No matter what you do to earn money, each income generating method can be classified into one of 4 broad categories; Employee, Self-Employed, Business and Investment. We will discuss some advantages of each method in relation to income, simplicity and time. You will also find out how the 4 categories can be re-classified as Easy, Good, Better and Smart. Is it possible to take advantage of all 4 methods?

In the previous article we discussed the 5-Fold Budget Solution. This was based on the topics, “how to SPEND money” and “how to SAVE money”. This is because budgets provide a guideline that limits how much we spend so that we can have something saved at the end of the budget period. Today we will discuss the source of the money we spend and save. Our discussion is therefore derived from the topics, “how to EARN money” and “how to INVEST money”.

Our title for this article states 3 ways to earn money. However, there are actually 4 ways. We excluded the first method from the title because being an Employee is obvious to everyone. We all know the mantra; go to school, get good grades and get a good JOB. Maybe this is why almost everyone gets stuck in the first category.

1) EMPLOYEE

This seems to be the easiest way to make money since the great depression. All you need to do is look for someone who has a business, get hired to help him make more money and in return you are guaranteed to receive a salary every week or every month.

According to research, only 1% of employees become financially independent by relying only on their salaries. If this category is your only source of income, and you are not the Chief Executive Officer of the company you work for, I beg you to keep reading this article. The odds are not in your favor.

Employee’s pay can be deemed to be based on the amount of hours worked. Whenever employees desire to significantly increase their income, the easiest route is to work overtime or get another job. That is, work more hours to earn more money. Unfortunately, each day has only 24 hours. The body too can only absorb so much stress in a day and it requires rest and sleep. This means the employee discovers very soon that his income is very limited. There are only 8,760 hours in a year. If you multiply 8,760 with the pay rate per hour, you will get the maximum income you can make if you work without rest and sleep for 1 year. For example, if your pay rate per hour is $10, then your maximum annual income is $87,600.

Another factor to consider with employment is that someone else determines your pay rate. If the boss does not approve your pay rise, working harder or smarter will neither improve your bottom line nor provide an extra loaf of bread for your family.  
 
So there has to be a better way to make money. A good way that takes into account how hard you work and how smart you are at your job. Enter category 2.

2) SELF-EMPLOYMENT

A Self-employed person works for himself or herself. This is better than being employed because you set your own pay rate. There is also a direct relationship between how hard and smart you work and how much money you make. Examples of self-employed people are commission salesmen, hairstylists, doctors and consultants.

Unfortunately time is also a big hindrance to the maximum income a self-employed person can make. It is actually a double-edged sword. Maximum hours in a year are fixed at 8,760. Also, if a self-employed person does not go to work, there is no income. This means self-employed people hardly get time for themselves and their families. They do not get time to enjoy their income.

According to research, self-employment is 10 times better than having a job. 10% of self-employed people become financially independent.

So there has to be a better way to make money and enjoy it. Enter category 3.

3) BUSINESS

A business is a system designed to make money for the owner. It is made up of related functions which are managed and run by employees.

In a business system, the owner recognizes the advantage of using other people to work for him. A business has unlimited income potential. A business can make money even if the owner is away! However, it needs close supervision, especially in the start-up stage.

Many people wish to enjoy the benefits of a profitable business. Research proves it by revealing that 90% of the people have either tried to start a business or wish to start one in the future.

Research reveals that 70% of business owners become financially independent.

Is there a smarter way to make money? Enter category 4.

4) INVESTMENT

This is arguably the best way to make money. An investor lets his money work for him. He invests his money in a business then waits to receive his profit. If his income from the investment is enough to cater to his needs, he can literally sit down, do nothing and still continue to receive income. This is how people expect to live in retirement.

Being a successful investor allows you the maximum amount of time to yourself and the activities that interest you. It demonstrates the true meaning of financial independence.

Research reveals that 90% of investors become financially independent.

5) Multiple Sources of Income

If you are like the majority of people, you are currently stuck in category 1, employee.

In order to increase your chances of becoming financially independent sooner rather than later, you must incorporate the other categories of making money in your income generating strategy.

6) Frequently Asked Questions

1. How can I make additional money like a self-employed person? Answer: Market your skills; get paid directly by a customer and keep all the money to yourself. Learn a trade or profession and be paid gross commission based on sales made.
2. How can I start a business? I do not have capital. I do not have a product to sell. I do not know how to set up a system that can make money. I tried starting a business before and it failed. Answer: These questions will be answered in a future article. We will discuss a very simple business system that anyone can implement and start making money. One that requires minimal capital to start.
3. How can I become an investor? Answer: In a future article we will discuss this topic in detail so that we can address such issues as Risk, Interest Rates and Time Value of Money. However, the simplest way to start being an investor is to open a 401k or IRA (Individual Retirement Account). This has also been mentioned in previous articles.

Thank you for reading our personal finance article and we look forward to giving you more information. In case you have any questions or comments, please e-mail GeorgeChege@AjabuAfrica.com

HOMEWORK:  Write down on a business card 3 ways you could increase your current income. Note down which of the 4 categories each income source belongs to. Put the business card in your wallet. 

These articles are intended for educational purposes only. Please seek professional advice on tax, accounting, investment, legal and similar matters. Each case requires personalized assessment with regard to individual preference and local laws.