Everybody is always looking for ways to make more money.
The Internet abounds with articles about side hustles and negotiating raises. There are entire television channels devoted to following stock market investments. Being a co-host of a show about angel investing can help catapult you into consideration to be a vice presidential candidate.
But from what I’ve seen and read, it looks like most people are taking a scattershot approach to making more money.
People try a little bit of this and a little bit of that. They jump into a side hustle and then when that doesn’t work they try another.
Like most other things that I talk about, I think it makes sense to look at earning money in a more systematic way. If we really want to make more money, we should understand the landscape.
Labor vs. Capital
There are two ways to make money.
When it comes down to it, you are either making money from your labor or from your capital.
Your labor is your time, effort, brainpower, and muscle. If you are trading any of these for money, then you are earning from your labor.
Your capital is your money and your assets. If you make money from investing, then you are earning based on your capital.
There are also occasional situations in which both are required for an endeavor. If you open a restaurant, you are probably investing capital and labor in an effort to earn money.
Trading Labor for Cash
Let’s start with labor, as this is where most of us start anyway.
If you work for a salary, then you are in the labor market. You are trading your time and effort for money.
This is where most of us start.
We have no money, and so we need to trade our time for it to get started.
Most side jobs are also labor. If you are driving for Uber or consulting you are trading your time for money.
Labor can be an ongoing exchange for money or an up front commitment of time and effort for payment later.
If you work for a salary, then you work for two weeks, get paid for those two weeks, work two more, and rinse and repeat. If you write a book, then you spend a whole bunch of time writing and get checks in the future for as long as people continue to buy your book.
Making Your Money Make Money
Earning based on your capital is basically spending money to make more money.
This could be buying stock, angel investing, or purchasing rental real estate. You are tying up money that you have right now in the hopes that it will grow into more money over time.
This can be as safe as investing in index funds that track the market or as risky as investing in a local business.
The riskier investments have larger upside and larger downside. If you want to double your money in a couple years, you probably won’t be able to do that with index funds, but you might be able to do it by investing in a single business.
On the other hand, you probably won’t lose all of your money with index funds, where you very well could in a single business.
Investing your capital requires knowing how much risk you are willing to stomach.
Now that we have that framework, let’s look at how we can make more money. There are a few different options that we can pursue.
Earning More with Labor
First, we can earn more from our current job or career path.
One option for this is to brush up on our negotiation skills and negotiate a raise. This allows us to make more money for the same amount of labor.
We can also spend more time networking, reading, and improving at our job. This requires some extra time up front, but gives us more leverage in negotiating a promotion or raise. Alternatively, it also puts us in a good position to move to a higher paying job at another company.
Similarly, we can work on certifications or degrees that are relevant to our work. This costs both time and money up front, but gives a big boost to your leverage in negotiations. This helps with both raises and new positions.
If none of those paths are for you, you can also use your labor outside of your 9-5.
The most obvious example of this is the side job. You could drive for Uber, do some freelance work, pick up a part time job, or any number of variations.
In taking this path you are spending more of your time and labor in exchange for some supplemental income. Generally this work will be lower paying than your day job, which is a negative. You also only have a limited number of hours in your week, so the upside is somewhat limited and you need to watch out for burnout.
On the other hand, you may find it to be a nice change of pace or you may enjoy the lower stakes. This type of work generally gives you better control over your hours. Plus, knowing that you have the ability to walk away at any time and still have your main paycheck helps avoid some of the stresses that generally come with paid work.
An option outside of the standard side gig options is creating a future passive income source.
This includes things like writing a book or recording music. A lot of time and effort are required up front and the compensation doesn’t come until later.
These can be great options while you are working a day job. Because you can rely on a steady paycheck from your job, you can plant seeds now and don’t need to be paid instantaneously.
As for negatives, this type of work can be quite speculative. It is difficult to know how much money (if any) you will make down the line. You could plant seeds that never sprout. However, if it works out you could be cashing paychecks in the future for work that has been completed for years. At that point you have income that doesn’t require any time to earn.
Earning More with Capital
At some point, however, we must recognize that there is only so much that we can do with our time. This is where investing capital comes in.
Investing your money allows you to earn without spending any time, effort, or brainpower. Your money can keep working while you sleep.
As noted above, this can be as risky or as conservative as your comfort level allows.
Traditionally, most Americans make all of their money with labor and only a small fraction of the country earns from investing their capital. This needs to change.
As we’ve examined in depth, the value of labor is declining rapidly. This means that the amount of money that you’re being paid for your time is shrinking. And that trend shows no signs of slowing. Rather, it could speed up as automation continues to expand.
The economy needs to be fixed. However, none of us have the power to do that right now. Instead, we all need to protect ourselves and our families from dangerous economic trends. This means we need to get a larger portion of our income from capital.
Making the Shift
Have no capital right now? Let’s work on making some.
If we don’t have enough money to invest our capital, then we need to create more savings. This means we can either cut back our spending or increase our income.
On the income front, now might be a good time to work on some of the ways to earn more with labor that we discussed above. Then you can take that extra income and turn it into capital investments that will earn you even more money while you sleep.
We all need to start somewhere. Understanding the different ways in which money can be earned allows us to make a long term plan to get financially stable.
So what’s your plan?