Creating Equity With Your Work
Marcus was elated when he opened the email from his client. His proposal to create the new brand images for the company had been accepted, and he was looking forward to working on the contract. This job, his most lucrative assignment to date, would help him to overcome some financial difficulties.
Marcus was consumed with designing various elements of his client's marketing material; spending long hours conceiving the corporate images that would give the company an updated, modern image. He devoted all of his time and work effort into the creative process as he wanted to excel at the task.
Although he had bargained that the project would have been completed in six weeks, the adjustments requested by the company extended the time to three months. While Marcus was happy with the cash inflow from this big client, he realised that the amount of work he did was not reflected in his final bill.
After completing the project, Marcus acknowledged that the many hours he had contributed to the job would have no long-term benefit to him. He had already spent the money he earned paying expenses and overdue loan payments, and he was basically back to square one in his financial situation.
Linear income is limited
Marcus's dilemma is common to most people who generate an income based only on their physical efforts. Whether you are employed to a job or you create your own revenue, once your method of earning is derived solely from your labour, then it will be limited by your time and ability to work.
When you work repeatedly to obtain money, this type of earning is called linear income. If you have to stop working for an extended period, then your income ceases. Another feature of linear income is that the effort you put out in the past will not necessarily allow you to generate more money in the future.
If your only source of income originates from your physical labour, you may sometimes feel that you have little to show for your hard work. Even if you make a large pay cheque, like Marcus, it may be whittled away by your expenses and still not lead to any long-lasting wealth for your future needs.
Turn your income into wealth
To address this problem you need to focus on creating wealth, not just cash, from your work efforts. One way to accomplish this is to ensure that some of your work income is directed into buying investments which can work for you, instead of just paying for your bills and financing your lifestyle.
In our economy with rapidly increasing costs, many people are finding it difficult to make ends meet, so saving and investing are usually put on the back burner. However, if you want to create something lasting from your work, you have to dedicate some of your earnings towards investing in your future.
Use your budget to determine if there are any expenses that could be sacrificed in your quest to build your wealth. For example, could you forgo getting a loan to buy a car that would cost you thousands of dollars in interest payments and extra costs, and put that money into a monthly investment plan?
Ownership is essential
In addition to committing a portion of your money into investments that can build your net worth and generate income in the future, you also need to consider how you can create your own asset from your labour. The idea is to spend some of your time working on building something that you own.
While employees earn their salaries when they work, their efforts help to develop their employers' businesses. However, at any point in time, their bosses can inform them that their services are no longer needed. Therefore, their work time did not create any form of ownership in their jobs.
Equity can be defined as a right of possession, or ownership in an entity. To create equity with your work, look for ways to earn money that can actually build assets which can continue to provide you with income even when you are no longer physically working at the actual tasks.
Focus on future earnings
Most persons want to see immediate results from their work, so they concentrate their efforts only in areas that will give them a regular income. However, if you want to build an asset that can supply you with money for the future, you may have to forgo earning from your labour until a later time.
While Marcus earns a regular income from making designs for his clients, he should also use his talent to create products that can pay him in the long term. For example, he could illustrate stories along with a children's book author, or develop apps or computer games that could be marketed online.
To create equity from your work, you have to be prepared to put a lot of effort into the initial activities, as well in marketing and selling your creation. In upcoming articles, I will continue to look at the concept of working to build assets that can supply you with repeat income.
Cherryl is a money coach, business mentor and founder of Financially S.M.A.R.T. Services. Her upcoming book, "The 3 Ms of Money" will reveal all the secrets she learned about financial success. Read more on money and business matters at financiallysmartadvice.com and entrepreneursinjamaica.com. Email comments to firstname.lastname@example.org.