Sunday, April 25, 2010

The 3 Immutable Laws of Equity

For people that are in the business of making money, this term is all too familiar. For those that work the 9-5, this might be considered a highly speculative move, but rewarding one. "Sweat Equity" exists even in the workplace: you trade your body for money (sounds kind of dirty, but please bear with me), you use your body to earn money by working so many hours every two weeks. This is commonly known as collecting a paycheck. You basically work for money.

There is another type of sweat equity. One that pays nothing at first, but pays numerous times over. This is known as speculative sweat equity. In other words, you work on a commission only basis or are self-employed. People that honestly want to work for themselves take this path. Automobile salesmen also venture down this path. They eccentially network themselves and build up a marketing list for their payout. This can be very rewarding if you have the right network. The drawback to this type of equity is that it takes time and effort along with networking.

This blog is considered a form of sweat equity. I write this blog purely on a commisson basis. The only time I get paid is when people visit the site. Most of my traffic comes from directories and word of mouth. In other words, the most profitable sweat equity is the equity associated with speculative investments aka speculative sweat equity. While I will probably not quit my job over this page, if I hypothetically started earning four figures to five figures a month, there would be no need for me to work at Sam's Club anymore (but I would  probably still do so because that is an extra stream of income).

And  yet, there is another form of equity that should be addressed: speculative equity. You venture into something using your dollars and it pays off. In other words, your money works for you. This equity is the most rewarding of the three because it requires the least amount of exchanged labor. In fact, you could do either sweat equity or  sweat speculative equity so as long as you already have a sizable nest egg. The sky's the limits. Such examples include stocks, real estate, business ventures, limited partnerships.

Mastering the three forms of equity will make you rich. Even more so if you live within your means.