There are 2 ways to make money: Man Work and Money Work.
You might also see this expressed as Labor vs. Capital.
Building wealth requires knowing the difference between the two and utilizing BOTH over the course of your life.
Man Work (Labor)
Man work is what most people think it is: trading time and energy for income.
But wait! What about things like skills, knowledge, experience, attitude, and ideas?
Actually, you don’t trade those things directly for money. In fact, they determine how much income you get for your time and energy.
An in demand skill like coding or an impressive resume on it’s own doesn’t equal a higher income than a high school diploma and no work experience. It DOES equal a better return in exchange for your time and energy. While the person with skills and experience is trading their time and energy more efficiently, they are the same as a high school kid at his first job in the sense that both still need to contribute Labor in order to earn an income.
Money Work (Capital)
Money work is making money by, well, simply having money. Getting paid interest on a savings account or dividends from stocks requires having extra money after funding your lifestyle – money that you don’t need.
In most cases, Money Work is only possible after a certain amount of Man Work. For example:
- Investing is only possible after 2 things:
- Acquiring enough money to invest in the first place – for most people, this comes from working.
- Gaining knowledge about investing – again, more work
The same could be true for savings. There is the man work needed to build up the capital to invest AND the man work needed to figure out what you want to invest in.
You could also argue that monitoring and managing your own investments is still Man Work as it requires time and energy (although certainly not 40 hours a week for the average investor!). Managing a portfolio that pays you enough to live on yearly is a lot more efficient (in time and energy) than working 40+ hours a week (and commuting, decompressing, etc.) but it’s not something you don’t EVER have to work on.
The reality is that, aside from inheritances and windfalls, Money Work requires a substantial amount of Man Work to exist. The blogger earning $5000 in “passive income” has likely put in thousands of hours writing, editing, designing, and marketing to grow their blog to that size. The trader making thousands of dollars in a day has spent a ton of time watching the market, reading charts and reports and learning about investing.
Making Your Income “More Passive”
The key point is that Man Work (Labor) is the time and energy we trade for income.
I don’t think 100% passive income exists – even if you inherited a ton of money, you still have to take the time to manage it. So if we want to have more control over our time and our energy (which we can never get back), we have to get as close to 100% as we can.
To do this, think about how efficiently you trade your time and energy for money. It’s probably easiest to use your day job as the benchmark. Compared to your job, does other income you earn take MORE or LESS time and energy per dollar?
This isn’t set in stone. Just think about right now. As your assets grow, your gains and losses grow. People saving a lot in investments often reach a point where the market swings total more money than they make in a year! Maybe you spent the last year reading and learning about investing and feel confident that you can jump in. But right now, it might only take you a few minutes to set up an account and pick some funds. As your funds grow, a dollar in that account will be earned with less work than a dollar coming from your day job.
We can’t get to 100%, but you know what? We don’t need to. 1-99% is still pretty damn good.Posted by Matt on .
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