www.inter-sections.net/2007/10/01/a-hierarchy-of-earning-methods
A hierarchy of earning methods
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What’s the best way to earn money? Many people suggest that “working hard” is the way to make money.
Well, I agree, but only to the extent that working hard is an essential element. If you don’t work hard at all, ever, you won’t ever make lots of money. Also, there is a huge caveat: work that you enjoy might be called “fun” but it still counts when it comes to getting rich!
However, far more important than working hard, in my eyes, is working smart. First and foremost, that means making sure you’re working in the right framework, one that’s got a chance of getting you rich, that’s worth all that hard work. At the end of the day, it doesn’t matter how well you play the game if the game isn’t worth playing in the first place!
When I was working at my last job, at a large consulting company, there was plenty of potential to work hard. There were many things to do, particularly in the context of trying to impress the client to get more work. People’s workloads at the client I was at easily varied from 9 hours a day to over 14 hours a day plus weekends. Even without the client work, there was plenty to do for the company itself. One senior manager I knew didn’t even take holidays. On paper, he was supposed to be on holiday, but he was actually at the client, and billing the client. But is that the best way to earn money and get rich?
Ultimately, I have no doubt that it is possible to earn fairly large amounts of money by becoming a partner at a large consulting firm. But, and that’s the key, it’s a lot of hard work. To become a partner, you need to work your socks off for about ten years. Then, as a partner, the work doesn’t stop - you still need to continue to earn your keep, or else you’ll be replaced by a keener and harder-working partner who can do the job better. There might come a point where you can retire. As an executive in a large corporation, this is likely to come sooner than, say, as a school teacher, but you can trust that the system is designed to squeeze every last drop of useful work out of you before allowing you to leave and enjoy the fruit of your labour.
This is a great system from the point of view of the company. People are in competition with each other, and they need to keep on working hard to keep on earning money. If they stop working, the company doesn’t need to pay them anymore. Brilliant, eh? You’d even say “fair enough”, if you’ve had this system drilled into you since you were a child. In actuality, I think it’s a thoroughly unfair, brutally exploitative system. This becomes obvious when it is compared against the alternatives.
To make money (assuming you have no money to begin with), four major options present themselves.
1. Trade “all your time” for a fixed amount of money (i.e. a “full-time” job)
2. Trade your time directly for money (e.g. as a services contractor/consultant - but not as a salaried employee of a consulting firm)
3. Trade your time for a residual income (e.g. build a ‘product’)
4. Trade somebody else’s time for a residual income for yourself (e.g. get someone else to build your ‘product’)
There are some further variations you can elaborate from the 4th option once you have some money already (e.g. trade your money to allow someone else to do number 4 and get a share of their residual income, also known as investing), but on the whole if you’re starting without a large cash pile and your goal is to create one, those are your options.
In this context, it should become immediately obvious that the least appealing option is number 1. Yet, that’s the option the vast majority of people go for. Why? Because it’s the default option. I’ll get back to that in a later article.
In my view, number 1 is not worthwhile. Number 2 is somewhat worthwhile in the short run, as a stepping stone to number 3, as it allows greater income and greater flexibility, and thus allows you to build up the effort in the direction of number 3, which is where the first breath of freedom awaits. The reason for this is that in both cases, your future earnings are based on the work that you will do in the future, rather than the work you have done in the past. Sure, you need to have done that past work in order to even get the option of doing the future work, but ultimately, it’s a dead end - if you don’t do the future work, your past work is worthless.
Option 3, however, turns the whole game around. Now, your income is based on your past work. If you stop working hard for a couple of months, that’s ok - because you already worked hard for the last 6 months. Now *this* is worth working very hard towards. The reason is that every bit of extra effort you make will bring you more income later when you don’t feel like working so hard. Rather than a relationship between your time and your income, there’s a relationship between your achievements and your income.
I find that far more fulfilling, particularly since I am not a constant person. My work and my enthusiasm can reach very high peaks, but they can also vanish down bottomless pits on occasion. When I’m passionate about something, I’ll live and breathe it and do nothing else, but when I’m bored, it will take the devil himself (it used to appear to me in the form of a creature called “boss”) to motivate me to work.
Finally, however, there’s an even better option lying in wait. It requires some people skills, some leadership skills, maybe even a little bit of money to be able to hire someone when you need to (but with today’s outsourcing market, not as much as you might think). That is, to get someone else to follow option 1 or 2 to create residual income for you. Then you can just focus on the things that people who take option 1 and 2 typically don’t want to deal with: the risk, the uncertainty, having to make your own decisions; and you can leave all the grunt work to someone else. That’s option 4 for you. And that is a million times more powerful than the day job that most of us are stuck with.
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