Originally Published 2007-05-15 14:14:27
My post yesterday contained a note in passing about how PayPerPost-based blogs are limited in their ability to produce income. Doing sponsored posts is a method of trading time for money, which is akin to employment. Just because the income is reported in a 1099 instead of a W-2 doesn't mean it's not a form of employment. (This is a reference to the tax reporting infrastructure in the United States -- a "W-2" form is issued at the end of the year to every documented employee making over $600 per year; this employment structure requires the employer to withhold funds for social programs and income taxes on behalf of the government; a 1099 is used for other types employment and includes no withholding. Your Google AdSense income, for instance, is "1099 income".)
So what am I getting at? Well, trading time for money is not a way to actually build wealth. Even if your per-hour rate is through the roof, you absolutely must exercise other forms of wealth-generation in order to get ahead. Here at the 5 basic ways to make money:
- Employment. Trading time for money, regardless of how it's reported. Blogging for PayPerPost falls into this category. Working for "the man" is definitely here. Even if you're a consultant, you haven't gotten out of the employment game.
- Business. This refers to the practice of leveraging the efforts of others (employing others) to create value. Within the scope of blogging, paying others to write articles for you means you've moved out of employment and into business.
- Investing. If you have a 401K or IRA, an etrade account, own your own home or a rental property, etc., then you've already engaged in this category. The trick is maximize your investment income (hint: savings accounts are bad! :-)), because this is a far more passive form of wealth creation than either #1 or #2.
- Creativity. Blogging (but not for PayPerPost and the like) loosely falls into this category, because it's simply an internet-enabled form of authorship. There is also the potential for residuals, since content that you publish can be accessed and monetized for years to come. More traditional forms of creativity as a form of wealth creation include writing the great American novel, painting the Mona Lisa, writing Raspberry Beret, and the pet rock. This is a very, very steep form of the long tail, however -- remember that for every John Grisham and Prince, there are thousands of starving artists.
- Other People's Money, i.e., leverage. This refers to the practice of borrowing at a low interest rate and investing at a higher rate, pocketing the spread. It's the business model of every financial institution out there, from Venture Capital to the local Savings & Loan. The common form of leverage available to most Americans is a real estate loan -- putting 20% down means that any gains or losses are magnified by a factor of 5. For instance, a home bought for 100K with 20K down that gains 5% per year is not a bad deal even if your mortgage is at 6%, because the $5000 you're making every year is a 25% return on your initial $20K investment. (I can go into more detail on this example if you like, just post a comment.)
And no, "marrying it" and "inheriting it" don't make the cut!
On 2007-05-16 06:34:52 Jason Spence said:
So what your saying is . . . That tree I planted in my back yard isn't really a money tree? Now I have to find that guy that sold it to me, out of the back of a van, on a street corner. Wish me luck.
On 2007-05-16 06:37:46 Jason Spence said:
btw Johnny. . . You may want to test your comments out. It looks like my last comment was published, but I did receive some unruly error type messages after I submitted it.
On 2007-05-16 16:25:44 Uncle Johnny said:
I think the guy that sold you the money tree might win a gold star for his observance of method number four -- creativity.
You, on the other hand... ;-)
Good luck with that tree!
On 2007-05-16 19:40:20 Wearing all the hats » Really Smart Guy » GeekSpeak, Real Estate, Landlording, Technology, Business Ideas, Web Marketing » Blog Archive said:
[...] Marketing About Contact Link Exchange • « 5 Ways to Make Money (no, not on the internet, period) 16 May 07 19:40 [...]
On 2007-05-17 21:08:33 msdanielle said:
no marrying and inheriting?? bah... no fun... ;)
On 2007-05-20 17:54:25 Uncle Johnny said:
Well, inheriting is pretty much out for me, and somehow I don't think being a gold digger would attract the kind of girl I'm generally attracted to.
Well, maybe. I guess I never have dated an heiress. The roller coaster could be fun... ;-)