Are You Trading Too Much Time for Money?

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One of the more interesting things I’ve heard about recently was a piece about how the wealthy think differently than the middle class.

Steve Siebold, the author of the book How Rich People Think, interviewed more than a thousand millionaires and billionaires and came up with some information on the way that the wealthy approach life.

Among Siebold’s most interesting observations is the fact that, in the middle class, many people trade their time for money. Here’s what Siebold points out:

Formal education teaches people how to think and perform in the linear world of commerce, but the rich rarely become wealthy trading time for money.

This made stop and think. Am I trading too much of my time for money?

The Problem with Earned Income

According to Siebold, the emphasis on getting advanced degrees — and even four-year degrees — might be preventing some of the middle class from joining the ranks of the super-wealthy.

After all, a formal education prepares you for a job or career. It doesn’t really prepare you to engage in some form of wealth creation.

I know that when I was working as a business to business sales manager, I traded my time for money. From talking with customers to flying all over the country to have meetings with them, I spend time and effort in exchange for payment. This is earned income. Earned income can be a great way to live comfortably, and even provide you with a way to set aside money for the future, building a nest egg for retirement (if your job is a “good” one). After all, I was already making six figures over ten years ago.

However, earned income rarely results in financial freedom right now. And it doesn’t set you up to eventually rely on regular, organic revenue streams, rather than always having to give up time in order to get money.

To this end, many of those who are wealthy cultivate diverse revenue streams that involve passive income.

How to Develop Passive Income

I’m not going to lie. Passive income does require a lot of work to get going. In order for your portfolio to pay enough dividends to matter, you have to put in capital and saving doesn’t happen as soon as you get the idea. You can look into dividend stocks and more high yield investments, but you are taking a risk that the companies you pick will do well long term. If you are talking about building a business from the ground up, then that’s even more work. You can also become involved in a creative endeavor designed to provide you with royalties, but that doesn’t happen overnight.

The common thread here is that you first have to put in the time. The good news is that once you have a few years of effort under your belt, you’ve cultivated passive income that provides you with revenue — without the need for you to always be trading in your time.

Instead, you have a little more flexibility and freedom. To a certain extent, a career like the one I had provided some of that. At the very least, I didn’t need to stay in the office all day and when I’m out and about, I can schedule my own meetings as long as everything that needs to be taken care of gets looked after. However, the job was my life, since I was routinely working 70 hours a week. I was trading my time, if not my life, for money.

That changed when I started I still worked really hard, maybe even harder when I first started, but I was building something that could last. If anything, I was much more flexible, because I can set my own hours and work as much or as little as I want. I can go on a vacation on a whim, or play in the day time and work at night. I can also only work during 9-5 on weekdays if I wanted.

I also kept investing. It took years of saving to see my nest egg grow, but my investment portfolio now throws off enough income to make my life much less stressful. I still run, but I’m at the point where much less of my time has to be used to earn a living.

What about you? Let me warn you again that nothing is going to happen overnight. I started in 2007 and I have been investing since I was a teenager, almost 30 years ago. Things take time to build, but the good news is that anything you build will help you much more than if you never started. For example, if you need $1 million to throw off enough income to pay for your living expenses, then even reaching $100,000 means you only need to work 90% to make ends meet. Procrastinate on saving and investing and you’ll have to work 100% forever.

What do you think of Siebold’s observation? How much of your time are you trading for money?

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{ read the comments below or add one }

  • JohnInEssex says:

    A good source of passive income that hasn’t been mentioned is cash back credit card rewards. Of course this can only work if you pay off your balance EVERY month.

    Wish I would have discovered this free money sooner – pays better than most CD and saving accounts. Easily was able to earn over $700 last year for doing what we normally do anyway. We use as little cash as possible so that we can earn 1.5 – 3% back. Gonna get a credit card from AARP that gives back 3% on gas and restaurants all the time.

    Granted $700 may not seem all that much, but it’s ‘free’ money.

    It also illustrates how much money the banks are making that they can throw up to 3% back to you.

    If only we could charge our mortgage… :O)

  • fred johnson says:

    You typically have to work very hard—use your time—to build up enough cash to create any sizable passive income. This story is kind of corny. You’d need $3.5 million sitting in 3% dividend stocks just to make about $100k a year of passive income. $100k a year is not “wealthy”. Even $10 million sitting around will only get you about $300k a year and that’s still well below Obama’s top tax bracket, so you aren’t even in the top 1% of taxpayers. 99% of folks will NOT live entirely off passive income they created on their own. But….their passive income will supplement their earned income. And…..I don’t consider a bunch of rental properties or a self employed business as “passive” income because you are working much harder than 40 hrs a week to succeed at these. I know all too well because I own two businesses and I have well in excess of $3 million in stocks sitting around.

    • Anton Ivanov | Dreams Cash True says:

      So if most will never be able to live off passive income, how does anyone hope to retire? Because in retirement that’s exactly what you are doing – living off your passive income (I suppose you can be drawing on your principle as well, but I’m highly against that).

      Yes, it takes time to generate enough assets to be able to quit any sort of employment. But I would like to point out that income needs vary, and somebody may be fine with living of $50k a year. That would require just under 2 million using your math, which is not that high of an amount.

  • Alex C says:

    So true. Either way you are going to have to work whether that is building your own business or someone else’s business with the latter not offering much freedom or money.

    Either way most people will work 40 or more hours a week, but most put it into a job. Few put it into building a system. A system that time is invested once and then you can continue to draw benefits from it.

  • J says:

    Couldn’t agree more. Trading time for money is a sucker’s bet, but one the majority of Americans have been trained from birth to pursue as the only game in town. I recently played Cashflow, the Rich Dad Poor Dad board game designed to get people to think differently about money. It had a huge impact on my thinking, and is one of the reasons I’ve started down the path of passive and investment income instead of playing the time/money trading game.

    I haven’t read How Rich People Think yet, but I’ll have to put it on my list to read and review.

  • John S @ Frugal Rules says:

    Good insight. I would tend to agree with Siebold’s assertion. I also think that part of it also goes back to the fact the we teach very little about wealth creation in schools or in society as a whole. I would argue that those who are better off financially will, in general, will be teaching it to their children and passing it on that way.

  • @debtblag says:

    Perhaps. But time is one of a few resources (energy as well) that younger people have a lot of. However, you’re right that it makes sense to use a good deal of that time and energy toward building passive income streams (for when we don’t have so much time and energy).

    • Anton Ivanov | Dreams Cash True says:

      Time is the most valuable resource anyone has. It can never be replaced unlike pretty much everything else in life. A 9-5, trading time for money lifestyle isn’t going to make anyone wealthy.

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