You ever notice people get funny over money? And often times are willing to do just about anything to get it.
When I hear personal incomes being thrown around I’m always left wondering “how did they make their money?”
And I don’t mean, were they a doctor, a teacher or some other profession.
I want to know if they had to work hard for their money (earned income) or did their money work for them (portfolio or passive income)?
In the cases of the rich and wealthy it usually is the latter.
But this post isn’t about earned, portfolio or passive income.
It’s about two other types of income that the Rich have mastered.
I have had the opportunity to learn from not only the Rich, but the greatest teacher of all…personal experience.
In college I planned to become an investment banker and make lots of money until one day an alumnus came back to share his experience as an investment banker. He had been working at the bank for 6 months, worked 18-20 hour days and his 3 year relationship had ended because he had no time for anything other than work.
Ever since that day I continued to want to make a lot of money but not at that cost. The reason I wanted to make a lot of money was to have the freedom to do what I wanted.
I”m assuming that you feel the same way. Yes you desire to make a lot of money, but that is a means to an end. The end is having the life you want, the time you want, the freedom to call your own shots in life.
In the example I mentioned above, an Investment Banking job was the hot job on wall street when I was in college because you could graduate college and make $100,000 your first year out of school. So in the business school, everyone wanted this job.
Everyone wanted this job because they measured money in terms of Absolute Income. Absolute Income only considers the amount of money you make, and gives no consideration to anything else.
At that time, the Investment Banking job was the highly coveted job because there was no other job where an undergraduate was going to earn $100,000 upon graduation.
What I’ve found though is that the wealthiest people in the world focus on relative income. The wealthy focus on relative income because relative income takes into consideration our most valuable commodity…our time.
Relative Income is measured by the income you make and the time you spend working.
So lets figure out how much the Investment Banker makes in Relative Income.
Lets use the lower end of the amount of hours he said he typically works -18 hour days.
18 hours x 5 days = 90 hours / week
$100,000 / 52 weeks = $1,923 / week
$1923 / 90 hours = $21.36 / hour.
$21.36 per hour. All of a sudden that $100,000 income doesn’t seem as attractive (and we haven’t even spoken about how earned income is taxed at the highest tax bracket yet, which means he keeps even less, but that is another blog post).
Let’s compare this to an Entrepreneurial Investor, who runs his own business, controls his own destiny, and understands the value of his or her time. This investor is willing to work hard upfront. This Entrepreneurial Investor understands he may make less money than his peers initially, but thats ok because the best is yet to come. This investor is willing to invest the time now, because he knows doing so will give him the needed leverage to make more and more money with less and less of his time as the years go on.
And his first year the Entrepreneurial Investor works hard, building his business and investments and also puts in 90 hour weeks but only makes $50,000 .
90 hours / week
$50,000 / 52 weeks = $961.53 / week
$961.53 / 90 hours = $10.68 / hour.
$10.68 per hour is certainly not much money. But the difference is how the Entrepreneurial Investor spends his time. The Entrepreneurial Investor spends his time learning about business, real estate, cashflow investments that will produce passive income. So the Entrepreneurial Investor is ok that he put in 90 hour weeks and only made $10.68 / hour his first year. Not only is he ok with this but he is super excited because he is acquiring assets and building teams and systems that will continue to pay him passive income and allow him to work less and less.
And each year the Entrepreneurial Investor spends his time acquiring assets and building teams and systems. He is working HARD. Yet he sees his friends and buddies working who may or may not be working as hard as him, but making more money than him, buying fancy cars and fancy houses.
The fruits of the Entrepreneurial Investor’s labor takes time to fully blossom to reap the sweet benefits.
And after a few years though, things begin to change. The Investment Banker is making even more money now. He got a 50% raise to $150,000. His relative income is now $32.05 / hour . But he is working harder than ever. After being at his job for 5 years he hates it. He is tired of the long hours. he wants to quit, but he finds himself in the same position he was before he took this position…needing money. He now has the fancy cars, the big house and if he quit his job, he wouldn’t have the money to continue to pay for this desired lifestyle.
The Entrepreneurial Investor on the other hand now is starting to see the benefits of his hard work. He too is making $150,000 / year but instead of working 90 hours per work he is working only 60. His relative income is now $48.07/hour (50% more than the investment banker).
Over the next 5 years, the Investment Banker decided to stick with his job because he needed the money and he got another raise and now makes double the amount of money he did 5 years ago, $300,000 which in relative income is $64.10 / hour.
The Entrepreneurial Investor has continued to acquire more assets by leveraging the systems, teams, businesses and investments he has been acquiring. The Entrepreneurial Investor now makes $500,000 and works just 30 hours / week which is $320 / hour in relative income.
So at the end of 10 years, the Entrepreneurial Investor not only has higher relative income but he also has higher absolute income.
So you may be wondering how the Entrepreneurial Investor ended up with more absolute income if his focus was on relative income. That’s because when you focus on relative income you have to focus on things other than yourself because the way to maximize your relative income is to leverage other people, other money, other systems etc.
And when you use leverage effectively, not only does your relative income increase, so does your absolute income.
The rich focus on relative income and that’s what has their absolute income skyrocket.
This is why they are rich.
I share this example with you because this has been my personal experience. Now I’m not at the point where I make $500,000 working 30 hours / week yet, but it’s coming.
When I first started this journey my friends and colleagues I graduated with were making a lot more money than me. Today, years later, in some cases I have exceeded what they currently make and others still make more than me.
But I have a more valuable commodity than money… Time. I have the time to do the things I love such as travel the world and spend time with the people I love most. And each year I continuously work on freeing up more and more of my time and acquiring assets that make me more and more money.
I’ve had lots of set backs and obstacles along the way and I will face more moving forward. I’ve lost money, spent lots of money and made some huge mistakes. And as we all know, we learn the most from our biggest mistakes. The difference is I keep going go and never stop no matter the mistake. The mistakes that I’ve made in the past and the new mistakes I will make in the future all have me be a more successful business person, investor and human being.
I realize this lifestyle isn’t for everyone and the process of how I got here certainly isn’t for everyone either. It’s been hard work. I’ve busted my ass and guess what… there is still a lot more to go.
I’ve realized that this game doesn’t end. There is always what’s next. No matter what you do, what you accomplish there is always something else. Me personally, I love that. That’s what gets me up in the morning. Knowing that there is something else, a new challenge, something else to learn. Getting up each morning excited to get the day started.
I can’t live my life any other way. For me this is the only way.
P.S. I’d love to hear your thoughts and feedback by posting a comment below
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