Money & Time

How much does making money cost you? o_O

New Yorker

Recently, the relationship between money & time has been coming up in conversation a lot. It seems like a pretty basic topic, but it isn’t.

Basically, what people try to do is get their hourly rate / day rate / salary as high as possible, and they consider that to be winning.

One problem is that you have to consider the time you’re spending making that money. You can command a high salary and then the hours demanded from you make it so your hourly rate isn’t really that high, but you still have to give up all your time to get it.

You also have to consider the opportunity cost of working that much, which amounts to the things you weren’t able to do, business-wise or socially, while you were spending all your time making money.

I took time I could have been editing my million-and-thirty-first video to learn how to make records.

I’ve always been a songwriter and a musician. I just didn’t know how to put the finishing touches on songs, which I learned between 2010 and 2016, so now I’m back to being a “record” producer, except I don’t have to depend on anybody for anything, and if I feel like having someone else work on a project of mine, I know the right people to pay to make my project better than I can make it myself.

So I could have spent more time making money during that period, but then I’d have more money and no skills. What’s the point of that? I’d be the same person I was 6 years ago with more money. *YAWN*

Bleeding Money

You have to consider how quickly you’re bleeding money.

If you’re losing money quickly, meaning percentage-wise compared to your net worth, your first order of business should probably be stopping the bleeding instead of achieving new superpowers.

Of course, if your new skills are going to increase your earning potential, you may decide to sustain a power dive for a while so you can power out when you reach your goal.

Being a video editor requires what I call sophisticated clients.. Not meaning as far as having class in society, but before you spend money to get a video edited, you have to spend money getting it “in the can”, which is a reference to when people used to use film, which after being recorded from the camera was stored in a can until something could be done with it.

Needing sophisticated clients creates a relatively small group of income sources. You don’t need more than a small group because your interactions with them are lucrative. However, work is sporadic and clients go online and offline frequently, so it’s best to have at least 4 repeat clients.

However, now you’ve run into the issue of time again.

If you get paid $1,000/week but you only work one week out of the month due to your sporadic, sophisticated clients, at the end of the month, you made as much money as someone who gets paid $250 a week and worked all four weeks.

This is one of the reasons why people like jobs. πŸ˜€ They know they’re going to get paid every two weeks.

So while you can argue that the first person only worked 1/4 of the time to get the same amount of money, and they had three weeks to do whatever they wanted with their life that the second person didn’t get, monetarily, they’re in the same position.

In fact, depending on which one of them is bleeding faster, the $250 person might be able to afford to make $1,000/month while the $1,000 person can not.

People tend to consistently live beyond their means, so that when they get a raise or whatever, they just buy more stuff and put themselves into more debt. More debt means you have to work more, so if you’re treating yourself like you make $1,000/week when if you average it out, you’re only making $250/week, those extra three weeks might not be as leisurely as you would like, as you have to run around trying to hustle up some more work.

Nickels & Dimes

The opposite group, I call unsophisticated clients. Again, having nothing to do with their social standing or etiquette, but meaning that they don’t have much “skin in the game”, as Marcus Lemonis would say.

These are people who are starting out with ideas that haven’t paid off for them yet or who never figured out a budget for what they’re trying to do, or maybe never thought their idea was good enough to warrant seeking out a professional to make it the best it can be.

This is the situation we find the music industry in right now. There are literally millions of people making songs and uploading them to Bandcamp, iTunes, Spotify, Tidal, Soundcloud, anywhere they can put them so people will hear their music.

Meanwhile, these people have no access to the skills and experience you have or the equipment you have, so if they want you to focus on their projects, they have to hire someone like you, except they have little-to-no money to pay you.

Going back to our $1,000 and $250 people, the $250 person has delegated all of their billable hours to working on their job and they don’t have any time to supplement their income with unsophisticated clients.

Meanwhile, the enterprising person who’s already covering his or her bottom line with sophisticated $1,000 clients has the opportunity to nickel & dime with essentially infinite numbers of unsophisticated clients.

