Capital scales way better than labour

Most people obtain money by exchanging their labour. The principal way to increase the amount you get this way is by increasing your skills so the price per hour worked increases.

You can also work more hours, although in a lot of jobs you get paid the same regardless. Perhaps a second job is an option.

Both methods have pretty obvious constraints. The first is yourself and the second is the length of a week. Unless you are David Beckham, your skill level is going to hit a ceiling at which the rate of exchange you can receive for your labour is capped.

Another way of obtaining money is through ownership of capital. Capital is assets that generate future cash flows, and the process of obtaining them is investing. There is a linear relationship between the amount of capital you have accumulated and the amount of money it throws off.

There is no upper limit on the amount of capital an individual can own. So, in principle, it’s power as a money generator scales way better than your own power to generate money.

Of course, the million dollar question (literally) is how to get enough money to buy the capital required to sustain your desired lifestyle?

The answer is rather obvious and dull – you start out by exchanging your labour for money. Almost everyone has some ability and capacity to do this, and it’s the time honoured path mapped out by society from the moment we enter school.

Unfortunately, most people will keep repeating this formula until well into old age, until their bodies are unable to exchange any more value. The secret to breaking this cycle is:

It can take a long time. Even after a decade of consciously investing, your accumulated pot will seem pitiful, and certainly not enough to sustain you. You may well even start believing that your own labour is the best way to rely on money in future.

But after 20-25 years of consistent investing effort, as if by magic, the scale of capital will reveal itself. The magic of compounding deals lightening from both hands. When your assets are growing annually by more than your lifestyle expenses, it’s time to assess whether you are finally financially independent.

If you are under 30, and reading this, you have enough runway of time for this to become reality.

But you have to act.

Read more on this topic . . .


I am not your financial adviser.

The information in this post relates to my financial journey. It may or may not be relevant to your own. You need to make your own decisions on your own financial strategy.

Do not buy or sell anything based solely on what you read.