The Differences: Employee vs Investor

The Differences: Employee vs Investor

Employee vs Investor


How you make your money depends on your mindset. People need to first really examine themselves and understand their own personal strengths, weaknesses and goals when choosing a career. It sounds glamorous to some to go from being a clock punching employee to a wealthy investor with several, or perhaps many more, income streams. There’s a lot more to it and having success at either takes a different mindset.

An employee works for someone else and collects a paycheck. In some ways it’s the bottom rung on the ladder. It is not necessarily low paying though, after all, Tom Brady spent twenty years as an employee of the New England Patriots reporting to his boss, collecting a paycheck and doing quite well for himself. Some of his paychecks contained more than one comma, which is quite rare. Realistically, getting ahead in life and becoming fully autonomous requires moving on from being an employee.

Being an employee means having a steady paycheck hitting your direct deposit on the first and fifteenth of every month, but it also means asking if you can go on vacation, doing what you are told, and politely sitting through a cringeworthy annual performance review with your boss. That paycheck can come at a huge cost to your personal autonomy.

You don’t have to move up the ladder, there are plenty of people who are perfectly content sitting in a cubicle and working for people who make triple the salary, but moving up the ladder requires a shift in mindset. You have to give up some of your comfort. In addition to the paycheck, you have to give up having a boss and becoming your own boss. It’s a much bigger responsibility.

There is a massive risk in being an employee that people do not talk about or think about enough. When you stay an employee you can become dependent on your job. If you specialize in something enough, it’s hard to find something else comparable to do if your company goes out of business or some other black swan event occurs. It’s not unlike how certain Hollywood actors become typecast when they perform a certain character too much. Soon that’s all they are qualified to do. Your income may not be as steady and reliable as you think. You can become very fragile.

The next step up is becoming self employed. Instead of working for a paycheck and accruing sick days and being kept happy with perks such as the free fresh squeezed juice bar in the break room, you now wake up every morning unemployed and have to find your own work. The bad news is you give up a lot of security, but the good news is you gain a lot of autonomy. You can control your own schedule.

Being self employed takes a different mindset. It’s a lot less security and much more personal responsibility. The paycheck is no longer guaranteed, but you have many more ways to earn a paycheck. You are only giving up security in the short term though. You may not earn a paycheck this week, but over time you will develop the skills that allow you to earn a paycheck doing one of many dozens of things. Opportunities pop up everywhere. Over time, since you are not dependent on an employer, you don’t run the risk of being a victim to one of those black swan events. If an industry changes, you can pivot and do something else, or do the same thing but in a different way. You have options. You go from being fragile to being resilient or robust.

Once you become self-employed, you can spend the rest of your career there or you can take the next step up to becoming an employer. That is you are still self employed but you hire employees to work for you. Much more responsibility as you now have to write and sign those paychecks and give them to other people. You may even find yourself on the other side of those obsequious performance reviews. It is a lot more work, a lot more responsibility and a lot of upside on the pay.

Finally, the top rung of the ladder is becoming an investor. It takes a lot of work to get there and will not happen overnight. An investor is someone who owns other companies or assets and collects the profits. Yes it takes a while to get to the point where you can make a high enough income to pay all your bills, but the good news is you can start small and continually work your way up.

When you are an investor, you are no longer fragile like the employee and subject to the whims of your employer who can let you go at any given time, and you are more than robust like the self employed person who has the freedom to earn a paycheck from many different sources doing different things. An investor is anti-fragile. The exact opposite of fragile. To an investor, the shake ups, bumps and bruises we all take going through life are actually opportunities.

A good investor actually has both the most security and the highest upside. It takes a different mindset to be successful though. Compared to the employee, who has day to day stability but can lose everything overnight when that black swan shows up and the company downsizes, the investor is subject to radical day to day disruptions but actually has the most security over the long term. When you own assets that generate income, that is the ultimate long term stability, autonomy and freedom.

Being an investor can also be the most personally rewarding and it is not an all or nothing thing. You may be living paycheck to paycheck right now, that’s totally fine. Very few people get through life without doing that at least for a little while. It’s the default for most people throughout their entire lives. Start small, buy one single share of stock. Then another. Watch them grow. Learn how to invest, and most importantly, see if you can change your mindset. See what happens to you when you change your mindset. Just try it.  

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