Jobs vs. Passive Income

May 11th, 2012 by Steve Pavlina

Many people have the limiting belief that passive income is weird, unusual, complicated, or confusing. As I’ve mentioned previously, passive income isn’t particularly difficult in practice. In many ways, earning a living through streams of passive income is easier than earning a living through a job or as an independent contractor, especially in the long run.

The difficult part has to do with getting comfortable with a passive income mindset.

To tackle this mindset issue, let’s turn this around and look at it from the other side.

Suppose you were already very comfortable with passive income, just like I am. Imagine that you had many thousands of dollars coming in every month, more than enough to cover all your expenses. Whether you work or not, fresh income keeps flowing to you month after month and year after year, based on streams you set up years ago.

Imagine that this is your normal everyday reality. You’ve already been living like this for more than a decade.

Now imagine that a friend with a regular job tries to convince you that what you’re doing is weird or unusual and that you should adopt his mindset, give up your passive income lifestyle, and get a regular job instead.

If a job-loving friend did this with me, here’s what such a conversation might look like…

Friend: You know… you should join the world of real people and get a regular job. This passive income stuff you’re doing is just too strange.

Me: It seems to work well enough. What’s wrong with it?

Friend: Well… it’s not what most people do. Most people get jobs.

Me: How does that work?

Friend: Basically you go to work for some other company, usually a corporation. You do the work, and they give you a paycheck.

Me: Ok. Is my paycheck somehow based on the value I contribute?

Friend: More or less.

Me: So will I receive a fair amount relative to my contribution?

Friend: Depends on what you mean by fair. Obviously they’re not going to pay you 100% of what they think you’re contributing. They have to make a profit as well.

Me: Well do I get 80% of it or something like that?

Friend: Realistically it’s probably closer to 30%, but it’s not tracked that precisely. They don’t really know how much value you’re contributing relative to everyone else. On larger teams it’s especially difficult to know how much value any individual is contributing. So salaries invariably involve a lot of guesswork.

Me: Where does the rest of the value I create go?

Friend: It gets distributed in many different ways — as income to investors and stockholders, to company profits, to corporate taxes, to higher pay for officers, to various perks like company picnics, and so on. That’s for the higher-ups to decide, so it isn’t really up to you.

Me: Do I at least get a share of those company profits?

Friend: Not usually, although some companies do have a profit sharing plan, but even then they won’t share all the profits… usually less than half. Sometimes you’ll indirectly get a small cut, like in the form of a bonus.

Me: Hmmm… Do I have to work every day?

Friend: Usually just weekdays, but it depends on the job. You may also get a few weeks per year for vacation time.

Me: Only a few weeks? What if I want to travel for a month or two?

Friend: Well, you usually can’t. Maybe if you save up vacation time for a few years, then they would let you, but it’s not good to be gone so long at a stretch.

Me: Why does vacation time need to be saved up? Time passes on its own. If I can afford to go on vacation, why can’t I just go?

Friend: Because they need you to work.

Me: What if I’m burned out and don’t feel like working?

Friend: There’s free coffee.

Me: Good coffee or bad coffee?

Friend: Depends on the job, but there’s always a Starbucks nearby if they only serve Folgers in the office.

Me: Can I take my laptop to the Starbucks and work there?

Friend: Depends on the job, but usually not.

Me: Can I go on more vacations if I work from the road on my laptop now and then?

Friend: Not usually.

Me: Why not?

Friend: Well, they probably wouldn’t trust you to work if you’re out of the office too much.

Me: So they have to watch me work?

Friend: Basically yes. But also some jobs are collaborative, so they want everyone together in the same place.

Me: I often do work now that’s collaborative. We collaborate over the Internet or by phone.

Friend: Yup, some jobs are moving in that direction, but most employers still want you to show up each day.

Me: Where do I get to work?

Friend: That depends heavily on the type of job. For many office jobs, you’ll work in a cubicle.

Me: What’s a cubicle?

Friend: It’s a subdivision in a larger room, delineated by short fuzzy walls. You should have enough room for a desk and a chair. Typically you’ll have 50-80 square feet of space for yourself.

