I just pulled up my KP paycheck and after taxes it was $1,140. I don’t work much these days so this wasn’t a big shock. The gross check was $1,500. That’s 24% taken out for taxes. At the same time I pulled up my investment accounts and saw that my securities investments went up by a little over $4,000 gross. This means that I earn money investing which is even more than what I earn working a job.
Below is my recent paystub. $1,140.47 of take-home for 15 hours of work. $147.07 of federal income taxes and $97.50 of state income taxes.
This is a screenshot from Personal Capital which shows I am earning money investing without putting in any work. It’s from beginning of September to middle of September – the same time frame for the hours I worked for my job.
Working A Job
Working for an income has become much easier than before, mostly because I don’t work as much. I open my laptop and log on and see a few patients a week; enough to keep me wanting to come back for more.
If I were to work full-time then the gross income which I earn is taxed at a very high rate and I am left with around 50% of my income.
A job also requires me to do customer service, maintain a license, keep up my skills, risk a poor patient outcome, and requires me to deal with management.
Another downside is that I have to trade my time for an income. For whatever reason medicine hasn’t evolved to paying the younger clinicians less money and the more experienced ones a higher income. I should be working fewer hours for the same pay as my young attending counterparts. I know more, I have more expertise, and I can do certain things better than them.
The added benefit is that delivering health care is a lucrative skill to possess. I get to feel good about helping patients. I also enjoy learning more about medicine and testing my knowledge when I encounter a real-life case.
There is a fairly direct correlation with how much effort I put in and the results I obtain; specifically how much income I earn. This is reflected in not only the quality of work I produce but also the income I generate. This factor is perhaps the most tangible of attributes of having a job. I was raised to think in this manner and it reflects in my visceral emotions.
Earning Money Investing
My investments make me money in 3 ways (called capital gains income):
- appreciation of the underlying asset
- dividend income
- tax savings
And I need to work my investments in order to make it lucrative. In a sense, Wall Street is my new job. There is no set-it-and-forget-it when it comes to investing, not even in index funds.
Some personal finance enthusiast make it seem too easy because they are ignorant of all the skills they actually possess. As if they popped out of their mom’s womb and knew right away to save their income and invest it conservatively.
That’s all – nothing to it.
Shit, why doesn’t everyone do it?
It’s like the fit & thin, right? Nothing to it!
If I invest in an asset that appreciates then the value of it goes up and I increase my net worth. I can buy more of each unit (individual fund) when the price is lower and then sell it when it goes up in value.
Because of the specific index funds that I hold, I also get to enjoy dividend income. This is paid out every 3 months and is somewhere in the 2% range as of 2017. This is a great way to earn an income – just wait around every 3 months for someone to throw a little money into your account.
I threw in “tax savings” in the list above because income from investments (capital gains) is taxed much lower than earned income. Income from a job has the following taxes:
- federal income taxes
- state income taxes
- local taxes
- social security taxes
- medicare taxes
The table below shows you the tax-rate for the various incomes brackets. The first column represents taxation rates if you earned the income as an employee. The second column shows taxation rates from selling investments and from dividend income.
The downside with investments is that it fluctuates a lot more than my job income would. In order to overcome this I would need to be patient and control my stress reaction to normal market changes.
To have my investments make me a halfway decent income I need to invest quite a bit of savings. It’s not like I can open an investment account with $1,000 and start making a realistic income. If I had more investing experience and was less risk-averse then I certainly could earn a far higher income than I do now.
Breaking Down The Comparison Paradigm
One could make the argument that a job is less risky to hold, the income is more predictable and that there is a much more predictable correlation with our skill-set and earning ability.
Ironically, I think the great equalizer is the investment. You could be a black person in America, a woman in Afghanistan, a handicapped person in China, a gay man in Russia, or a young woman in Mexico… the market is completely blind to all of that.
Sure, there is a big lead-time before earning a solid income from investing due to the upfront capital that is needed. But there are many ways of increasing this faster even if you started with only $1,000. On the other hand, you’d need to have some sort of privilege to become a doctor, some sort of support structure. Even then, you have to deal with all the bullshit that comes with having a job.
I am not advocating for one over the other. However, it has become easier and more pleasant for me to earn an income through investing than through offering my medical expertise.
So what about when the market eats shit and I lose a good chunk of my investments? As I’ve mentioned in previous posts, there is no loss until you lock it in. Just like there is no gain until you sell the appreciated investment. But I get to choose when to sell, which means that I am in control and responsible for a loss or a profit.
The disadvantage of a job is that no matter how long you practice in healthcare, you will always put in the same amount of time/effort in proportion to what you earn. You’ll earn just a tad more with seniority. And you’ll earn a tiny bit more with a leadership role where you trade even more of your time away.
The advantage of investing is that the longer time you spend in the market and the more money you invest in it, the higher your return. And because the way compound interest works, your net worth and income grows exponentially and not in a linear fashion as is the case with your income from your job.