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Trading Hours For Dollars

Published 8/31/07 (Modified 3/9/11)
By MoneyBlueBook

This topic has been discussed and debated by many in the financial community and is regarded as controversial by some. Numerous bestsellers have been written on the subject.

Traditionally, when it comes to making money, most people share the same mentality - "If I work harder in my job, put in more overtime hours, I'll get ahead and make more money." Unfortunately, no matter how many hours they put in, they'll forever be constrained by the laws of nature. There is only a finite number of hours you can work in a day during which you can exchange your available working hours for monetary compensation - essentially, trading hours for dollars, or trading time for money.

The New Approach

The new approach is hard for many to accept as it requires a different understanding beyond what we were taught as children. The new approach places lesser priority on active income and a greater emphasis on passive income generation. Active income would be money earned while putting in your hours sitting at your office desk (trading hours for dollars). But passive income would be money generated from sources such as stock investments, real estate appreciation, rental income, and even advertisement revenue earned by websites that you own. The limitations of the old approach to money are obvious.

You Are Constrained By Time

By trading hours for dollars, you are foregoing time that could be spent tending to other things in your life such as friends and family. You are choosing to spend your time in an office, rather than accomplishing your other hobbies and interests. You don't want to spend precious time working, but you know that to earn those dollars, you need to trade for them using your available hours. The less you trade in, the less you'll earn.

Nowhere is it more poignant than in my own full time job. I blog part time and in my full time, I perform contract work. I earn an excellent income rate but I only get paid when I work. If I stopped trading in my hours, I stop receiving dollars. If I want to make more money and hit extra overtime pay of time and a half, I have to keep trading in even more hours. Of course, no matter how many hours I work, I am always limited by the ever present constant - there are only 24 hours in a day.

You Are Taxed Unfavorably

When you trade in hours for dollars, your earnings are usually taxed immediately and you receive very limited favorable treatment in taxation. The deferred taxation offered by 401k and other retirement investment vehicles are the few taxation breaks available to you. The majority don't even take advantage of this! While businesses can generally use their pre-tax dollars to deduct many of their business related expenses as well as any losses from business related activities, you must use your own after-tax income to purchase most of your day to day items.

Your Ability to Trade Hours for Dollars Will Eventually End

None one can live forever, and eventually there will be a time when you can no longer trade hours for dollars. You will either become too old, too sick, or too injured to work. The moment you stop working and the moment you stop trading hours for dollars, the money will stop. If you had planned ahead and provided for your retirement savings or obtained adequate health insurance prior to sickness, you may be better protected. But that of course depends on how you prepared in advance, and many don't.

Don't Ditch Your Job, But Start Learning About and Focusing on Residual and Passive Income

So what now? Certainly, there is no reason why anyone should neglect an active income source, aka a job. A real job provides social stability, an occupational purpose, and a generally predictable source of revenue. But don't forget the importance of passive income. Learn to plan your finances and understand passive income sources. Invest in the stock market. Invest in affiliate programs. Start an income producing website or blog. Invest in a potentially profitable business run by others. Invest in appreciating real estate. Such sources allow you to earn income even when you are not actively working or trading in your hours. Even when you are sleeping or resting, your passive income sources are still producing for you. Start your progress towards financial freedom today. I'm personally still a very long ways away, but I am slowly inching towards my goals.

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6 Responses to “Trading Hours For Dollars” 

  1. CatherineL says:

    Hi - great post. And don't forget, you can also get other people to do the work for you. Imagine how much your income would increase if you paid 100 people to do what you're doing.

  2. Dan Murry says:

    Great post! I've only been working a little over a year since I graduated college and I'm already starting to try to increase my passive income. Even though, I'm still trying to pay down my debt I incurred while in college I have noticed how the passive income (401k, IRA, CDs) has already started to grow significantly faster after a couple thousand dollars have been saved.

    My question for you is, do you have any tips on working on passive income (website, blogs, companies) while holding a 40-50 hour a week job? It seems like I rarely have time for that. I have many inspirations and plans for my site, but the last thing I want to do after working in front of a computer most of the day is go home and do the same.

  3. Raymond says:


    I work on my personal finance blog site part time while I hold down another hour intensive part time job. Sometimes I feels like I'm holding down two full time jobs if that makes any sense. Passive income generating through websites, blogs, and cash flow projects is a highly recommended way for long term financial prospects. You absolutely must be disciplined to prosper in the future. All of the hard work you put in today will likely pay off the in the distant future. While you may not see the fruits of your labor for some time, your future self will be grateful for the efforts you put forth today.

    It's important to stay self motivated and not let the lack of present day passive income success or support from your peers/family deter you. Keep your eyes on the prize - future success - and you'll prosper in the long run.

  4. Parnell says:

    I've been stuck at the same job for years now (a desk based financial related position). I hate and despise my boss, resent my overly competitive and vindictive co-workers, and lament my working life. All I have going for me are my family members-namely my wonderful and lovely wife, and my children.

    I yearn to start my own business and bring this cycle of trading time for money or hours for dollars as you put it. But starting one's own business is not easy...oftentimes it requires substantial capital investment - something I don't have at this point. I would have to borrow from family and friends for such a large investment in a franchise business for example. I have thought about starting some type of online based business but I don't know what someone without any special computer training could whip up in that department. And this damn economic recession still hurts and isn't help!

    But I must stop trading hours for dollars!!!

  5. Raymond says:


    Glad you are getting motivated about stopping the fruitless cycle of trading time for money. Starting one's own business isn't easy but it is possible, as I am a testament to that reality.

    You must be able to self motivate and strive on even where is no immediate payoff. Because your business is your own, the potential financial rewards are great, but the sacrifice of time and energy is very real. Online businesses tend to have substantially lower start up costs, but the business is also extremely competitive due to the very low barriers to entry. This means any one with a computer and Internet connection can start up numerous web based businesses at will without substantial effort. Making the online business start up a successful operation is more difficult however. But if it's your dream to make it happen, don't stop - keep fighting to make it happen!

    The greatest joy of online businesses is the passive nature of their income generation potential once you have made it big. The initial build up stages require a tremendous amount of time, effort, and personal sacrifice, but when you've finally made it, the income streams seem to flow in without much further effort on your part - the very definition of passive income.

  6. Vitaly Tennant says:

    yeah, outsourcing is definitely the way to go. make your money work for you.

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