Have you ever stopped to think about what the word “job” means? Or what it means in the context of wealth-creation? When you take a really close look, a startling truth is revealed: Jobs don’t create wealth.
A job is meant to support your lifestyle and provide a living. That’s all a job does. The problem with thinking a job is good for wealth creation is that you can only work so many hours a week. You can only work so many weeks in a month. In other words, there’s a ceiling to how much money you can really “make.”
That’s why most financial advisers and money gurus suggest investing your money. It’s one of the best ways to create a passive revenue stream. A passive revenue stream is money that is created without you having to work for it.
And that’s what the power of compounding interest does for you!
What Job Stands For (Not Wealth Creation!)
One of the funniest acronyms I’v heard making fun of job is “Just Over Broke.” How true.
Most people live and die by Parkinson’s Law. Parkinson’s Law states that the level of spending will rise to met the level of income. Put it another way: You spend money as fast as you make it. Frequently, the level of spending is more than what the income provides, which is why many people end up swimming in debt.
So if a job is one of the poorest ways to create wealth, then what’s a better way? Investments of course! You should consider investing ten (10) or twenty (20) percent of your monthly gross income. The best way is just to open up an investment account and have the money be automatically withdrawn and transferred. That way, you don’t think about it. And you can’t spend money you don’t have.
You also learn to live well within your means with the money you do have. That way, when you get a raise, instead of spending that money, you really don’t need it anyway. By the point, you’ve learned to live with what you have. So what do you do with that raise? Why invest it of course!
How Much Should You Save?
First, let’s clear something up. When I say “save” I don’t mean not spend your money and put it in a bank. I don’t mean to leave it in a low-interesting savings account or a zero-interest checking account.
Save includes investments. When that money is in your investment accounts, it is in essence “saved”. It’s sitting safely in these accounts where it can’t be spent. Instead, it’s creating a passive revenue stream for you.
So how much should you be saving? I’d say about ten to twenty percent of your monthly gross income. This may sound like a lot, but it really isn’t. Don’t forget to count your 401(k) as savings, too.
Through the power of compounding interest, your money grows exponentially. In fact, do you know what happens if you didn’t spend $30,000 on a new car but invested it? In about 30 years, that $30,000 turns into approximately $300,000!
Consider Running a Business to Create Wealth
The next best way (but it’s not for most people) is to run a side business. In other words, create more money. The only way to create wealth quickly is to have more money. And the benefits of running a business are tremendous. You get a tax deduction on most business expenses. You have a creative outlet. You are in service of other people. And most of all, you grow as a person.
Most people would rather plop themselves in front of the TV after work for the evening than to pick up a good book and educate themselves. But that’s all you really need to get ahead of everyone else. You just put in an extra hour a night, something that most people aren’t willing to do. In a week, you’re ahead of everyone by 7 hours. In a year, you are some 2555 hours ahead of everyone else. This is called being the expert.
And that’s what businesses do. They help people solve problems. You become the expert and people seek you out for help.
Education Is Key to Creating Wealth
Let’s say you don’t want to run a business. After all, it is almost another full time job and most people just don’t have the heart to fail many times to find what works for them. You are still better off hitting the books every evening learning about something which interests you. For example, you can learn how to better manage your money. You can learn about the mindsets behind saving money. You can learn what wealthy people do to grow their net worth. I’m willing to bet you’ll find a lot of it has to do with paradigm (mindset) shifts.
College only shows your employer you know how to learn. As a person learns, she realizes she truly knows nothing about the world. She becomes aware of what she does not know.
And so it is with the money game. It’s all just a game. You just have to learn how the game is played and play it well. Money, after all, is just an idea. It’s no concrete, meaning that if you just won a million dollars and asked to see the actual pile of bills, you’ll never see it. It exists as a magical number in your computer, created by the government. Currency only has value because our government says it does and because people value it.
Investing Is the Key
This bears repeating: A job is not the key to creating wealth. It is a means to enable a lifestyle and create discretionary funding. You also have obligatory funding. Think of it it layman’s terms: You have money you have to spend. And you have money you don’t have to spend. Money you have to spend are on things like groceries, medical bills, rent/mortgage, child care, utilities.
On the other hand, money you don’t have to spend means turning down the thermostat to save on heating costs. It means buying a used car instead of that new German import. It also means passing up on an expensive cup of Starbucks coffee everyday. Finally, it also means bringing your own lunch rather than going out to eat every day.
Once you’re able to create more discretionary funding, it’s time to invest that money.
You don’t have to be an expert at investing. You just need to know enough to make sure your financial adviser knows what she is doing. I use Personal Capital for my investments. I just make it a habit to transfer part of my paycheck into these accounts every pay period. That way, I can’t spend what I don’t have, and I continue to grow my wealth.
Think in Terms of Net Worth
Poor people think in terms of income. Wealthy people think in terms of net worth. Net worth is your actual worth after you take all your assets (stocks, appreciation in real estate, money in the bank) and subtract it from all your debts (car loan, mortgage, credit card debts, student loans).
Think about this the next time your friends talk about how much money they make (if they talk about it at all). Most people seem happy and proud when they hit the 6-figure mark in terms of salary. What they don’t realize is they can make $200,000 and still be poor. Remember Parkinson’s Law?
Or to put things into another perspective, a person can make six figures in the Silicon Valley and still feel poor. As a matter of fact, some studies have shown that in order to afford a house in the Valley, one’s salary needs to be over $200,000!
So start thinking in terms of net worth, not income! Personally, I like Personal Capital’s net worth tracking. With so many accounts spread across many banks, it’s hard for me to keep track of everything. Personal Capital aggregates all your accounts and provides you a snapshot of your net worth and spending.
How it works is you give Personal Capital access to your accounts (don’t worry, they are a bonafide business run by the same CEO who used to run Intuit). It took me many months of research before I was comfortable doing this. Your passwords are protected by a strong encryption key and actually stored offsite. That way, if your account gets compromised the crooks will not have access to your keys. Also, your passwords are not shown so they cannot go to your bank’s actual web site and access your accounts that way.
You’re Trading Time for Money
At the end of the day, you’re trading time for money. The prosperous and you have the same number of hours in a day. It’s just that the wealthy have chosen to make efficient use of their time by investing.
A job is the dumbest way to create wealth for this reason. Your boss will work you for as much as he can get out of you, without regard for your weekends or your time. Don’t work your life away making someone else’s dreams come true. Decide what it is you truly want. Ask yourself what you would do if you win the lottery or come into million dollars tomorrow. Now that you have the time and the resources, what do you really want?
It’s time to take a stand and decide. Decide you will create wealth. Decide that you will put your money to good use, creating a passive revenue stream. Most of all, decide that a job is the dumbest way to create wealth. Jobs only cover your expenses, enable your lifestyle, and move you towards what you want, which is creating the money to invest and building financial freedom.