Not All Income Is Created Equal

Not All Income Is Created Equal

One of the most common financial pitfalls people make is thinking that all income is created equal. It’s an easy mistake to make; after all, a dollar is a dollar . . . right?

Well, that’s what I thought. What completely re-shaped how I spend my time and energy, though, is learning that one dollar can actually be worth less than another, simply based on how it's produced.

It’s a tricky concept to explain, so let’s jump right into some examples.

Is Your Income Being Devalued?

One of the best ways to illustrate this is to look at the 2020 tax bracket.

Credit: Nerdwallet

At its most basic level, this graphic shows that every dollar earned above $518,401 (when single) is taxed 2% higher than the prior bracket.

In other words, if you earn more than $518,401 per year, every additional dollar is worth 2% less than in the lower bracket.

Make sense?

This not only devalues your money, it devalues your time. After all, if you’re getting paid a certain wage per hour, your time is now worth 2% less at the highest bracket.

The point of all of this is to say that you need to figure out where the dollars are worth the most, and how to use the minimum amount of time and effort to create those dollars. That’s how you leverage your time for maximal benefit.

To put it another way, would you rather spend an hour to earn $250, taxed at 35%, or spend that same hour earning the same $250, but taxed at 10%?

The tax amount makes a huge difference–especially when we’re talking about numbers much greater than $250 (as we all know, it’s not what you earn that matters. It’s what you keep).

Income and the Cash Flow Quadrants

In order to put this all into perspective, let’s take a moment to revisit the CashFlow Quadrant, concept presented by Robert Kiyosaki in his book of the same name.

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