There are only two types of people living in America: those
who rent their labor for money, and those who rent their money for money. Today
I explain the difference and how to become the one you want to be.
The Two Americas
America, and arguably the rest of the world, is divided into
two groups of people: the people who rent their labor for money and the people
who rent their money for money. What I mean by this is that in order to
survive, in order to afford the things we need to get by day to day, we either
rent our labor in exchange for money we spend on what we need or we rent our
money to others’ in exchange for more money which we then spend on the things
we need.
Many of us are familiar with the former. If you’re reading
this article you’re almost certainly, like me, renting your labor some amount of
the time in order to make a living. For me it’s working in technology as a producer,
a job I love. At various points in time I have rented my labor as a teacher, a
general laborer, a writer, a fieldhand, a fast food worker, even as a lifeguard.
Throughout my life, and probably yours too, I’ve taken the skills I have and
rented them for as much as I can get to pay my bills. I am the type of American
that rents my labor to get by.
The Other Americans
There is a second America that earns its living in a
different way than you and I might be familiar with: they rent their money
instead of their labor. They have the freedom to choose what life they want to
lead during the day, content with spending the accrued money from renting their
money to live on. I call those dollars “magic dollars” and I’ve written about them before.
How can this be? How do you rent your money to earn more
money so that you can spend that while not having to rent your labor? There are
lots of ways, but many take us years to achieve. Being in a position where you
no longer have to rent your labor is achieving “financial independence,” a term
that means you can choose what to do with your life because you’re not beholden
to spending your time earning money to get by. Many of us confuse it with
retirement, a slightly different term that evokes notions of age and ending
work; someone who is financially independent can still “work” if they choose,
renting their labor because they love the act but not because they need the
money. Retirement is leaving the workforce, hopefully in a voluntary fashion.
So how do you rent your money to make more money? First and
foremost is investing. Companies want lots of your money now in exchange for
paying you more money later in the form of dividends or growth such that you
realize a profit when you sell your shares of the company. Buying shares today
and benefiting from the most powerful force in the universe means down the road you’ll have far
more money than if you had simply spent those dollars putting you in a position
where you can afford to stop renting your labor. These are my thoughts on what to invest in when investing.
This method for gaining financial independence is so
powerful the United States government even pays us to do it. Your 401k (or 403b
if you’re in the non-profit/public sector), IRA, and HSA are all tax advantaged
by the government meaning they reduce your taxes to encourage you to put money
into them. Why? Because someday the government hopes you’ll reach a point of
financial independence and remove yourself from the workforce while not needing
tax dollars to take care of you. It’s a good tradeoff for the government and it
lowers your bills. The HSA is the most powerful of these accounts, but you can become a millionaire with an IRA too. And of course, don’t make the mistake of losing a million dollars with your 401k.
Banks will pay you for your money. They take the money you
save with them and use it to justify lending to others. Bear in mind, they’re
not literally lending your money
strictly speaking; you’ll basically always be able to go in to that bank and
withdraw your money if it’s in a savings or checking account. By having your
money on their books, however, the bank can justify larger amounts of lending.
How do they make money? By giving you a 1% rate of return on your money but
lending on its value for 5% for the holder of the loan. So while your savings
account accrues a small amount of money each month, the guy who got a car loan
from your bank at 5% is making them a 5x rate of return on the money they’re
paying you. Because of where interest rates are at right now this isn’t a very
profitable way to reach financial independence, but your fully funded emergency
fund (the best career move you’ll ever make) should be in cash and if the bank will
pay you for storing it with them, you might as well get that return.
There are lots of other ways people rent their money for
more money. Landlords turn their money into property which they rent turning
the property back into money. I was an English major, but if my memory of the
transitive property serves that’s renting your money for more money with an
extra step. The key thing to remember is that the people living in this half of
America have the freedom to choose
whether they want to rent their labor; they’ve accrued so much in savings the
interest they earn from it one way or another is sufficient to pay their living
expenses meaning they never need to spend down the capital they have saved.
Becoming the Other American by Maximizing Our Value
For many of us the dream is to leave the labor renting half
of the population to join the money renting half. Perhaps we’ll keep renting
our labor, perhaps not, but the goal is being able to choose what we want to do with our lives. This is a tall order, but
TheBillStarkBlog is committed to educating about the steps it takes to get
there. In fact, I’ve documented the 10-step plan that will ensure you’re maximizing how quickly you can become this type of American.
