Most people in the United States get up, go to work, and pay bills. The next day they repeat the Work for Money cycle. They get up, go to work, and pay bills. They do this 5 days a week for 40 years, except for a few holidays and a few weeks of vacation each year, and never become financially independent.
Poor people are not the only ones who do this. Even doctors, lawyers, and IT professionals do it. It doesn’t matter what their income is. It doesn’t matter what the job is. This is what almost everyone in America is taught to do.
We are told to get a good education so that we can get a good job so that we can make money and have the lifestyle that we want. So, this is what we do.
Go to work, get paid, and spend money. This is what I call the Work for Money Cycle. It doesn’t matter how much or how little you make.
It’s a hard cycle to break because we want to keep buying more and more. We don’t want to live within our means and save for our future.
Breaking the Work for Money Cycle
It’s ok to start out having a job so that you can earn money, but don’t keep spending all your money on things that do not create wealth. Otherwise, you will need to keep going back to work your whole life.
Instead of spending your money, you also need to save some and put it to work for you. You do this by buying assets.
Assets make you money. This is how you use your money to make more money. Wealthy people do this. This is how you start to get out of the work and spend money cycle.
If you want to break this cycle, you need to stop buying things that do not make you money. Vehicles do not make you money. Cable and Netflix do not make you money. Vacations do not make you money. There are places in your life for these things.
Most people need a mode of transportation to get to work, food to eat, and clothes to wear, but if you are only spending your money on things that can’t produce additional assets for you, you will never break this cycle.
In order to have money to purchase assets and invest, you need to live within your means and get rid of your debt. Most people do not have money to save because they have too much going to debt payments! Get on a plan to eliminate your debt so that you can break the Work for Money cycle.
Having Money Work for You
Once you are not only working to live but are buying assets with your income, the assets you own will make money for you. If you are buying assets that are not making money, you are doing it wrong.
You should be buying mutual funds, index funds, real estate, and starting businesses. You don’t have to do all of these, and maybe something else is better for you, but there are assets that you should stay away from.
When you have money working for you, your assets grow two ways. You continue to buy assets with your income, and your assets increase in value. Assets increase in value from dividends and appreciation.
Taking stocks as an example, when you are working and earning an income, you continue to save money and invest. Let’s say the amount is $15,000 that you are saving each year. You also have $100,000 in index funds, and the S&P 500 increased 10% for the year. This means you bought $15,000 worth of stock with your income and $10,000 with your assets. $25,000 total for the year. Over time, your assets will be earning you more than your job.
Working to Live to Financial Independence
As stated before, most of us need to start out working for an income so that we can live. There is nothing wrong with doing this. Besides needing to eat, needing a place to live, needing clothes, and being able to get to work, it can be a good learning experience working for someone.
Sometimes we injure ourselves and need medical care. Sometimes we need to have some fun. It costs money to live no doubt. Most of us cannot start our adult life without having an income.
I’m not trying to say that you cannot or should not work for someone or a company your whole life. By no means am I saying that. What I don’t want you to do is to work and pay bills, work and pay bills, work and pay bills. This is working to live, and it’s a life that most people complain about! Why keep doing it?
At some point, you will not be able to work. You need to be able to produce an income another way. You need to get to a point where your assets can produce enough income to replace the income from your job.
When your investment income produces enough money each year to cover your spending, you become financially independent. You no longer are financially dependent on your job. You don’t have to work to live. You break free from the Work for Money cycle!
Some people call this retirement or financial freedom. Others continue to work because their job is meaningful. Some spend time on their hobbies and turn them into a successful business.
In any case, you are not dependent on anyone for your finances, and you are free from having to work for money.
Getting an Education
Most of our parents tell us that we need to get a good education. This is great advice! However, they seldom mention that part of this education needs to focus on being financially literate.
If we don’t learn how to handle our finances no matter what our income is, we end up in the Work->Get Paid->Spend Money cycle. Maybe we save a little bit each paycheck, but most don’t save enough.
Don’t settle just learning how to work a trade. Learn how money works and how it can produce income for you. This way you can go from working to live to being financially independent.