Working Hard Does Not Mean You’ll Ever Retire

Many people have begun to realize that retirement and hard work are not completely related ideas. In fact, they may be completely opposite thoughts:Hardworking: using a lot of time and energy to do work – Merriam-Webster Dictionary

If you really think about it, working hard is completely different than financial independence or retirement – both of which are defined by when your passive income exceeds your monthly living expenses so you no longer need to work.

So, why, in our society, is the idea of “hard work” so tied to the idea of success and retirement?

What Does it Mean to Work Hard?

The world is filled with billions of hardworking people.

The people working on a roof in 110-degree heat are clearly hard working.

Farmers, laborers, factory workers, and others are all very hard working.

Myself, I was a Soldier. I worked 20+ hours a day when I needed to. That is hardworking.

Physical labor is not the only form of work of course. There are millions of professionals, attorneys, accountants, sales people, and more who all work long hard hours applying their knowledge and skill to earn money in order to pay for their home, cars, and family.

I have the utmost respect for all hard-working Americans and people around the world. I, myself, am one of those hard workers. 

Work is when you trade your time for money. It’s really simple. The more valuable your time is, the more you get paid.

You can improve your skills, increase your knowledge, create scarcity or increase your desirability. All of these will increase the value of your time.

The Limiting Factor is Always Time.

The key to all of this is time. The fact is you do not have unlimited time. In this parable, you can see that the two different characters have chosen two different paths.

One character chose to work harder, spend more, and carry bigger buckets. This is synonymous for how just about everyone lives their lives.

The other character sacrificed a bit up front and devised a plan to create long-term wealth. He chose to find a way that meant working less hard, and was even made fun of for it.

Working Hard Doesn’t Mean Success?

Successful: having the correct or desired result: ending in success – Merriam-Webster Dictionary

Take a minute to think about the people you think are successful.

It’s such a loose term that I can’t give any examples that fit everyone’s definition, but you might be thinking about an actor, president, CEO, inventor, or TV personality. You may also think of some family members or friends who have done some great things in life. I would venture to say that all of them are hard working people.

Now take a minute to think about people who are not so successful.

Again, it’s hard to give examples, but maybe you are thinking about a person with a failed business or someone stuck in a job with low wages. How many of these people are also hard working? Maybe not all, but I bet a lot are.

You need more than hard work to succeed. Among other things, you need preparation, planning, and dedication.

My point is, nearly everyone at the top is hard working, but most people at the bottom are hard working too. So, hard work is a requirement to be well off but hard work itself does not mean you will succeed. Succeeding requires more – preparation, planning, and dedication to mastering your trade. Working your butt off every day at your job may actually be working against you.

Everyone has a different definition of success. Some may have grand aspirations to save lives, help children, reduce poverty, or change the world. Others may define successful in other ways that are less grandiose. It really doesn’t matter because everyone has the same desired result for a life of work – to retire, enjoy that retirement, and not have the need to work (though working for fun or personal enjoyment is always allowed).

Money may not be what drives you, but part of your drive should be. If you didn’t NEED to work, how much more time could you dedicate to what makes you happy? If you had more money, how much more could you accomplish? Regardless of how you define success, you can be far more successful if you are financially free.

Conventional Wisdom is Wrong

I’m not sailing in uncharted waters here as I’m definitely not the first person to say something along these lines. For generations, we have all been taught to get a good job and work hard for 40-45 years, save a lot of money, and then maybe you can enjoy your few years of retirement if you do everything right. In the past, retirement planning was easy – people didn’t live many years after retirement. Don’t really need a lot of money or planning for that.

Now we are all living longer so we need more money for retirement. We work longer, work harder, save more and spend less throughout life. Sacrifice your whole life so you aren’t destitute in your 20+ year retirement.

Screw that. That sounds like terrible advice to me.

Why can’t I work smart instead of hard? Why can’t I take calculated risks, invest my money wisely, and create a strong passive income stream? Why can’t I create multiple streams of revenue to guarantee stability and happiness my entire life and allow me to be free to do what I want when I want to do it?

