Sunday, April 21, 2024

Here’s a rule of thumb about making money

by gemnews
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Stacks of cash standing against a red and white background
There are two ways to make money…
  • There are two basic ways to make money: 1) get paid to do things and 2) own things.
  • Most people make most of their money by getting paid to do things.
  • People who make fortunes generally do it by owning things.

At some point in your life and career journey, you will probably want to think about money — specifically, how important money is to you, how much of it you think you might want or need, and what you are willing and able to do to get it.

Importantly, you'll want to answer these questions for yourself. Money means different things to different people. And although research suggests that, up to a certain income level ($75,000 a year, in one study), money does increase happiness — beyond that, it often doesn't.

Also, there's peer pressure. If you want to have a family, or live in an expensive city or town, or hang out with people who make a lot of money—and you're not lucky enough to have independent means—you might need more than $75,000 a year to feel not-miserable about money, maybe a lot more.

So you'll want to figure out how important money is to you, as opposed to other people, or you may end up strapped and stressed or wasting a lot of your life, energy, and passion chasing someone else's idea of success.

Money is a complicated career topic, so I'll devote several articles to it over the coming weeks. Today, I'll share a basic rule of thumb.

How to make money and build wealth

There are three ways to legally acquire money:

  1. Inherit it

  2. Marry it

  3. Make it

You can't control the first. You have some control over the second — and many people do view money as a valid partnership consideration. But this is a career-advice column, not a dating-advice column, so let's focus on the third.

There are two basic ways to make money:

  • Get paid to do things

  • Own things that generate cash and/or appreciate in value

The vast majority of people make most of their money by getting paid to do things. Most net worth, however, is made by owning things.

Just look at Warren Buffett.

As the CEO of Berkshire Hathaway, Buffett has, famously, earned a modest salary of $100,000 per year for 40-odd years.

As the largest owner of Berkshire Hathaway, meanwhile, Buffett owns about $120 billion of the company's stock and has become the ninth richest person on Earth.

Even if Buffett had paid himself like a normal CEO, he would have earned only a fraction as much from doing the job as he did from owning the company, especially after taxes.

So that's your rule of thumb:

To make a living, focus on getting paid to do things.

To (try to) build net worth, focus on owning and growing things.

There is, of course, a potential downside to owning things. You can also lose money. Sometimes all of it. (Stock markets do crash, for example. And most startup companies fail.)

And most people, of course, do some of both—earning and owning. 58% of American households have investment accounts, for example. And 66% own houses.

Even people who build vast wealth by owning and growing things, moreover, often start out by getting paid to do things — sometimes while learning the skills and saving the money they need to create or buy the things they will eventually own.

For example, Todd Graves, the founder of Raising Cane's, a fast-food chain that makes chicken fingers, made the money he needed to start the company by refitting oil rigs and fishing for salmon in Alaska. Twenty-five years later, Raising Cane's has 600-plus restaurants and Graves, now worth $7.6 billion, is the richest person in Louisiana.

You can, of course, get paid a lot of money to do certain things, especially if you're really good at them.

Some jobs in finance and money management, for example, pay breathtakingly well. So do most senior management jobs at global corporations. So do some world-class-athlete and coaching jobs. So do some screen-acting and music-recording jobs. And so do many jobs in the legal, medical, and other professions.

So if you want to make truckloads of money by getting paid to do something, you can try to work your way into one of those jobs.

But if you don't want to or can't do any of those things, or you hate "working for The Man," or you want to make more than truckloads of money (hundreds of millions or billions of dollars, for example), you should probably eventually plan to buy, invest in, or start something.

Read the original article on Business Insider


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