Me: So it’s like the Shire?

Friend: Pretty much, but usually not as green.

Me: My home office is about 200 square feet, and it has its own bathroom and shower. But I can work wherever I want, so I’m not confined to that space.

Friend: Yeah, you won’t get a space that size as a regular employee most likely, unless you work in management or some other high value job that warrants its own office. That isn’t what most employees get, but it isn’t out of the question. It just depends on the job.

Me: Do I get to pick my own job title?

Friend: Usually it’s assigned, but sometimes you can. It depends on the company.

Me: Can I pick Master?

Friend: Mmmm… probably not.

Me: What about the pay?

Friend: Well, you’d probably earn a lot less than you do now for doing the same kind of work. Just to give you an idea, the average salary for a blogger is about $17-38K per year (source).

Me: Wow… that’s a lot less than I earn now passively, even when I’m on vacation. How would I even live on that?

Friend: Other people get by on that much. You’d have to cut back quite a bit, especially since you’ll need more money for commuting (gas, car maintenance), professional work clothes if required, and various other expenses incurred by employees. But you might get a free company t-shirt and coffee mug and maybe a mouse pad if you’re lucky, so it sort of balances out.

Me: Ouch. But what if I could somehow earn the same amount I do now, but from a job instead of from passive income?

Friend: That would be very unlikely, but if you did manage that, you’d pay a lot more in taxes since this would all be W2 employee income. You can’t use your business like you do now to lower your taxes.

Me: How much more in taxes are we talking?

Friend: The extra taxes you’d pay would be enough to buy a new car every year.

Me: That doesn’t sound too appealing. Seems like it would be harder to get ahead if so much of each paycheck goes to taxes.

Friend: Yes, but the government understands this, so they make it look less painful by hiding a portion of those taxes, so it doesn’t seem like your income is being taxed as heavily. You never receive that part of your salary in the first place. Some of your taxes are disguised in the form of taxes paid by your employer, like the employer’s contribution to Social Security and Medicare for having you on the payroll. So even though your paycheck stub will report a certain base pay, your actual base pay (from your employer’s and the government’s perspective) is higher. You can bet that your employer is wanting to recoup those extra taxes from you in extra value you must contribute.

Me: I’m aware of this. U.S. tax laws are clearly hardest on regular W2 employees, who pay the highest taxes of anyone relative to their income. So why would people want to have their income allocated as W2?

Friend: Most people don’t know any better. Besides, they wouldn’t know what to do with all that extra money anyway. Lower pay keeps them out of trouble, and it ensures that they keep showing up for work. Gotta keep the economy going.

Me: Alright.

Friend: There are some job perks too.

Me: Like what?

Friend: You get health insurance.

Me: I have that now, but I hardly ever use it since I prefer to just stay healthy.

Friend: Well, you could afford to be less healthy if you had a job, and you wouldn’t have to pay for it.

Me: Hmmmm…

Friend: Free coffee too.

Me: You said that already.

Friend: Did I mention that you can have as much as you want?

Me: Ok. So what kind of work would I do at a regular job?

Friend: That depends on the job, but big picture… it’s usually something that supports the company’s goals.

Me: Who sets these goals?

Friend: At a well run company, the officers figure them out, with input from board members, key investors, and sometimes from employees too.

Me: Where can I see those goals?

Friend: Usually you don’t get to, but sometimes they’ll share snippets in the form of a company mission statement, a list of objectives, or perhaps a memo. But you’re not really going to know what the company’s true goals are. That’s normally shared on a need-to-know basis only, and most employees don’t need to know.

Me: Ok. So how do I know which goals to work on?

Friend: Usually your boss determines that, so you just do whatever your boss tells you.

Me: I have to have a boss?

Friend: Yup, everyone does. Even the CEO is accountable to the board and the shareholders.

Me: Ok, so what if my boss doesn’t do a very good job of telling me what to do?

Friend: That often happens. You muddle through. Just make sure you look busy when you’re being watched, and you should be ok. Personal accountability tends to be pretty low, so as long as you don’t stand out as being obviously idle, you’re probably safe.