Look at this graph. You can see how wages are going to be flat for your entire life mostly. If you are 40 now, do you feel like you work less hard, fewer hours, and do less than when you were 30? Of course not, but your wages don’t reflect it. Let’s look at it another way.

 Working harder does not mean making more money or being more successful.

I have taken the first graph and just simplified it. You can see how your wages flatten regardless of how much experience you gain. So what should you do? Well, focus that knowledge, experience, and time to increasing your residual income.

Your retirement plan should be your income plan. If you can create a plan to generate income passively NOW, then you have already planned for this year and for 50 years from now. Some people may need more residual income than others, but you get my point:

• If you can generate the passive income you need to live today, then you can retire NOW.
• Once your lifestyle is paid for with your passive income, every other dollar you earn can go toward increasing your passive income.
• Once you are free from the obligation to work, you can dedicate your life to what makes you happy, fulfill your definition of success, and continue to increase your passive income.

Once you are no longer required to work to survive, every minute you choose to work goes into improving your life and standard of living. I worked for nearly all of last year because I wanted to buy a few more properties and I also paid for 3 vacations, each lasting one month and we did them over a 6 month span. I increased my passive income and went on 3 months worth of vacations. What the…?

Being retired does not mean you sit in your house all day. Studies show that being engaged in life by doing things such as working or volunteering actually seems to prolong life. Being free from the requirement to have a job just lets you focus on what is important to you, for me it’s travel and increasing my monthly passive income.

Conventional Wisdom Puts You Further Away From Financial Freedom

Most people have spent an entire lifetime following the ‘rules’ that have been passed down to us. You know the rules – get a job, start a family, buy a house, have nice things, save a little, hopefully, retire in your 60’s. The problem is that each step you take along that path takes you further away from the goal of retiring young and having a good passive income.

I recently read an article that almost half of Millenials think the American Dream is dead. I do not believe that the American Dream is dead – I think it is alive and well, but the conventional wisdom does not lead us toward this dream. The further down the path you go the harder it is to get out.

Making these mistakes does not make it impossible to get back on track. First, let’s identify the common mistakes and then find ways to fix them.

Mistake #1 Overspending and Under-Investing.

We live in a society driven by consumerism which means most people feel a strong desire to buy better and nicer things than they need and will ignore investing or saving.

The moment we earn some extra money, we already spend it. Many people take out loans against their tax returns to spend the money before they even have it! I’ve seen this too with a military activation or deployment. Some people will calculate exactly how much extra they will earn, and have already spent that on credit before they even go.

Though you may be pretty responsible and live within your means, it may not put you on the path to true financial freedom through passive income. Most of your major purchases use a portion of your income. You eat into your monthly disposable income which means that’s less money for you to compound with interest!

Overspending and not having enough investments are the root of the other problems. As the graph shows, you need to cut out all the unessential expenses so you have more money to invest and grow your future passive income.

Mistake #2 a Nice House

You planned and saved for a long time to get that dream home. Or perhaps you are one of the millions of people who got 0% or 3% down financing to buy an even bigger home even though you had virtually nothing saved and no investments to speak of…but you have a huge house now! You know your house is your biggest investment, right? The bankers, mortgage brokers, real estate agents, and insurance companies told you this.

Unfortunately, you just fell into the biggest trap in life. You have now maxed out your debt-to-income ratio and won’t qualify to buy that investment property you wanted.

Mistake #3 Nice Cars

So maybe you didn’t max out your credit with the house, so now you have some disposable income to buy that Lexus for yourself and BMW for your spouse. You are not making these large purchases with your savings, you are actually buying them with money you haven’t even earned yet. Plus, the

car actually costs far more than you think. You will spend more than $9,000 per year on insurance, maintenance, gas etc…. The more expensive the car, the more you you pay not only in loan payments, but also in insurance and maintenance. You can save thousands by downgrading to a less expensive car.

