Addicted to Earned Income?

By Liz Uible

I have heard David Finkel, author of Maui Millionaires, talk about Earned Income as being like Sugar. He points out that eating sugar gives you a short-term high and then a crash and you have to run get more ‘sugar.’ So like sugar, Earned Income can be addictive.

It strikes me that we could take that observation a bit further. I imagine sugar dissolving in a hot liquid (coffee, for instance). Sugar dissolves quickly. To see the crystals, you actually need to continually add sugar. As an employee, to have money in your bank account, you need to continually earn income. That way, you can always see un-dissolved sugar in your account.

The only way to keep the sugar from dissolving so fast, in this earned income model, is to decrease the temperature, in this case, your lifestyle costs. (Most of us learned that in high school science.) The other think you can do, is change the method of delivering that sweetener.

We can take this image a few steps further. I think that passive income, or the “chunk money” you receive when you sell a property for capital gains. So we can talk about Passive Capital Gains as a sugar cube. (One of those natural cubes that come in different shapes and sizes.) The cube may sit there in your beverage, or in your bank account, for a little while before dissolving. It gets smaller and smaller, but eventually dissolves. You can speed up the process by heating up the beverage. In this case that would be equivalent to having a more expensive life style. But the passive income is a lot like earned income. You can get addicted to it.

Residual income, it turns out, is the best kind of sweetener for your lifestyle. This is like honey or that all-natural cane juice they sell in health food stores. This can just keep pouring into your beverage and comes pre-dissolved. It is integrated into your lifestyle. It is a healthy thing to be addicted to because it will never be cut off.

So earned income and passive income is fine. The paychecks can sustain you… unless you have an emergency and can’t work. The passive capital gains can sustain you as long a property is selling and you have more of it to sell. But it is the residual income, the money that comes to you even when you can’t go out and create it… rental income, royalties, residual business income… that will sustain you and your family over a lifetime and keep your financial picture healthy. We can all afford to get addicted to that.