Me: What if the boss and I disagree on how to achieve the company’s goals?

Friend: That’s where you start getting into company politics, which can be messy. Some people do what the boss says anyway, even when they know it won’t work. Other people try to push back or negotiate. Sometimes that works, but sometimes they get marginalized or even let go if the boss doesn’t like it. Usually people compromise somewhere in the middle.

Me: Are these compromises normally intelligent?

Friend: Not usually.

Me: If I do a good job of helping the company achieve its goals, do I get extra rewards for that?

Friend: Yes, sometimes. You might get a raise, a bonus, or a promotion. Or you might get intangible rewards like praise, appreciation, and recognition. Sometimes, however, you don’t get anything more than your base pay.

Me: How do promotions work?

Friend: You get a new job title and have more responsibility, which usually comes with higher pay. Sometimes it means longer hours too.

Me: What if I come up with a really great idea, but it’s not part of my assigned duties?

Friend: Umm… yeah… don’t do that.

Me: Why not?

Friend: You’ll just be a rabble rouser. The other employees won’t like it if you try to upstage them, and they’ll make your social life at work unpleasant till you back down.

Me: So if I try to work harder or smarter and get promoted faster, the other employees may try to hold me back?

Friend: Probably. Your boss may not like it very much either.

Me: My boss wouldn’t like it? Why not? Isn’t it part of his job to cultivate good talent?

Friend: Perhaps, but he wants to look good too. It’s not good for him if one of his underlings is outshining him.

Me: That doesn’t sound like an environment where I can really do my best work.

Friend: Yeah, but it’s all good. Fortunately your best isn’t required. You just need to get by. It’s actually easier this way.

Me: But if I know I’m not doing my best, then won’t I feel worse about myself? Won’t that lower my self-esteem?

Friend: Sure, but you get used to it. Everyone adapts.

Me: So what is it like to work with a group where no one is doing their best, and everyone thinks less of themselves and their coworkers because of it?

Friend: Pretty boring actually. But again, you get used to it. The free coffee helps it go down easier.

Me: Ok. So what about the sex?

Friend: What are you talking about?

Me: Well, if I’m with a female coworker, and we both get horny, then where do we go to take a shag break? Are there special rooms for that?

Friend: Oh no no no. That would be very much frowned upon. You could both get fired for that sort of thing.

Me: Fired? Why? What if it’s just a quickie and we still get all our work done?

Friend: Yeah, don’t do that. The company could get sued.

Me: Sued by whom?

Friend: Probably by the woman you had sex with.

Me: So if we have consensual sex, she would sue the company? For what?

Friend: Sexual harassment I guess. People have won millions of dollars doing that sort of thing.

Me: Ok, so I have to settle for blowjobs only then?

Friend: Goodness no. That’s just as bad.

Me: So what do people do if they get horny at work? People still get horny at their jobs, don’t they?

Friend: Sure… they get horny all the time. But they suppress it and pretend they’re not. Then they take care of themselves later, usually with Internet porn.

Me: People look at porn at their jobs?

Friend: Oh no. That’s frowned upon too. People could get fired for that as well.

Me: So basically while they’re at work, people still get horny, but they pretend to be asexual till they can take care of themselves later… like at home.

Friend: Yup, that’s pretty much it.

Me: Seems easier just to have a quickie, maybe take a short cuddle nap, and then go back to work refreshed and happy.

Friend: I’m pretty sure that’s illegal in a corporate setting.

Me: Ok, but those positive after-sex feelings make collaboration easier. Trying to suppress one’s sexual desires every day seems like it would be very distracting.

Friend: It is distracting of course, but remember that you aren’t expected to be too productive anyway, so it works out okay. And again, the free coffee helps with this as well.

Me: Ok, so let me get this straight. You’re suggesting that I shut down all my passive income streams, go to work for someone else, get a boss and do what he says even if his decisions are unintelligent, do mediocre work instead of my best, socialize with people who also do mediocre work, work longer hours for less pay, take fewer and shorter vacations and ask permission to take them, pay a great deal more in taxes, and on top of all of that… no sex?