There are some key steps when we’re in the labor-renting
market to help maximize the value of our labor’s impact so that we can reach
financial independence much more quickly. Let’s break them down.
Increase the value of your labor
First and foremost is increasing the value of your labor. In
college I worked for an A&W Restaurant as a cook, clerk, janitor…pretty
much whatever they needed. That job was what economists would call “unskilled”
labor; most any adult or competent minor of legal working age could do what I
did. As a result the wages I could demand for that labor were not very high; if
I recall, I was paid just slightly more than the state minimum wage at the
time, and I only got more than minimum wage because I’d had some work
experience before and because I proved to be reliable; the old adage that 90%
of success is just showing up isn’t that far off.
I worked to increase the value of my labor through education
so that I could rent my labor for more money because it represented greater
value to the people buying it. Despite being a precocious high schooler I
struggled to complete my bachelor’s degree, finally finishing after seven
years. My degree in English netted me access to a rental market for my labor
that saw my pay double. I also got a foot in the door to start learning a
technical field with web work; the experience I got through that work led to a
shift from the writing/editing world into the technical development world and
my increased skillset saw my pay double twice in five years from my time as an
A&W employee.
(A quick aside on STEM
versus Liberal Arts degrees: I work in a STEM field now, but am a proud
graduate of a Liberal Arts college with a degree in English. I had to do work
after college to move into a highly paid labor rental market, but I absolutely
believe Liberal Arts is a key component of humanity’s success in the future.
STEM fields often pay more to those who rent their labor but Liberal Arts are
key for ensuring we keep our humanity. STEM builds robots; Liberal Arts
determine if those robots kill humanity or empower it to exist forever. I don’t
have a solution for how we put a focus on hybridizing education to do both, but
I’m a strong believer that STEM AND Liberal Arts education together are
critical components of humanity’s future success.)
When you rent your labor its worth is measured by the
profits it returns to the person renting it. The more skilled your labor is the
greater the return it can provide to the person you rent it to and the more
rent you’ll get for it. This means you have more money to set aside to help
grow your capacity for reaching financial independence. Grow the value of your
labor and you’ll grow the rent you can charge for it.
Decrease the cost of your living
The amount of money from renting your labor you can set
aside to grow your bankroll to become one of the Other Americans by renting
your money is determined by how much of that money you spend. The costlier your
lifestyle is the less you’ll have to buy your financial independence. Cut your expenses
and you increase the magic dollars you can set aside to keep earning you more
and more money. Decreasing the cost of one’s living may seem challenging. Here’s
how you can do it with your cell phone or your groceries. Before you even complain that you can’t afford to cut your
lifestyle you need a budget; if you don’t have a budget, you don’t even know
what you’re spending your money on so take a look at how me and the missus manage ours the lazy way. And here are five things you may spend too much money on.
Finally, when you come across more money and start renting
your labor for higher amounts make sure not to fall into the deadly trap of lifestyle inflation.
Rent more labor
Want more money to save for financial independence? Rent
more labor! That could mean seeking to increase how much of your labor you rent
to your current buyer, or it could mean finding additional buyers (it has
become en vogue to refer to these rentals as “side gigs,” but you do you). If
you have the time and freedom to rent more labor you can turbo-charge your
savings or even build your own labor rental business into a full-time thing.
I have maxed out the time I have to rent out my labor in
traditional fashion and if you’re in the same boat there are some small ways you
can still squeak out additional cash. I’ve written about how I get money back
for buying groceries with iBotta and for my regular shopping with Shopkick. I also rent enough of my labor to pay for
Christmas using online applications for class action lawsuits. If you’re not, subscribe to TheBillStarkBlog using
the email subscription at the bottom of this article for updates with future
means to increase your income when you can’t practically rent anymore of your
labor in the traditional job market.
Find a better buyer
If you work for a living, you’re in the business of renting
your labor. It’s in your best interest to make sure you’re always on the
lookout for the best buyer of your labor. After all, would you pay your boss to work for them? If
you’re not keeping an eye on the market for how much people with your skills
can rent their labor for that could be exactly
what you’re doing. Don’t fall into that trap! (And if you’re thinking, “But I’m
happy where I’m at!” you really need to read the article I linked here; keeping
an eye on the market doesn’t mean you have
to leave your job!)
In Conclusion
There are two types of Americans: Americans that rent their
labor for money and Americans that rent their money for money. It’s my goal,
and the goal of this blog, to help as many of us as possible get from one side
to the other so we’re free to choose how we spend our time each day.
What do you think about the two types of Americans?
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