Earning. That is the starting point of every personal finance journey.
When you are not earning, when you do not have any source of income, day-to-day living becomes hard and you cannot plan for your old age. You have no finances to plan. Just as a business’s facilities and equipment, among other expenses, have to be financed so also must your living expenses be paid for.
So, the first and most important work to do on your journey to mastering your personal finance is starting to earn.
But how do you earn? How do you create an income source to cater to your daily needs and even wants? Here, we discuss that.
Selling Labor
You can earn an income through two major means: selling labor and selling capital. The former, however, is more common.
When you work for yourself or someone else, you are selling labor. For that, you are paid salary or wages. While salary is the total amount that accrues to you at the end of the year based on performance, wages are paid by the hour. Thus, while salaries are fixed, wages are variable. Moreover, salary is for skilled personal while the term “wages” is used for semi-skilled or unskilled labor.
Earning a paycheck through the sale of labor can come with benefits such as health insurance, paid vacation, and retirement contribution. Finally, in short, when you earn by selling labor, you work.
Selling Capital
Do you have access to cash, either personal or raised? The principle here is this: you buy an asset, it creates a steady source of income (e.g., dividend) for you or you resell at a higher price for a profit after it rises in value.
Examples of those assets for which you can exchange capital are stocks, bonds, arts, and commodities. Financial markets, from stocks and bonds to commodities and even cryptocurrencies, exist for this very purpose.
Warren Buffett once said: “If you do not find a way to earn while you sleep, you will work until you die.” By selling your capital, you will not have to work until you die.
You can learn more about the ways of making money in the article below:
Improving Your Earnings
You can improve your earnings by improving the variables in the two ways of earning covered here. For example, the price of your labor will be determined by the nature of the job which is essentially the level of education and skills it requires. The higher the skills and education level needed for a job, the lower tends to be the supply and the higher the demand.
Since the buyers of labor have all incentives to want to pay lower prices, your best shot, therefore, is going for valuable and rare as far as career is concerned. The fewer the hiring options employers have, the higher they tend to pay.
On the other hand, if it is through the sale of capital that you want to earn an income, your first step is to, as much as possible, acquire knowledge about your chosen asset – stock, real estate, or bonds – that you want to sell your capital in exchange for.
As it holds true for virtually every other path, the more you learn about the trade, the more you tend to earn.
In conclusion, note that you might have to start by first selling labor (by offering a skill or working at a job) and then later transition to selling capital.
Hope this was useful for you! If so, hit the like button to make me feel good. Please note that the above content is not an investment advise and shall be considered only for informative purpose.
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