One of these principles is Absolute Income vs. Relative Income.
Absolute Income is just as it sounds; it is the income that you earn. If you are working a job and earning an annual salary of $100,000 then your Absolute Income is $100,000. Absolute Income uses only one variable, the dollar. So, if you make $100,000 and I make $50,000 then your Absolute Income is twice as much as mine.
Relative Income is different than Absolute Income in that it has two variables: the dollar and the amount of time it takes to earn these dollars. Using the example above, if you make $100,000 per year, yet work on average 55 hours a week then your Relative Income is your Absolute Income divided by your total hours. Using 52 work weeks you would earn approximately $35/hour.
Relative Income = Absolute Income / Annual Work Hours (or Hours Per Week x 52)
If I make $50,000 per year but only work 15 hours a week the calculations will show that I make $64/hour. So, in Relative Income I would make nearly 100% more than you.
I know what you are thinking and you are correct; Relative Income only matters when your Absolute Income is enough to cover the cost of your lifestyle. However, once your Absolute Income can support the life you want to live, then it’s time to work on your Relative Income.
We are pressured by society to only look at Absolute Income. I believe this is because it is a concrete number that allows us to compare ourselves to others as I wrote about in Strategies for the Game that Never Ends. However, Absolute Income is probably the least important number! Absolute Income does not take into account how you are living your life. It places no value on how many hours you were able to spend with your family. It places no value on living out your dreams and pursuing the life you’ve always wanted. It only places value in one thing…the number of zeros in your pay check!
So, work toward your Absolute Income only to the point that it can provide the life of your dreams and increase your Relative Income. As I’ve mentioned before, I believe passive income streams are the greatest vehicle to get you there (more on that here).
Ultimately, you must decide which is more important. I want to be remembered as the guy that really lived life! The guy that loved and spent time with his family! The guy that gave back to society more than he took! I want to be known for my Relative Income, not my Absolute Income.
What do you want to be remembered for? What are you doing to financially support living out your dreams? Click here to leave a comment.