A fun game we’ve been playing is deciding how much “work” you should do depending on how it’ll move your net worth. We can all agree that working 4 hours a day to earn $200 doesn’t make sense if someone is a billionaire. Similarly, if someone is poor, working 4 hours extra to make $200 is a smart move if their bank account shows $2,000 and they have nothing else to do during that same time slot. There is no clear answer here but its an important concept to grapple before getting rich. No one wants to end up like the majority of boring rich folk. So lets take a look at some of the numbers.
Working for Percentage Points
All Items Reflect Percentages: There is no point in doing dollars because it doesn’t show the incremental value. If you say $10,000, or $1 million… It doesn’t tell us how much the person is worth. $10,000 is a lot for someone with a $20K net worth and $1 million is absolutely nothing to a billionaire. Hard to grasp for a non-billionaire (including us of course) but makes logical sense since it represents 0.1% of his net worth. Peanuts really. So we’ll walk through some of the numbers and see if it makes sense to continue pursing an activity for money or not.
Assumptions: 1) We assume you are financially independent, meaning you don’t have to work. 2) We assume you would be working a full year to move your net worth. 3) We assume no gains from investments, the annual work would be the only money that counts to moving the net worth figure.
One or Two Percent: This doesn’t make any sense. If you work for a full year in any activity and all it does is increase your net worth by 1-2% you should quit. Your time is worth much more than this because your annual returns should at minimum be around 5%. Essentially the net worth you have originally built up is worth more than losing a year of your life to increase the number by 1-2%. Unless you’re doing it for fun (like this blog which doesn’t add any material amount of money – not even a percent), an activity that moves your net worth by 1-2% should be dropped… Instantly.
Three or Four Percent: We’d say this is yet another number where you shouldn’t bother. It sounds like it might be worth it but if we assume the typical person only has 40 good years (age 20-60 roughly), you’re giving up 2.5% of your life for 3-4% in incremental net worth. This is not a good ROI unless you could give up ages 60-65 for the extra money (when there is less to do). Hopefully we’re all on the same page here and 3-4 percent still doesn’t make any logical sense.
Five to Seven Percent: Here it gets interesting and we’d argue that it depends on how much fun you’ve had in your life. If you’ve lived a fun life leading up to financial independence (you should have if you lived Efficiently!) this may be worth it. Now the question is how many hours you must commit to it. The days of working 80 hours a week are long gone anyway. If you have to work around 25 hours a week to get an extra 5-7 percent we’d say you should do it. If you have to crank out 40 hours a week, it no longer makes any sense at all.
Eight to Twelve Percent: Now we’re talking about a “decent move”. Essentially this is equivalent to two years of investment returns. Since a single year of investment returns should at minimum lead to your cost of living, you’re looking at two years worth of living expenses for a year of work. You’re giving away one year to get two full years or one crazy year of high expenses. At this point we’d say it’s worth it if you can pull of 35 hours of work. That is about it. Forty hours a week is just not worth it once you’re financially independent and 35 hours is enough where you’ll feel a little bit annoyed but won’t be pulling your hair out.
Thirteen Percent to Twenty Five Percent: At this level, it could be worth it to work 40 hours. Maybe maybe not. It really does take a lot of motivation to go back to working a full work week so we’ll leave this as the “grey zone”. People with nothing else to do will jump at it. People who have other things they would like to do will likely pass unless they can get the hours down to the 30s.
A Big Jump – 50%: At this point you’re looking at something meaningful. Now we know why rich people get richer! They only look for meaningful jumps past a certain point. if you’re able to increase your total net worth by 50% or more, you may be motivated. It depends on your personality but increasing your future spending by 50% forever is a big deal. Going from $10K a month to $15K a month is a noticeable change in life style. At this level we’d suggest sitting down and thinking hard. The project is probably worth a look. The only downside here is the hours are unlikely consistent and will require a lot of your brain power. The good news is that the numbers are fantastic. In short: in terms of percentages your time i worth at least 5-10% of your net worth at all times.
Working to Pass the Time
Typically, young people believe the rich are constantly working around the clock. This isn’t true and the answer is right in front of them with Chairman flights and the person in HR who simply tells everyone they are “doing a great job” while they fly around in first class. If you’ve made it, then you have a system that frees up a lot of your time. That said… You’re going to get bored. This is why a second framework for effort is based on your total working hours.
Zero Hours: You need to do something! Working zero hours a week is beyond boring. Even if you’re a billionaire you’ll want to do something. This is why the billionaires you see on TV never end up quitting. Even the financially independent bloggers end up doing something for work. Zero hours is simply too little and you’ll go stir crazy. Sitting at home and going to the beach for 3 hours a day is going to get old.
