Most working professionals rely on one type of income, and that is from their w-2 job, which we refer to as earned income. There is nothing wrong with this and earned income can pay very well for working professionals. However, true, lasting legacy wealth will not be built on earned income and a 401k alone. Below are three disadvantages of earned income that hold many people back from next-level wealth building.
1️⃣ Time
Income earned from our day jobs is based on time – that is, OUR time. We must be available, present and engaged in order for that income machine to keep churning. Aside from promotions, raises and higher paying jobs, we cannot get higher returns for our time. To put it into perspective, if we wanted to 10X our earned income, we would need to get 10 jobs. Not only is this not sustainable; it simply is not possible.
2️⃣ Taxes
Earned income is taxed much higher than passive income. The middle-class like to compare top-line salaries as a way to size up success. Unfortunately this is flawed because of the taxes on your earned income. Before you get too excited about that massive raise, pay attention to see if you transitioned to a higher tax bracket, further reducing your take-home pay. As the wise say, it is not what you make, but what you keep.
3️⃣ Temporary
As long as we are able to work, we can produce. Aside from insurance and disability, if we stop working or no longer become marketable, our earned income stops coming. Even if we stayed in our dream job for the next thirty years, once we eventually stop working, the income stops coming. Contrast this to one of the great wealth-builders of real estate, passive income, which can pay you (and your family) for many generations.
Perspective
As I stated earlier, there is nothing wrong with being a high-earning working professional. It is a blessing to have a great job and even more so to have a profession that you know and love. My mission is to educate working professionals about passive income earning strategies that they can use to supplement and even replace their earned income. Doing so relieves professionals of the added financial pressure, allowing them to simply use their skills and passions to support the missions they love.
We offer a Passive Investor Resources page that is full of great places from which you can learn and grow. Also, you can download our free Passive Investor Startup Guideand read it together.
We hope these tips are useful to you and your family as you take your journey towards diversification, wealth-creation and time freedom! As usual, reach out to us with any questions.
Safe investing.
RRII
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– How To Use Your 401k To Invest In Real Estate