Depending on how much of that type of work can be drummed up (no pun intended πŸ™‚ hehe), the $1,000 person might stack three more weeks of $250, almost doubling their monthly intake.

Another value to unsophisticated clients is that they can get you more work by word of mouth with people doing the same things they’re doing. That doesn’t work the same way with sophisticated clients because they would have to be telling someone who ALSO needs sophisticated work done, meaning they have the proper budget and need for precise, quality, deadline-oriented work.

That definitely occurs, but that new client goes into the sporadic bin so you make money faster, yet not as often, instead of making money more slowly and having lots of nickel & dime work.

Depending on the satisfaction level and one’s efficiency in dealing with unsophisticated projects, that might actually become the main source of income.

If you’re making $1,000/week and then start doing projects you can finish in a day that are paying you $200 each, there’s your $1k in 5 weekdays. If you can finish two of those per day, you’re now making $2,000/week on unsophisticated work. If you feel like working on Saturday and Sunday at the same speed, that’s $3,200/week or triple what you were making on sophisticated work, so if you wanted to, you could drop your $1,000 gig and stick to your stream of $200 gigs.

Productivity Improvements

How do you increase your effectiveness? o_O

How do you move from doing one $200 project per day to doing 2 or 3/day?

You have to increase your skill/speed, get better equipment (if that applies to what you do) or both.

Increasing skill might mean you have to hire someone to train you, purchase tutorials from people whose work in your field you respect and whose level of quality you personally aspire to, attending a school, getting some sort of accreditation.. You may or may not have time for some of those options, meaning that if a school wants you to spend several hours per day to get your accreditation, those are hours you can’t bill to a client, and you may be bleeding more money than your eventually-increased earning potential is worth.

Getting better equipment requires purchases, generally, though you can also barter your current level of skill and time in exchange for equipment, for instance if a company would have had to pay $1,500 for video editing, but you’re willing to do that for them in exchange for $1,500 worth of equipment from their company instead of cash.

But let’s say you aren’t going to barter (or can’t). That leaves a few options.. Buying something because you can afford it. Buying something on credit. Getting a loan in order to purchase something. Teaming up with people who have complementary equipment/space so it’s a win-win for everyone involved.

The first consideration is whether it’s going to speed up your process or not.

Let’s say you have an old computer and having a faster, more modern computer would allow you to finish projects more quickly or utilize software or hardware that isn’t currently available to you… You have to figure out how much that increased productivity is worth to you in the short run and in the long run.

If you purchase the computer outright, you have nothing more to think about other than the percentage increase in your earning potential that’s going to pay off your purchase after X amount of time.

New computer means two projects possible in 8 hours instead of your current one project in 8 hours? Assuming the flat-rate example I used earlier, you’re now doubling your income for the day, and that 2nd $200 project is money you wouldn’t have been able to make without your purchase, so if the computer costs you $2,000, it’s paid for itself as soon as you do AN EXTRA 10 projects, after which your computer is costing you nothing to use and your productivity is still doubled, going forward.

I say an extra 10 projects because you still would have been able to do one project per day with your old computer and you’d have $2,000 more purchasing power in your pocket until you make that money back.

Saying that the computer pays for itself after the first 10 projects you do isn’t accurate, but some people like to calculate things that way. Yes, you definitely paid off your computer, but the computer itself only assisted you with half of the work, compared to what you could have done with the old computer.

In fact, you could buy a $2,000 computer and never use it at all, then wait until you made that amount back with your old computer and say your new computer is paid off, which is is, but without you getting any productivity increase from it because you never used it.

Credit & Debt

Another way is to purchase the computer on credit, which means you will pay much more than $2,000 once you pay the accruing interest on the outstanding balance.

That appears to be a bad thing, which it usually is! πŸ˜€ but it could also be a good thing because you’re paying that “more than $2,000” LATER and not right now.

If you do it that way, you have to figure out how much you’re paying in interest and what that’s worth to you as far as being able to delay paying the full amount.

