Freedom of Income

This is the fourth of “4 Freedoms of Team Espinoza” or a list of freedoms that my family uses to make decisions. The first was Freedom of Schedule, second was Freedom of Location, and the third was Freedom of Work.

“Just keep the trains running” was a phrase my former IT manager loved saying to our team. She would say it to spur us on in our work supporting different areas of the bank I worked at. Instead of inspiring us to a higher effort the phrase would invoke images of men shoveling coal in a dark sooty cabin. The phrase also caused friction with me because the idea of shoveling coal isn’t an inspiring or noble cause. Why not say “Let’s be mediocre because why strive for more!”

The job often intruded into evening and weekend hours without extra compensation in either the form of money or time off. It made me feel like I was involved in some sort of high-tech indentured servitude. “Keep those trains running…or else.”

Salary is not tied to performance

The “customers” I served were other people inside the company who relied on the software my team maintained. We were often reminded that we were there to serve the “business unit.” Hearing this made me wonder: “If we’re not in the business unit, are we still in business?”  I later realized that since the product of my effort didn’t directly tie to revenue for the company my role was support. Support is overhead. Overhead is a cost that companies try very hard to reduce.

When I realized that I was in a support role I also realized that my salary was in no way tied to performance. Oh sure there were annual performance reviews, but these had little variance year to year neither did the increases that sometimes came with them. I became very disenchanted with a system where I wasn’t able to impact the revenue of the company that had control over my time and livelihood.

Freedom to make more money

When I started freelancing I realized that effort was easily translatable into money. Work more billable hours or raise your rates and you make more money. Work fewer hours or undercharge and the converse happens. It took me some time to find out how to balance the variables of time worked and the pricing philosophy I used.

People think of a salary as the ‘stable’ choice versus self employment. In reality salaried employees are just as prone to down swings in the market as freelancers.  The difference between a salaried employee and a self employed person is that if both are put at ground zero the self employed person has the ability to translate effort into money much faster than the salaried employee.

The effort-to-money translation is why I see a salary as a limiter. If I am able to take an idea, hustle in making it a product or service that generates income I believe I should benefit financially from that effort. Any cap set on my effort in the form of a salary stifles that risk/reward dynamic. Saying that I can only make $100,000 in a year will make me think “Okay, what’s the least amount of work that I can do to make that happen?”  not “How can I push the limits to see what’s possible in this year to blow that number out of the water?”

Freedom to make less money

When I worked at the bank I was constantly trying to work my limited vacation time around holidays, work trips, and long weekends to squeeze out more time to travel. I asked my boss if it would be possible to take unpaid time off to be able to travel. The currency I’m interested in isn’t money, it is time away from the office I could use to travel to new places. I was willing to earn less money in order to have more time to do what I love. My boss said it wasn’t possible and that the only way to take that much time off was to take some sort of medical disability leave. It’s funny that wanting time away from work to travel was seen as a medical condition.

The salary-for-time situation normally allows for only two weeks per year of vacation. This limitation is a cruel joke to someone who desires to explore the world.

Along with the ability to crush it and make more, Freedom of Income also includes the freedom to earn less or  stop earning money for a time by living off of savings. As a freelance programmer it is possible for me to make $25,000 per month (see effort-to-money equation above). It’s also possible for my family of five to live for a year off of $45,000. So that means that technically I could work for two months then not work for the rest of the year and have all of our bills paid.

I enjoy what I do and my personality isn’t compatible with constant idleness, so I won’t stop working for months on end. I use the example to make the point that it’s possible to front load your money making effort to gain some coast time.  It’s just like peddling up that hill on your bike so that you can coast on the other side. But, this requires flexibility which normally doesn’t come with a salary-for-time situation.

Freedom of Income

When making big decisions my wife and I ask ourselves how this will impact our freedom of income. We don’t want to leave money on the table by taking a salary without revenue sharing, and we don’t want to be beholden to work when we would rather choose to take time off and live off savings. Freedom of income is having control over when and how you work.

Not every job or self employed situation will fit all four of the freedoms that I’ve talked about in this series. I hope that this encourages others to write their own list of freedoms to adhere to that fit their personality and convictions.