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Increasing your hourly rate in order to get rich
Monday, 18 December 2006
When it comes to making more money, a lot of people think about working harder or working more. They equate the amount of money you get out with the amount of effort you put in. But this isn't really the case.
For example, Bill Gates and Warren Buffet have made more than 10,000 times as much as the average American can expect to in their lifetimes. Do you think this is because they've worked 10,000 times as hard? Surely not.
In fact, I meet people all the time who work much longer and harder than I do, and yet are fairly poor. On the flip side, I know people who are well off who are actually pretty lazy. Clearly, the secret of high income and wealth hasn't got much to do with how much work you put in.
Instead, it boils down to how much that work is worth. The easiest way to think of it is as an hourly rate. What's your hourly rate and how can you increase it?
If you've got no skills or qualifications and you work in McDonalds as a burger-flipper, then your rate is probably around $10 an hour. You put in an hour's work and you get $10 in return and that's it - you're not getting any more money out of that time you invested. It's basically spent.
Often, the largest hourly rates don't come from paid work, but from time invested in improving your skills. When I first got into computer work, I was being paid about $25 an hour. I knew that if I could get into contracting, I could at least quadruple that rate. But to do that, I needed to study and pass some exams and get certified.
Over the space of about six months, I did a lot of study outside of work. I'd do a full day's paid work, then an hour or two's study for which I wasn't directly paid anything. All up, I probably put about 100 hours of boring study into getting certified. I also funded all this myself.
Many of my colleagues thought I was mad. Why do training that wasn't paid for by my employer? Why put in work when I could be watching TV instead?
But almost immediately that I got my qualification, I was offered a contract paying $100 an hour. A year later I had a contract paying $125 an hour. The year after that I was getting $150 an hour. Much of this came from the 100 hours of study I put into getting my certifications - not only the direct qualification, but also the valuable knowledge I learned. Even though I wasn't paid immediately for it, that time investment probably made me over $2,000 an hour. That's a pretty sweet payoff.
That's why I encourage people to get skilled-up through pursuing formal qualifications. A lot of people look at going to university and think: Why put in all that work for no pay? But they've got it the wrong way around. Time spent getting qualified at university will probably pay off an incredible amount. For many, it turns out to be the best-paid work they've ever done, it's just that pay comes later and not immediately up-front like burger-flipping does.
Taking the time to learn about investment can also pay off hugely. Let's say someone spends a hundred hours reading about investment strategies and researching the market. They then manage to save $100,000 and invest it wisely. Over twenty years they turn that $100,000 into $300,000 with little effort.
In that case, their hundred hours spent learning about investment has paid off at $2,000 an hour. That's probably the best paid work you'll ever get.
Tax planning is another type of hourly work that can be very well paid. Tax is boring and I hate thinking about it. But understanding it is very lucrative. In most countries, even basic tax planning can save you thousands of dollars a year. This often requires only a few hours work. Generally, while boring, that work can pay in the hundreds of dollars an hour, even for someone on an average income.
Intellectual property can also be very well paid, especially if it becomes popular. Stephen King wrote many of his most popular novels back in the 1970s. Go into any bookshop in the Western world and you'll see lots of those novels displayed prominently. Look on people's bookshelves and you'll almost always find at least one of them. I don't know how much work he puts into promoting those books these days, but I imagine not much. He probably still makes millions a year out of the work he did thirty years ago. That's a pretty good hourly rate.
Think of work not in terms of salary or bonuses, but instead in hourly rates. How much are you going to get paid for that hour of work you're putting in? What type of work could you be doing that pays even better? These are the types of question financially savvy people ask themselves.
Meanwhile, most of the world's workers putting in a hard day's grind for a small amount that gets spent almost immediately. What a waste.
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