Mistake #4 Things You Don’t Need

I won’t spend much time on this. Most people waste a LOT of money buying things they don’t need and sometimes even things they don’t want. Look at your spending over the last few months and add up all the things you didn’t really need. Look at major purchases where you spent more than you actually needed to. It is probably thousands.

Mistake #5 Believing Somebody Else Will Pay for Your Retirement

You have a great benefits package at your work and social security, so who really needs to invest? Corporations across America have been slashing pensions or doing away with them completely while state and local governments are going bankrupt due to unfunded liabilities. People are retiring with a fraction of what they thought they would have in retirement. Not everyone is affected, but are you willing to roll the dice?

Social Security will probably stick around in some fashion for decades to come, but does anybody actually believe you will get a reasonable amount? As the can gets kicked down the road and it starts paying out more and taking in less, we will all be forced to either take less pay-out or pay in more taxes. Either way, we lose.

You may get lucky, but can anyone really expect to be taken care of in retirement? This government run Ponzi-scheme and bankrupted corporations and municipalities are not a guaranteed way to a good retirement. Plus, who want’s to wait until their 60’s to retire anyhow? Your retirement should be planned around your investments, and anything you earn above these investments is just nice to have.

Most people are in the same boat

76% of people live paycheck-to-paycheck and 62% of Americans have less than $1,000 saved in the bank. These numbers are staggering! 76% is a large majority of the country, so you can rest assured that some very ‘wealthy’ people are living paycheck-to-paycheck just like some ‘poor’ people.

I’m trying point out that a high-income person with a boat, three cars, and two houses may save less than a lower-middle income person that lives well below his means. People of all income levels can make the same mistakes.

THE NEW WISDOM – CREATE MULTIPLE STREAMS OF PASSIVE INCOME

First of all, what is passive income? Words have meaning, so we should understand them:

Passive income is an income received on a regular basis, with little effort required to maintain it. – Investopedia.com

I have used passive income and residual income quite interchangeably though they are slightly different:

Residual income is the amount of income that an individual has after all personal debts, including the mortgage, have been paid. This calculation is usually made on a monthly basis, after the monthly bills and debts are paid. – Investopedia.com

Though not exactly the same, they are very much related – you can see that residual income increases when passive income increases. Increasing your residual income means you have more to invest, thus creating more residual income.

Types of Passive Income

The two primary ways I advocate to increase passive income is by either buying into or owning a business or buying real estate.

Business Ownership –

You can start investing by buying stocks or start your own company or franchise. Starting your own company is a great way to build up a lot of wealth and passive income.

Real Estate Investing –

Investing in real estate is my preferred method and the way I started earning passive income. Real estate offers far more stable income and a much higher rate of return but it is very expensive to get into.

How to build multiple streams of passive income

What exactly do I mean by multiple streams? Well, just like you would diversify a portfolio of stocks, you should diversify your sources of income. Residential rent taking a hit? Good thing you have those commercial properties. Is your entire real estate passive income stream going down the tubes? Great, you still have that passive income from your ownership in a couple businesses.

Once you have built up one solid passive stream of income, diversify and start a business or get into a new type of real estate in a new market. The combinations are limitless but are important to the overall strategy.

Get back on the right path with passive income

Alright, so you know you have made some common mistakes and you know you need to start building streams residual income…but how do you get back on track?

I can’t answer this question in one simple post because it is so broad and depends how far down the path you have traveled. It could require a massive change in your life from selling or paying off property and cars, or it could be simple small fixes. The further down you go, the bigger the changes you need to make to get back on track.

Fix #1 Change Your Mindset

You need to first rewire your brain to ignore the naysayers and instead focus on doing what everyone else is avoiding. Going against the conventional wisdom can be difficult. Do a lot of reading, research, and studying to truly change your perspective.

Fix #2 Simplify your life; Understand what you need vs what you want

This builds upon Fix #1. Ask yourself, “Do I need new shoes or do I want them” or “do I actually need a new computer?” If you need them, then buy them. If not, don’t. This will cut a lot of expenses and refocus your life.

