg.”


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I'm Erica Douglass.
After selling my online business at age 26 for over $1 million, I created this blog to help you grow your own business quickly.

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