Relative Income, It’s a great concept so what is so many of us don’t seem t get it.
As I was working today I was re-reading The 4-Hour Workweek: Escape 9-5, Live Anywhere, and Join the New Rich, by Timothy Ferris by listening to the audio book edition as I was working today I was reminded of a passage I really enjoyed when I read it the first time through.
Two hard-working chaps are headed towards each other. Chap A moving at 80 hours per week and Chap B moving at 10 hours per week. They both make $50,000 per year. Who will be richer when the pass in the middle of the night? If you said B, you would be correct, and this is the difference between absolute and relative income.
Absolute income is measured using one holy and inalterable variable: the raw and almighty dollar. Jane Doe makes $100,000 per year and is thus twice as rich as John Doe, who makes $50,000 per year.
Relative income uses two variables: the dollar and time, usually hours. The whole “per year” concept is arbitrary and makes it easy to trick yourself. Let’s look at the real trade.
Jane Doe makes $100,000 per year, $2,000 for each of 50 weeks per year, and works 80 hours per week. Jane Doe thus makes $25 per hour.
John Doe makes $50,000 per year, $1,000 for each of 50 weeks per year, but works 10 hours per week and hence makes $100 per hour.
In relative income, John is four times richer.
… The top New Rich mavericks make at least $5,000 per hour.
The other day I was in one of the discussion forums and I heard one contractor telling another fellow that was getting set to start out on his own that he could expect to spend
“…65 hours working [in the field], another 20 for office crap”
…and I thought that was just insane. That’s not a life, it’s a self-imposed prison sentence and in my estimation evidence of poor business design. To his credit, the guy who was putting the pieces together and doing the planning to go out on his own wasn’t buying into any of that insanity. The insane guys who work that kind of schedule (and there are lot of them out there) are often the ones who don’t have a decent or respectable Net Profit margin in place and try to make up for that lack by doing it “in volume“.
Generally speaking, contractors need to work smarter learn to substitute that for working harder and longer.
Perhaps the key central premise of the book The 4-Hour Workweek is that you are only “rich” if you have leisure time to enjoy yourself. It probably should go on the contractors required reading list.