Your Income Goals? Probably A Fantasy

August 6th, 2012 by Nelson Smith

If you're new here, you may want to subscribe to get stock tips or have investing ideas delivered to your email. I'm also on The Twitter.Thanks for visiting!

Recently, a certain blogger who heads a certain blog network (you need to pay more attention if you can’t figure out who I’m talking about) ran a post about the ideal income and amount of time worked per week ratio. He decided that spending 20 hours per week to make $200k per year. Assuming this person works every week of the year and doesn’t take any holidays, that’s a little over $192 per hour. That seems totally realistic.

Not to be undone, all sorts of people chimed in with their ideal income and hours per week. Let’s sample a few:

I’d like to gross $200,000/yr and work 30hr work weeks.

I’d probably like to work around 20 to 30 hours a week. Income would be tougher for me to determine at this point but ideally my minimum would probably end up at least 100,000.

My magic number at this point in my life is $150k… I would like a 20 – 30 hour week.

My ideal income would be $300k combined… 20 hours a week would be ideal.

I think $200,000 sounds like a good number for me to shoot for, but I think I would like to work 4 hard (normal) hours (per day).

There’s more, but you get the point.

You guys don’t need me to point out these income goals are a bigger fantasy than my threesome with Taylor Swift and the Call Me Maybe chick. Anybody with a brain can figure that out. Hell, anybody with an empty shell of a head where their brain used to be can figure that out. But hey, selling a fantasy life is hard work.

I’m not here to tell you that you can make $100k per year just by working 20 hours per week, since doing that is incredibly difficult. It either requires you to get to the very top of your field (which is only possible by busting your ass, ironically) or to have ample amounts of capital to invest in things that spin off semi-passive income. Sure, you can do it, but it’s harder than figuring out why exactly your girlfriend is mad at you. But it’s definitely your fault.

I don’t know many of the people who made those income goals from above, but I’m willing to go out on a limb and say that ABSOLUTELY NONE OF THEM have a realistic plan to get there. No, your blog isn’t going to transport you to instant riches. No, your lottery ticket isn’t just waiting to get cashed in. And no, nobody is just waiting to pay you large amounts of money for a night of love. You’re just some normal guy who has no choice but to make a normal living. You’re just not that special.

I’m a big fan of pushing for passive income. There are all sorts of ways for you to make income passively. Just browse through my archives, you’ll find all sorts of stuff on it. And of scantily clad women. I’m equally proud of both of those. But there’s a difference between beginning to grow your passive income and living on Gumdrop Lane in Candyland.

For most people though, passive income should be almost an afterthought. Why? Because, without exception, you make a hell of a lot more from your day job than all your passive income sources combined. How about you focus on that for, say, 30 years before you really start to focus on making income passively?

I’m not suggesting you throw up your hands and abandon any attempts to make money passively. But when you’re first starting out on this path, accumulating capital is just as important as the return you get on that capital. Since you have these silly expenses like food and shelter, most of your income will probably go towards them. The rest becomes the basis of your passive income.

As much fun it is to talk about passive income, most people aren’t in a position to have their passive income really matter. They’d be much better off if they focused more attention on their day jobs. A promotion can easily make a white collar worker an extra $10k per year. That same worker would need $120,000 worth of capital (at an 8% return) to accomplish the same thing passively. Which is easier to do?

Have you seen the people who make up our workforce? They’re a bunch of lazy maroons. People duck out regularly to watch their kids play baseball or butcher perfectly good plays. They spend more time discussing their love lives than ACTUALLY DOING THEIR JOB. We all have those people in our offices who always seem to have some reason why they need time off. Maybe you’re one of those people. If you are, you’re not going to like the next couple paragraphs.

The number one thing you can do right now to improve your financial situation is to earn more money. For most people, the most effective way of doing this is to earn more at work. To get there though, you’re going to have to put in some effort. You might have to start coming in early and staying late. You’re going to have to make a specific effort to improve your skills. Rather than kissing your boss’ ass, actually impress her with measurable results.

In my job, this is easy, since I get paid commission. To increase my salary, I need to increase the number of bags of chips I sell. The top performing salesmen get bumped up a level. It’s very easy to identify the best chip salesmen. It might not be as easy to identify the best computer programmers, which is why you need to figure out your own way of standing out.

You shouldn’t ignore passive income completely. Passive income is your key to financial independence. But you’re never going to accomplish much passive cash flow without making a decent living and finding ways to minimize your living expenses. And then, only after years and years of self sacrifice, will you be in a position to actually make 6 figures per year while doing very little work to maintain it. It’s not easy. Hell, it’s incredibly difficult. Which is probably why it makes me so mad to have those people from above throw out ridiculously optimistic expectations without even the beginning of a plan to back them up.