The mainstream view of providing an income for yourself and your family is that you need to get a job and go to work every day. We are supposed to go to college to get an education in order to obtain a great job after we graduate. Once we get that job we need to go in and work every day until we find a better job or retire. I grew up thinking this was the way to become successful in life. I always thought that obtaining a high earning job such as an engineer, doctor, chief executive officer, etc… would be the pinnacle of success in terms of making money. I can’t tell you how wrong I was. I wish someone would have told me early on about the pitfalls of selling your time to make a living.
The problem with selling your time for money is that you have to do exactly that. You have to go into your job every day and spend your time providing a service to obtain money. I consider my time to be one of the most valuable things I have in life, so I try to use every second of it wisely. I admit that I will be selling my time to obtain a medical degree and then furthermore as a practicing physician. The problem with this is that if I die or for some reason and I can no longer work, the money stops coming in. If something happens to me I would no longer be able to provide for myself and my family in the future. There are three things that bother me when it comes to selling your time for money. First of all, you have to find someone willing to pay you for your services. You cannot control what job you will get and where it will be in many cases. Second of all, like I have said, the earnings end when you no longer show up to work. Third, you are spending one of your most valuable assets in life, time for money.
Now let’s take a look at the scenario in which you own a business or collect royalties. Let us say that when you were 18 years old, you started mowing lawns for extra money during the summer. Your customers loved the work you did on their lawns, so you expanded the business. Several years later, you have a full blown lawn mowing service that employs around 15 workers. This company generates around $40,000 of profit a year, and it has room to grow. The beautiful thing is that you now have an entity that generates cash independent of your time largely. Sure, you still have to manage it, but for the most part it runs itself. If you were to die, then your son or daughter could take over. The $40,000 a year in profit would still be coming in whether you are around or not. If it were growing at a reasonable rate, then you could also sell it. Let’s say at 10x earnings, so you could sell it for $400,000. These numbers are for a small business. If you had a business generating several hundred thousand a year, then the numbers would be even more impressive.
There are other forms of income that are much more time independent than having a day job. You can write books or make music. Royalties on items such as these will continue to generate cash throughout not only your lifetime but also afterwards. Your heirs will collect the royalties from something you did decades ago. The same cannot be said of being an accountant or doctor. A portfolio of dividend yielding stock can generate cash independent of your time, and the dividends will roll in regardless of whether you wake up early in the morning or not. You could be sitting at home watching movies, and the money would still be deposited into your bank account regularly.
Businesses, royalties, dividends, etc… they all generate cash independent of your time. They will continue to gush off streams of cash long after you pass, and while you are still alive, they allow you more time to enjoy life. Why then does everyone see getting a day job as great success? Why is having a college degree so much more illustrious than owning a lawn care business or plumbing business? The businesses have so many more advantages. I am not sure of the answer, but I wish I would have known the drawbacks of getting a regular job when I was kid. I plan on using my job as a doctor as my economic engine to provide capital for projects that will generate royalties, dividends, and profit without a huge time contribution from me. This is one way I plan to retire at age 55 with a passive income of around $1 million.