Friend: Pretty much, yes. But you’re overlooking the security aspect.

Me: What’s secure about it?

Friend: Well, you’ll get a steady paycheck.

Me: How steady? Does it ever end?

Friend: Well sure it can end. You could get fired or laid off.

Me: Can I prevent myself from getting fired or laid off?

Friend: Not necessarily. It could happen due to circumstances beyond your control. Or you might just make a mistake. Or someone higher up may not like you.

Me: So how is that secure?

Friend: Well, it’s mostly secure.

Me: So if I get fired or laid off, how much residual income will I continue to get?

Friend: Usually none. You might get a severance package for certain jobs, but that’s only short-term for transitioning. For the most part, once your job ends, you stop getting paid.

Me: But currently I get paid whether I’m working or not. And I can’t be fired or laid off.

Friend: Yeah, that’s weird.

Me: Just feels normal to me.

Friend: Well, I know you’re kind of set in your ways, but jobs are very popular. They obviously work for lots of people.

Me: What about finding a job? Does everyone get one automatically?

Friend: Oh no. People have to seek them out and apply for them.

Me: How do they find jobs? Do they decide what they like doing and then find a job that lets them do it?

Friend: Usually it’s not that simple. Most of the time they have to see what’s available, and it probably won’t match perfectly with what they really like.

Me: And once they find a job and select it, then they get hired?

Friend: No. Again, it’s not that simple. It’s a competitive marketplace. They have to apply, but they probably won’t be chosen. They may have to apply to many jobs before they’re offered one, and it may not be the one they most wanted. Also, millions of people who want jobs can’t seem to get hired at all.

Me: This sounds very time consuming and stressful. What do they do if they can’t find a job?

Friend: Well, they have to mooch off someone else to get by… off the government, off a relationship partner, off a friend or family member.

Me: And what if they still can’t find a job, and no one lets them mooch anymore?

Friend: Then they might become homeless.

Me: That doesn’t sound too secure to me.

Friend: Well, most people don’t end up there. So it works okay overall. And being homeless isn’t as bad as it seems. People cope.

Me: Do most people like their jobs?

Friend: No, at least 80% don’t.

Me: So why do they keep going to work?

Friend: They need the money. And what choice do they have?

Me: They could earn money without a job.

Friend: Yeah, maybe… but who does that?

Me: I do.

Friend: Yeah, but you’re weird.

Me: I appreciate your sharing all of this, but in a world that considers this job thing normal, I think I’ll stick with my current approach, even if you think it’s weird. I enjoy the work I do, I get paid well whether I work or not, I can travel whenever I want, I don’t have a boss, I can’t be fired or laid off, I don’t feel I’m overpaying on taxes, I can do my best without feeling pressured to be mediocre, and if I’m working with someone and we get horny, we can shag the dickens out of each other and then go back to work with a smile… and no one gets sued. Best of all, I get to use Master as my official title.

Friend: Sure, that all sounds good, but most people can’t do it.

Me: Why not?

Friend: I don’t think most people are smart enough.

Me: There are lots of not-so-bright people earning passive income. You’d be amazed at how much mental capacity is freed up when you don’t have to deal with a boss or company politics… and when you don’t hold yourself back doing mediocre work instead of your best… and when you aren’t stressed about being potentially fired or laid off or having to be celibate.

Friend: True, but those people are weird too.

Me: Perhaps.

Friend: Also, passive income is way too complicated for most people.

Me: If people can handle all the complexities of jobs, I think they’ll find it a breeze to earn passive income. There’s no job hunting, no resume, no application, no boss, no company politics, no need to save up vacation time, no risk of being fired, no commuting, and lower taxes. Yes, there’s a different learning curve in the beginning, but if people can handle working for someone else, I think they can easily handle setting up passive income streams. And once they’ve done it once or twice, it’s pretty straightforward after that.

Friend: Well, I’m still skeptical, so I suggest you give this some further thought. Again, jobs are very popular. I think you should give it a try.

Me: Do you think I’d like it?

Friend: No, but you’ll get used to it. Trust me. It will all be fine. Again, it’s very popular.

Me: Maybe for the free coffee.


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