I spend a lot of time talking about going BIG and building market-changing companies.

Today I'm going to talk about the value of a small, highly profitable company.

Specifically, I'm going to talk about the value of building a company with $3 million in revenues on a 33% ($1 million) profit margin.

Let's face it, most people will never start the next Google, and that's perfectly OK.  For every headline-drenched company like Google that's printing money for thousands of people, there are thousands of smaller, unheard of businesses that are printing money for one person - the owner!

You only need $1 million to live like Jay-Z

OK, maybe you'll need a little bit more money to have a full-on rap video lifestyle with Bentleys and Benjamins, but really, you don't need that much more.  Warren Buffett once said the only difference between the rich and the really rich is how they fly.  All rich people basically wear blue jeans and drive BMWs.  Really rich people fly on their own jets.

Let's take a look at what $1 million per year of cash buys you, so we can settle on why that's enough money to be happy with, and then we'll figure out why $3 million is the right number to get us there.

The $1 million breakdown

$1 million x 40% in taxes = $600,000 (spare me the tax shelter discussion)

$600,000 divided by 12 months = $50,000 net income (before tax benefits like mortgage interest, etc.)

So you've got $50,000 per month to spend

Yes, you probably have more with tax breaks (you damn rich people), but let's talk about how that money gets spent. 

Mortgage Payment = $15,000 per month.  That's a big damn mortgage payment, and if you're living in an inflated market like anywhere in California or Manhattan, that's probably a bargain payment.  Yet either way, to normalize this for the rest of the country, that buys you a multi-million dollar house.  In the Midwest that buys you at least a 10,000 square foot house in the nicest neighborhood around.

Car Lease(s) = $3,000 per month.  As a total car nut, I'm real familiar with lease payments.  At $1,500 per month you can get any car in the $100,000 range.  That puts you into a high-end BMW 750LI, a Mercedes S500, or a top-of-the-line Lexus.  In fact, if you splurge another $50,000 on your purchase price, you can get a Bentley Continental GT which is easily the most amazing car on the road right now.  I doubled the price to include a matching Mercedes for your spouse.

Undeveloped Human Allowance (kids) = $3,000 per month.  Let's assume 2 kids in either day care or prep school, but of course not college yet.  There's a separate argument for how you save and plan for their school.  Additional food is a marginal expense, so at around $3k you're kids are living pretty well. 

Everything Else = $29,000 per month.  There's no way I can possibly account for every other expense that you might have, but let's say that with $29,000 of left over monthly spending cash, you have more than enough cash to live well.  If you can't get by on almost $30 grand of expenses you don't have an income problem, you have an expense problem.

So what CAN'T you buy?

No matter how much money you make, there's something you can't afford.  Maybe it's a private jet, maybe it's small South American country.  Regardless, we all top out somewhere. 

For the average millionaire the only thing that is beyond your means typically falls into the categories of (really expensive) vacation homes and private jet ownership.  Even then there are programs that can accommodate you partially.

I like to think about $1 million per year of income not in terms of what that money CAN buy, but more along the lines of what it CANNOT buy.  That way, you can look at your earning power and say "what is it that I can't buy that making more money will offer me?"  Typically the answer is "not much" or "nothing that I'm willing to mortgage my life over."

Great Wil, so where is this going?

I had to go off course for a moment so I could point out why $1 million in income satisfies just about every need you could possibly have in realistic terms.  At that point you've got a sweet house, gorgeous cars, and your kids are living damn well.

So if we know $1 million buys us just about everything we could ever want, what does it take to get there?  Why are we so focused on building $100m companies when really $1m is all that it takes to live like a king?  And how quickly can get to that $3m number if we plan in those terms?

For that you'll have to wait for Part 2 - coming this week.