Securing the Bag and its Variations

the wheelbarrow way vs the piping system

Hello, and welcome to another issue of my newsletter. In the previous newsletter, we went through an overview of the building blocks of personal finance, which are:

1. Earning

2. Budgeting

3. Saving

4. Investing

5. Protection

Today, we dive a bit deeper into the first; earning.

Earning

This is the method or way you receive an income. There are several ways to earn money, but we tend to want more as humans.

The first method is exchanging time for money, and this brings us to the wheelbarrow way.

The Wheelbarrow Way

This is an analogy of exchanging your time for money. The analogy¹ goes thus:

You are a young person, and you want to earn money, so you load up your wheelbarrow with bricks and push. For every hour you push, you earn X amount. If you want to earn 2X, you push twice the number of hours. 3X? Then you push three times the number of hours, and so on.

After a while, it dawns on you that you still need more money or that the number of hours you push is not enough for the money you desire to earn. What do you do?

Most people then push a second wheelbarrow in the evening. A somewhat better way would be to load up gold instead of bricks in your wheelbarrow. Now, you earn more for every hour you push the wheelbarrow.

So, you earn more per hour instead of working more hours to earn more.

However, the problem is that you can only push the wheelbarrow for so much within 24 hours.

So what do you do?

You attempt to detach the amount you earn with time. In other words, do not tie your earnings to the number of hours you work.

The above is an illustration of exchanging your time for money. In the case of brick vs gold, this is the value of your skill in the marketplace. The marketplace values a financial analyst over, say, a barista at a coffee shop.

In this case, they both paid by the hour, but they earn differently per hour—gold vs bricks.

To change the loadings in your wheelbarrow, from bricks to gold in this example, you will have to upskill or change industries entirely. While it is not an easy thing to do, it pays in the long run.

Illustration by Andrew Yu from Value Visualize website

The Piping System

Another way to earn is to create systems where you don’t have your earnings tied to the number of hours. Essentially what you are doing here is you are applying leverage (the good type of course, for the other type check here).

Leverage is simply a multiplier. So it is like you put in X hours but the reward you get is disproportionately larger, say, 100X of the effort you put.

Illustration by Andrew Yu from Value Visualize website

This could include something like starting a business, having a string of low effort/risk high reward activities like consistently investing in the market etc.

As Naval puts it, leverage can be in these forms:

1. Media and Code

2. Capital

3. People

Naval @naval

Fortunes require leverage. Business leverage comes from capital, people, and products with no marginal cost of replication (code and media).

An analogy² of using leverage is the piping systems, and it goes as thus:

A village needed water as their wells have dried up. So, they agreed to contract the job to two men to would supply the village with water and get paid. Mr A gets to action immediately. He leaves for the next village before dawn to fetch water in two buckets and brings them back to the village. He does this 10 times in the morning and in the evenings. Mr A got paid for each bucket he brought to the village.

Mr B on the other hand left and for the next two weeks he was nowhere to be found. When he returned, he returned with some people who took measurement of distances and did other funny looking things. He left again, only to return after another two weeks.

In the interim, Mr A had earned a lot, but he started getting tired, so he employed his sons to help out and shared in the earnings. During the third week he fell ill and for the days he did not work he did not get paid a penny. And also incurred the curses of the village people for leaving them stranded as he did not inform them that he was ill.

When Mr B returned this time, he came with people and sank a borehole and fixed some taps head for people. And then set his rate for each bucket of water fetched from his taps.

He employed three people to help him collect the money paid by the villagers and rendered Mr A redundant.

Now this simply illustrates creating systems³ takes time but in the long run is more effective. This is the point where you don't only work harder, you work smarter, as opposed to the wheelbarrow analogy.

In a space where you create systems, being a little bit better than your competitor makes you accumulate disproportionally larger rewards⁴. A real life manifestation of the Pareto law⁵ (80/20).

Conclusion

You want to earn without tying your income to time. But to do so, you have to start somewhere. It might mean pushing the wheelbarrow with bricks, but remember where you start doesn’t matter. It is what you do with what you have that does. Upskill to make your wheelbarrow of gold, then create systems to earn without selling your time.

You don’t have to do any, sometimes you are satisfied with the content of your wheelbarrow.

Time>>>>> Money

PS: NOTHING says you can do both at the same time. There are no rules.

That’s all for this week, see you soon.

1. from How To Escape Poverty - 'Is Your Thinking Keeping You Poor?' - Professional Speaker Douglas Kruger

2. can’t recall where I got this from

3. passive income if you may, even though I have come to detest using that word

4. In any such game, the winner gets a much larger share of the spoils.

5. also called the power law