Disregarding the interest, let’s say you were responsible for paying $200/month for 10 months to pay off the computer. Let’s say just for discussion that the interest that accrues during that time causes you to have to pay an 11th month of $200 to settle your debt.

That means you’re only leaking $200/month instead of the entire $2,000 in the first month. So long as your productivity INCREASE is greater than $200/month, you’re winning, and after your 11th month, that entire productivity increase goes in your pocket.

The extra money you didn’t spend could go towards supplies, rent, networking, other equipment, and if you get ahead of the game, you can still pay your credit debt off before 11 months if you want to and save yourself unnecessary interest payments.

The bottom line, however, is knowing how much money you need to get within a certain time period.

If your current setup only affords you $200/month in discretionary income, that doesn’t mean you can’t afford the $2,000 computer right now.. It might mean that you have to pay $3,000 for a $2,000 computer because you stretch the payments out while you’re waiting for the predicted productivity increase to kick in.

Same thing with a loan for a business or a house… You have to know what the relationship is between time and money. How much do you want to pay right now? How much of the full price remains for you to finance? How much do you have to pay back per month? How much interest are you paying on the loan? Is there a penalty for paying the loan off early?

This is how some people have businesses at all. πŸ˜€ They don’t actually own anything that’s in “their” company. They’re working off loans from creditors and hoping to make money faster than they have to pay it back.

This is a win-win for both parties. The businesspeople are able to do work and create profit for themselves with equipment they can’t afford, and the creditors make money consistently from OTHER PEOPLE working to pay them back.

In a lot of cases, the businesspeople aren’t even trying to pay the loan back. It’s a steady component of their company that they will perpetually owe their creditors X% of their income.

It’s similar with houses. People take out 30-year mortgages and pay their loan back monthly, hoping that if they decide to leave that house, they’ll be able to sell it for more than they bought it for. Also, if you’re renting and have no intention of moving to another neighborhood, a mortgage on a house you buy might actually DECREASE your monthly payments compared to what you’re paying right now.

But then you have to consider the time.. You have to cut your own grass. You have to pay for maintenance on your house instead of your apartment building being responsible for upkeep. You might have to drive more each day, spending more time and spending more money on gas. You have more house to clean, but you have more house to live in. πŸ™‚

Best Laid Plans

Even before you get into business, you should consider these things.

If you’re going to school for a degree in something, intern at places that are similar to where you will end up working after you graduate. You might find out that that isn’t how you feel like spending 9am-5pm every weekday. πŸ™‚

Focus on doing something for money that you ENJOY doing, because that way you will bill more hours because you want to.

You will enjoy the time you spend learning. You will enjoy the time you spend on low-budget projects. You will enjoy the time you spend working for sophisticated clients. You will have much more flexibility in setting up your work style to fit your vision of how you want to live.

A lot of people trapped themselves by only focusing on how much money they could make. They took jobs they didn’t really want… Some people HAD jobs they wanted, but then took promotions they shouldn’t have taken and now make more money, but have less time with their families, or more responsibility than they wanted in that company.

Also, not everyone is cut out for business. Some people would be wise to spend their time as connectors, putting the right people in contact with each other and getting paid a percentage of that business.

Consider how much money you’re going to need.

A million dollars sounds like a nice amount of money to have, but what’s it going to cost you in your life to get that? o_O How are you going to feel when you get there? Was it worth it? Do you feel better about your life with a million dollars than you did when you had $100,000?

What’s the point? What are you going to use it for? Whose life are you going to improve with it?

A lot of people don’t consider this and then they buy new cars and new houses and new clothes and all this other stuff that nobody cares about except them, and then they complain every day on social media about how they’re $30,000 in debt and they need a new credit card that isn’t already maxed out.

Do the numbers. Figure out a plan for *YOUR* life and then go for it.

If you need that million dollars, figure out how hard you’re going to have to work for it. Figure out how much of your life you’re willing to trade for it. Evaluate how it feels as your bank account increases.

If you don’t feel any better at $300,000 than you did at $30,000, you may be going in the wrong direction.

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