Fix #3 Don’t be afraid of massive change

Once you analyze your life, make the changes.

• If your house is your only debt and it’s drowning you. Sell it.
• Your cars are eating up a third of your income? Trade them in.
• Cost of living is too high? Move.

 Most of what you think is essential, is actually not

The graph on the left is your life before making the changes. The one on the right is when you identify what you truly need, and reduce your expenses to that level. Once you get rid of all the things that you think you need, but actually don’t, then you will free up huge amounts of money to invest with

Fix #4 Stay Focused on What Your Goal Is: Long Term Passive Income

Passive income is what allows you to retire early. This income never goes away (hint: it’s passive). Never lose focus on investing and dedicate everything to it until you achieve it.

Start Building Residual Income

Let’s look back and follow the winding path of how we got to this section. We talked about who is hard working and who is successful and realized they are not completely related. Working hard does not mean you will be successful.

I pointed out how most people have focused their effort in the wrong direction because that is what everyone said they should do. Most people have gone down the convention wisdom path and now must make some life changes to fix them.

Now it’s time to:

Refocus that effort and work very hard toward investing and building that passive cash-flow.

There are literally hundreds of ways because it all depends on your exact situation but I have identified three really common situations:

Situation 1: Low Monthly Debt but Very Little Savings

You never bought fancy cars or an expensive house, but maybe you spent all that money on school, food, or things for the kids. This is not a bad spot to be in!

The easiest thing for you to do is to buy and move into a multi-family property. The rental income will cover all or almost all of the expenses allowing you to live for free. This savings can be used as a stepping stone into more properties. You will also build experience while you can be directly involved with the property and know what’s going on day-to-day.

How? Well, use FHA financing to get 3% down on the house. 1-4 unit multi families qualify as long as you live in it. It’s a great way to live on the cheap, invest in properties, and build up experience as a landlord.

Situation 2: High Monthly Debt but Good Savings

So you bought that fancy house and nice cars and your entire paychecks are already allocated. Fortunately, you have used that good income to save a lot of money for retirement. It’s harder to start investing, but not impossible.

If you have a good savings but no way to qualify for another home and you have no experience as a landlord, the best thing you can do is partner with an investor. Start going to local investor meetings and start feeling out the other investors. Once you found the right person, you can suggest that you pay a significant amount of cash and they put in their experience. You won’t earn as much since you will need to split any rent and equity, but you will increase your cash-flow, build experience, and get your feet wet as an investor.

Situation 3: You Believe in Yourself but Your Spouse Doesn’t

Human nature is funny – someone won’t hesitate to spend $30,000 on a car they don’t need or $300,000 on a house they can’t afford but will be scared to spend just a little bit on something with great potential rewards.

It can be nearly impossible to convince your husband/wife to spend your entire life savings on something that goes against the conventional wisdom. It could take months or years to convince them you are right. How do you overcome this?

Well, familiarity is a proven way to overcome fears. If you have a decent sum of money, I suggest finding a hard-money lender in your area…but you aren’t borrowing from them. Offer to lend your money and ask them to find the deals.

It isn’t a big jump from investing in risky stocks to investing in loans to investors. You will earn 8-12% or even more, and you are allowed to follow the status of the project, get the forecast numbers and final numbers, and learn the in’s and outs of the project. The hard money lender has a lot of experience and knows a good deal or a bad one and will help avoid losses.

You will have your spouse join you and learn about investing and check out the investment projects too. Over time he/she will become very familiar with the numbers and then hopefully will believe in it as well.

Alternate Option: Start a Business

Regardless of what your situation is, you can start a side business. You can do anything from virtual work such as a designer, writer, or office assistant, or you can labor, pool cleaning, lawn maintenance, repairs etc…. At this phase, you are focused on starting to invest and you need time and money to do that. Starting your side-hustle will help get you some extra cash to kill some debt and get you into investing sooner.

Next: Retire

OK, it’s not that simple, but now you are on the right track. Once you have really built up enough investments, you are ready to retire and focus your life on what you want to do.

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