Most of us are familiar with the notion of income and expenses, gross and net, profit and loss. These terms frequently work themselves into conversations about our financial wellbeing when we describe our income as X or our ‘take home’ as Y. However, there is a somewhat more complex understanding that makes income and expenditures take on a new dimension.
One of the famous quotes by Robert Allen is the observation that “Wealth is when small efforts produce large results, and poverty is when large efforts produce small results.” This sentiment can be extended toward your personal income by asking how much effort you must put forth for each dollar of income that you earn. This will give you a good idea of how far your talents can be leveraged to create income.
Another way of thinking about this concept is to classify your efforts into High Maintenance Income and Low Maintenance Income. High Maintenance Income (HMI) must be worked for with consistent, difficult effort. Low Maintenance Income: (LMI) is earned passively, and requires relatively little direct effort. In many cases, people believe that the key to prosperity is to increase their hourly earnings. However, they eventually find that their ability to increase hourly earnings hits a plateau. Furthermore, many highly compensated occupations require large time commitments and extensive travel.
Conversely, pursuing Low Maintenance Income means that you will be constructing a portfolio of passive investments that do not require direct effort from you to produce earnings. By leveraging your time and effort, it can allow you to continue growing your income without increasing the amount of hours you work. In some cases, you will even be able to increase your income while decreasing the hours of work by cutting or outsourcing low value activities.
Generally speaking, High Maintenance Income can be earned by simply working more hours. This makes it easy in the short-run, but difficult in the long-run. On the other hand, Low Maintenance Income requires significant up-front effort, but produces continual returns once it is set in motion. This makes it difficult in the short-run, and easier in the long-run. Most people have a mix of High and Low maintenance income. The ‘secret’ to building great wealth over time is to systematically replace the High Maintenance Income with Low Maintenance Income so that each month, year, and decade brings you closer to financial freedom.
The art of designing your income can only be employed if you are willing to be decisive and take action. It requires the acquisition of financial intelligence, the courage to fail, and the ability to adapt when new opportunities present themselves. For those who master this art, and create a perpetual machine of investments that produce Low Maintenance Income, there is literally no limit on the wealth that they can accumulate or the opportunities that the wealth will create. The key is continually taking action to design your income so that it takes the shape of your dreams and ambitions.
The Solomon Success Team
Flickr / stevendepolo
Tags: design your income