There are 24 hours in day and 7 days in a week. Most of us spend 8+ of those hours 5+ of those days engaged in an activity that we simply don’t enjoy. Yep, I’m talking about work.
Oh sure, some people love their job! I love.. err.. like my job most of the time. But the true test of whether you really love your job is this: would you do it for free? I’ve got a shiny silver dollar that says you probably wouldn’t. So why do we do it? Why do we sell so much of our precious time?
Because we have to, right? We’ve all got bills to pay and stuff that we saw on TV that we have to buy. But I’d like to propose an alternate solution: instead of buying a bigger house or a new car, why not buy something far, far more important?
Why not buy the most important thing money can buy: your freedom.
My fellow blogger, jlcollins said it best: “Freedom is the single most valuable thing that money can buy” and I agree 100%. Imagine what you could do with your life if you bought back those hours, the best hours of the day? Could you work on improving your health? Could you pick up that hobby you’ve always wanted to try? Could you start your own business or volunteer more?
There’s a lot you could do with that time, if you could only buy it back. Thankfully, you can! And while it’s not hard, it’s also not easy. It takes time and no one is going to do it for you. You have to take charge and do it yourself.
Like all change, it starts in your mind. You have to view your time as a commodity and see that it has a price. You’re selling it to your employer right now and the compensation you receive is your paycheck.
Let’s say that you make $20/hr. This works out to $40,000/year if you work 8 hours a day for 52 weeks a year. This is actually less than the national median income in the US according to Wikipedia. Plus it’s a nice round number :). We’re going to ignore taxes and inflation to keep this example simple.
If you make $20/hour, and you had $20 set aside in your savings account for a rainy day, you could just move that $20 into your checking account, use it to pay your bills, and take an hour off. If you had $4,000 then you could take a month of unpaid leave. Of course, once you do that, the money is gone and you have to continue working.
What if you have an income stream, like a savings account or investment, that paid you $20/month? With that $20 coming in, with little or no effort on your part, you could take an hour off every month! You’ve effectively bought back an hour of your time, one hour per month, for the rest of your life (assuming that income stream doesn’t dry up). This is exactly what my family is doing with our real estate business.
Developing Income Streams
To create an income stream, we require another definition: Capital
Capital: Cash or goods used to generate income
When you set aside dollars to create an income stream, it becomes capital. And you should never touch it. Not ever! Your goal should be to live off the income stream itself, not the dollars which created the income stream. It goes back to the story of the goose that laid the golden egg: the goose is your capital and the eggs are your income. Properly invested, your capital will continue to generate income for your entire life. But if you spend your capital – if you kill your goose, your income stream will dry up and there won’t be any more golden eggs.
Going back to our example: how much capital does it take to create an income stream of $20/mo? That works out to $240 a year. The amount of capital depends entirely upon what rate of return you can achieve:
You can see that even a 1% difference has a huge impact on the amount of money you will need. But in the beginning, if you’ve never invested before, don’t even worry about it! Just start building up capital. There will be plenty of time to figure out what to do with it.
The trick is that there is no trick (which was a trick in itself :)). If your $20/month income stream buys back 1 hour per month, then multiply that by 40 and we see that an $800/month income stream can replace a whole week of work. And a $4000/month income stream would replace the need to work entirely!
Ok, maybe there is a trick: if you don’t need your whole salary to get by, then you don’t have to replace your whole salary. You just have to pay all your bills – and then some. How much beyond your expenses is up to you, but if you live a frugal life like Jacob from earlyretirementextreme.com or Mr. Money Mustache then you can be free a lot sooner than if you set out to replace your whole salary.
When you are first starting out, you can take the income from your income stream and reinvest it, thereby converting it into more capital. Capital creating income which becomes more capital is called compounding and Albert Einstein said it was the greatest invention in human history. No kidding!
The Journey Begins with You
The Chinese philosopher Lao-tzu said that the journey of 1000 miles begins with a single step. I’m here to tell you that the journey to buy back your life begins with a single dollar. I don’t care who you are: everyone can squeeze a dollar out of their budget. Your freedom is the most important thing you could possibly buy, and the journey can start right now if you’re willing to make it happen.