Here’s a framework that may help you in your journey to build a platform of a life you love…
There are three stages of money
Stage One – You work for your money
Stage Two – Your money comes from managing others
Stage Three – Your money works for you
I’m thankful that a wise friend shared this concept with me early in my career. It’s a framework I have thought of often.
My experience has been that these are not really three independent steps, linear and exclusive to themselves. Rather, we often will be in two or even all three of the stages simultaneously. However, understanding the uniqueness of each stage and the mentality required to succeed at each will help us as we progress toward our goals.
Let’s take a look at each of the three stages.
Stage One: You work for your money
We are all familiar with this one. It begins early. Perhaps we earned some money mowing the backyard of our home as a kid or we got our first paycheck from a fast food restaurant. That early money was hard to come by yet came with a bit of a rush. We realized that we could do something with our hands or minds and get money. Then we could spend that money and get stuff!
My first job was working on a deep sea fishing boat, called the Sea Love, in Ponce Inlet, Florida. I scrubbed the boat down when it returned to the dock each afternoon. Eventually, I became a mate on the boat and earned a lot of cash going out to sea and helping people catch fish. On the other end of my traditional career, I was the co-founder and CEO of a publicly traded software company. In both instances, I was employed to do a specific job, and I received money in exchange for my effort. I got out of bed as a kid and as an adult and went to work for my money.
Stage Two: Your money comes from managing others
In stage two, we become a manager of a team that works together for a common objective. It is the collective effort of the team that creates value. As the manager, we are paid to take on the responsibility for the group’s performance. The team creates something that generates money, and in turn, we receive some of that money.
My first stage two role was as “Team Leader” at a Domino’s Pizza on Nova Road in Port Orange, Florida. I was seventeen years old and had been delivering pizzas for six months or so. I was still working weekends on the fishing boat but now I had a car, or rather a yellow Toyota pickup truck that I called “the magic bus.”
Late one evening, around 1:00 a.m., as we were cleaning up the store, my manager asked me if I would like to become a Team Leader. I was excited and in a few days received a new name badge for my uniform. It had the Domino’s Pizza logo at the top, then my name, and then the title Team Leader. I was proud of that—I still am! My added responsibilities basically entailed coming in earlier, staying later, and cleaning up. But I did have some responsibly for the drivers on my shifts. It was thrilling. I learned so much working at Domino’s and enjoyed the start of this second stage of money.
Over time, as my career progressed, I became responsible for over two thousand people around the globe who were building and managing extremely complex software on behalf of some of the world’s largest companies. I was compensated based on how well we did as an entire team.
Stage Three: Your Money Works for You
In stage three, you figure out that you can take some of your money and send it off to work for you. While you take a nap, your money is out there working hard to earn you even more money.
This is often referred to as investing. However, I have used the term Stage Three Money over the years, as it helped me both see the similarities and differences to the other ways I could increase my assets. I have also found that the term investing can be intimidating and can carry with it all sorts of preconceived notions, which may or may not be helpful. (As an aside, I have prefered to use the term investing to describe the act of putting time or money into increasing my own abilities, such as buying a book and reading it. This is the purest and best form of investing in my opinion.)
Similar to how you can choose from hundreds of colleges to attend or thousands of careers to pursue, you have hundreds or even thousands of options to send your money off to work. It is like you are choosing a career for your money.
The beauty of stage three money is that there is no age or status requirement to participate in it. As a matter of fact, stage three is actually heavily slanted in favor of the young. The twenty-five year old sending off a hundred dollars a month to work in stage three money has an enormous advantage over the fifty-five year old sending off double that amount.
A simple example of how you can participate in stage three money is to have a percentage of your paycheck deducted and sent into your company’s 401(k) plan and then have those dollars go to work in a few low cost mutual funds. Another example of stage three money would be to use some of your dollars to purchase a rental home and have the tenants in your rental home pay you each month. This strategy would better be characterized as a blend of some stage one and stage three money, but none the less you have your money out working for you.
How to use this framework for your good
There are all sorts of strategies and resources to optimize your performance in each of these three stages of money. What I find most helpful about the concept is simply knowing what these stages are and taking some time to reflect on how I am doing in each one.
There are a growing number of people on a self-designed journey to financial independence using stage one earnings combined with frugality to generate funds and then putting those funds to work early and often in stage three vehicles. Through the proliferation of blogs and podcasts, these folks are rapidly becoming proficient at pushing their money to work hard for them in a variety of strategies. They are setting a target sum of stage three money and when they hit it, or soon thereafter, they just politely step off of the stage one train and live comfortably in stage three. They never even need to manage people or start a business in stage two.
Others, who have the desire and knack for managing people, can advance their income by leveraging stage two. If they also manage their expenses and become informed on stage shree concepts, they can accelerate their path through stages one and two while they add to their stage three money platform along the way.
As in selecting a college or a career, the variations of these decisions are endless. It’s often the overwhelming array of choices that paralyzes us and keeps us from making any decisions to alter our work, make a move, eliminate wasteful spending, or increase our saving and investing. I certainly have often been frozen by the many choices in front of me. A simple method for unwinding my mind and moving forward has been to go for a long walk in nature and remind myself which stage of money I need to make decisions in and then selecting a path to move forward on. To paraphrase a memorable quote, “A good plan today is better than the best plan tomorrow.”
Whatever stage you are in right now, do something to boost yourself and give yourself an advantage. It may be taking an online course to add a new skill and increase your stage one earning potential. It may be eliminating some expenses so you can save more of your income and put it to work in stage three. It could be scheduling a meeting with your manager to ask how you can be promoted to become a manager and enhance your earning potential with stage two money. Or it could be stopping by the payroll department of your company and asking them to increase your 401(k) deduction so you pay less in current taxes and increase the amount of money that’s working for you in stage three.
In any of these situations, or a million others, being intentional today will reward you many times over in the future.
The idea is to use everything you can to design the life you desire. Use the Three Stages of Money to build the platform of a life you can love.