A Short Essay on Income

The Merriam-Webster dictionary defines income as “a gain or recurrent benefit usually measured in money that derives from capital or labor;”. For most of us, our income comes from our labor. For some of us, our income comes from the labor of others. For a few of us, our income comes from our capital, removing the need for labor.

It’s this last category we should all aspire to achieve.

So why is it most of us are content to wallow in the first category? The place where 100% of our income comes from 100% of our efforts. An example; we have a job, or worse, a career, that consumes our lives. We sacrifice our faith, our family, our friends and our fun in pursuit of the next deadline, the next raise, the next promotion. Only to have it all taken away from us when the company has a fiscal crisis and we’re ‘downsized’.

Some of us feel we've escaped the fear of corporate downsizing and taken control of our financial future by becoming self-employed? We've thrown off the yoke of employment and struck out on our own, removing the fear of not being in control and eliminated the cap placed on our income by our employer. What many of us don't realize is we've replaced the possibility of downsizing with another often unconsidered reality.

What happens when we lose our ability to labor for our income? What happens when we become too sick to work or suffer an accident that impairs our ability to practice our trade? We think this will never happen to us, as those with careers think they'll never be downsized. Many families have been financially ruined by such flawed thinking.

For those of us that have moved to the second phase of income, we've mitigated most of the concerns of the first category. As business owners with employees, or better yet, a cadre of independent sales associates, we've taken steps to ensure our income should remain intact if our own ability to labor is reduced. We've learned the art of leverage.

This is still far from an ideal situation. Having employees to manage, or a sales force to lead does present its own challenges. Once we involve people in our income formula, there are more variables to consider, but the ability to leverage those people can generate greater returns, allowing us to exponentially increase our income, without increasing our labor. John D. Rockefeller once said, "I would rather earn 1% off a 100 people's efforts than 100% of my own efforts". Many would argue that Rockefeller understood income.

The danger to income generated from a business that leverages other peoples' efforts is market volatility. We may have the best business, with the best people and the best product, but if the market for that product goes south, our income goes with it. So does the income of the people we are leveraging.

The third method is to eliminate the need for labor, either ours or anyone we are leveraging, from the income equation. Few people have achieved this level. Those that have managed to separate labor and income have discovered the dream that is true financial freedom. Whether from dividends on investments, residuals from work done in the past, or overrides from a trained and developed team, passive income is the most resilient form of income. It's also the only one that has the potential to grow larger, without our involvement.

Of course, none of these three methods is without their risks. The best solution for us to generate a stable, reliable and controllable stream of income is to diversify our sources. Utilizing this strategy allows one method to absorb the shortcomings of another.

A final thought on income. We should be making an income to live, not living to make an income. If our income generating method is causing us to forsake relationships, passions, experiences and time, it's not worth it. Income doesn't buy happiness. Spending time enjoying life and giving back to others buys happiness.

If we need more income to give more and enjoy more, we're mistaken. There's an easy way to increase our income. Spend less. It's not how much income you earn, it's how much income you keep!