Have you ever given much thought to how you earn an income? Not so much the type of work being done, but the way in which your income is earned? Well, there happen to be two distinct ways and making that distinction will greatly affect how you live your life. The majority of us make a living through wages as an employee, but others make a living through profits. It’s tough to say which is best, but we’ll narrow that down here with, Wages vs Profits – The Final Showdown.
Wages in Detail
Wages are fixed regular payments, typically paid on a bi-weekly basis by an employer to an employee. Simple enough, right? Well, how this breaks down is that the employee has gained a certain set of skills that the employer finds valuable. The more valuable that skill set, the more the employer is willing to compensate him or her. This comes down to a simple transaction of time for money. The employee provides their service for a certain period of time and they are compensated for that time. This type of income generation accounts for a majority of people. It has a number of benefits, but a number of drawbacks as well.
Benefits of Wage Work
- Consistent & reliable income
- Health/Dental benefits
- Retirement programs
- Paid time off
- Sick time
- Professional development
- Insurance
- Feelings of safety & security
Drawbacks of Wage Work
- Capped income potential
- Time is not your own
- Must complete given tasks
- Answer to your boss
- High pressure & long hours
- Specific work hours
- Daily commute
- Possible lack of variety/engaging work
- Office politics
- Fear of losing your job
Profits in Detail
Net profit is the financial benefit realized when the amount of revenue gained from a business activity exceeds all expenses. In this situation, the business owner has created a product and/or service of value and sells to consumers. The more perceived value the business provides, the more profit it receives. The income generated is also received regardless of time, creating unlimited potential. This type of income generation accounts for a smaller portion of the population. It too comes with a number of benefits and possible drawbacks.
Benefits of Profit Income
- Unlimited income potential
- Complete control of your own time
- Income regardless of time
- You are the boss
- Greater sense of fulfillment
- Diverse learning experience
- Flexible hours and working locations
Drawbacks to Profit Income
- Inconsistent income
- Possible long hours
- Possible stress/overwork
- No health benefits
- No retirement programs
- Fear of business failure
Wages vs. Profits
In comparing profits to wages, it’s hard to state a clear winner. Each has their own positive and negative attributes, so it really comes down to the individual. Over the years, I have seen generally three types of individuals – those with very little ambition, those with average ambition, and those with very high ambition. Here’s how I would describe each individual
- Little Ambition: This individual desires a simple, safe, and relatively stress free lifestyle. They do what’s necessary to hold a decent job and have very little desire to push themselves beyond their current capabilities.
- Average Ambition: This individual desires a challenging, safe, and relatively stress free lifestyle. They push themselves to further their education in a field of their choosing and work towards upper management & higher compensation.
- High Ambition: This type of individual feels confined and limited in your typical 9 to 5. They desire challenge and are willing to take a risk on their own hopes and dreams. They push themselves to learn, take action, and press on in the face of failure. It’s the road less traveled, but they realize their true potential.
Now, these are my own opinions, but may help you decide which category you fall into. If you prefer safety, lower risk, and a lifelong career, then earning wages would be a clear winner. However, if you feel limited at a job and strive to achieve your true potential, then building a profit centered business may be a better fit. Personally, I find myself as a cross between average and high ambition. I enjoy my day job, but have had the entrepreneurial spirit since I was young. Therefore, I push myself beyond average to build multiple profit centered income streams.
We’ll, I hope you’ve found clarity in what income source works best for you. If you too desire multiple streams of income, check out my free workbook, The Passive Income Starter Kit. That should help you get started in the right direction and as always, leave a comment below with your thoughts and progress!