0-10 hours: This is for a hobby, not for real work. You can fill this with volunteer work, charity etc. Sure you’re not making any money (maybe you get a tax break) but it doesn’t move your net worth by 0.1% (unlikely that much). This is a good avenue to pursue if you recently quit working. After that it gets dull in a hurry. For what it is worth we’d say that working 0-10 hours a week just isn’t enough since you’re left with about 14 hours of idle time during a typical day.
10-20 Hours: This begins to get interesting. If you can find a task that takes up 10-20 hours and is fulfilling in some way, you may have just enough work time to prevent yourself from going stir crazy. We’ve found it isn’t enough but we also know people who operate at around the 15 hours per week marker and are 100% content.
20-25 Hours: This is the “money” range. Somewhere in this range seems to be ideal if you can maximize your profits for the hours you put in. You can essentially set your own schedule since a 20-25 hour per work week is not going to have a “check in time”. It also requires some commitment so you don’t end up drinking 3-5 days a week! Clear businesses that offer this flexibility are: 1) online sales (duh!), 2) real estate – depending on how much is outsourced, 3) any brick and mortar if you’re an owner and 4) bloggers. We’re sure there are many more but those four can certainly see automation to a point where 20 hours a week is reasonable with a high payout. In fact, we’d say it’s possible to move your net worth 5%+ on 20 hours per week. It’s possible to move it 25% to be completely honest.
26-40 Hours a Week: Here we’re taking about full time commitment range. This is hard. You need to be incentivized. Anyone who has worked hard knows that after 40 hours or so you begin to make trade offs. Your workouts in the gym are not as good. You eat less healthy. You may not sleep as well. You miss out on specific events. There are trade offs. The good news is that if you’ve made it to financial independence you have high value that commands high pay. We’d use consulting as a way to pus yourself into the 25+ hour range if you need extra $$. (Yes we gave away our suggestion which is online income + consulting when you’re bored and need more money).
40+ hours: We’ll pass. Seriously. There is no point to working full time once you’re done. The only time you’ll do this is if the money is really good and you have had an easy year or two. Think of yourself as a sprinter. There is no need to go all out unless the circumstances are perfectly set up for you to do so.
Working For A Specific Item
When you’re set there isn’t much else for you to do. You can either make more money or go on more dates and party. That’s really it. The only item left after that is materialism which can be fun as a project but doesn’t increase happiness at all. Funny enough materialism usually leads to insecurity which is funny to watch in grown men talking about their cars/watches (hint: no one actually cares they are just trying to be passive aggressive). Now that we’ve covered the bad side lets take a look at the good part of materialism. Note: we are only suggesting this if you’re willing to obtain the possession and tell no one. As soon as you work harder for something to impress other people, you’ve lost the war.
A Home: This is the most common upgrade. Homes offer “displayed wealth” and they generally don’t collapse in value. Beach front property is rare and there won’t be any new beach front property in the future. So we’d say this is probably the best place to start. If you’ve already made it but want a reason to work hard, go for a nice place. This doesn’t hurt your net worth since the property should stay at similar values or rise slightly over time. It also won’t add expenses unless you decide to go way over your skis with a mansion. This is unlikely you.
A Car/Watch: We’ve never been into either one. We’re not against either one. The only downside of these items is they decline in value so you’re essentially adding a “negative” to the net worth line. What you would do is increase your working hours. Lets say you work 20-25 hours a week, then you need to work say 30 hours a week until the cost of the item is paid for. This makes it impossible to go backward in terms of net worth. It also makes you reassess if you wanted the item in the first place. You just worked 10 hours extra fro 50 weeks to pay for an expensive item…. Will you end up buying it? We don’t know, but the answer is probably yes if you really want to buy it for yourself.
Events: Now we can go to what we end up doing. Events. Preparing for an expensive trip: skiing, professional sports events etc. We don’t know what your interests are but lets say you want to go to the French Open in Paris for tennis. Or you want to see the Winter Olympics. If you’re going to go to a major event, your better off going all out for it. There is no point in going to the olympics to sit in the nose bleeds and there is no point in going across the globe to watch the #64 seed play the #1 seed in a single game. You get the point. Instead you line up each year with a few events you want to go to and work slightly more to clear out that number. It’ll typically cost several thousand dollars but it’ll be worth it and you won’t see a dent in your net worth because of it.
“Vacations”: We’re putting this in quotes. If you work online you don’t really have vacations since you can work wherever you like. Thats the whole point of the internet! That said, we have no doubt that many people won’t be able to do this. If that’s the case, then we would include nice vacations in the same group. If your skill set requires you to live in a specific area, then you’d put money away to leave a few times a year to places you always wanted to visit. Remember, you could die at any time so each year you should knock out 1-2 places at all times. This is also why we recommend working online, it’s location independent and offers the same amount of financial income.
Now a fun question, how do you calculate the value of your time?
