The Five Stages Of Earning Income

Many people get stuck in a specific stage in life and never seem to make it out. The problem is typically due to cash flow issues or major life mistakes. In rare cases, the situation is uncontrollable (we’d wager below 1% of the cases). Since the goal is to get rich we’ll go ahead and walk through the stages of income. We’d also be interested to hear where most of the readership is in terms of the life stages. We have no doubt that several of you are already in stage five reaping the benefits of a long and fun journey to the top.

Stage 1: Time for Money Exchange

The first stage in earning income is trading your time for money. In this stage, people are searching for a way to maximize their hourly wage. Almost everyone will work an hourly wage job at some point in their lives, especially the smart ones who work minimum wage jobs in high school to learn the value of money. It is important to note that the value in working for an hourly wage is not in the income produced. The income is meaningless if you’re only earning $10 an hour doing a repetitive task. The real value comes from the *light bulb* that goes off in your mind. You find yourself doing the math and realizing that even if you were to work for 20 years it would be extremely difficult to save anything: $20K a year * 20 years is just $400K (pre-tax assuming 2,000 hours of work per year).

Who works in these positions? It is typically one of three people: 1) people living paycheck-to-paycheck, 2) older individuals who got bored (don’t want to retire) and 3) young men and women. Of these groups the worst group to be in is group number one. This group should immediately run to obtain niche skills to increase their income and avoid living paycheck to paycheck. We are placing people who live paycheck to paycheck in the same group as those who earn minimum wage. The reason? They are running on a treadmill going nowhere and it’s a difficult downward spiral to get out of.

The second and third group are in good shape (ideally). The second group realizes that retirement is a sham and no one enjoys doing absolutely nothing all day. The third group has the immense value of time. They can take the small amount of money they have put away by working a remedial job and invest it into themselves to exponentially improve their earnings. One group gets to keep their mental health and the second group gets to learn about the value of time for money exchanges at an early age. Both win.

Stage 2: Performance Based Income

The second stage of earning money comes in the form of performance based income. For the vast majority of people this means sales. For others it will be Wall Street and Silicon Valley where your performance is ruthlessly compared to those around you (if you perform poorly your income *will* drop). While the pressure is certainly higher you are obtaining leverage for the first time in your life. The ticking clock does not determine your income. Your own value, will, determination (enter any motivational mumbo jumbo word) is what determines your income and overall success rate.

In this stage, most are beginning to see a meaningful savings rate. Instead of investing it, most will throw it into a checking or savings account since they are too stressed out learning how to succeed with their performance based career. There is nothing wrong with this for the first year, since the stress of being “on” all of the time will be a large shift for most people. The good news is that the first year or two of income will be significantly more than they were making in the past and they see the “light at the end of the tunnel” to growing their net worth.

The second stage also offers another revelation, the Company is profiting handsomely off of your revenue generation. The rough math is that you’ll get paid for approximately 10% of what you bring in (this is the Wall Street side and numbers may vary). Even if you were to get paid a higher commission rate, at the end of the day there is a large gap between what you see in income and what the Company sees in profit. If the Company did not make anything, then they would be out of business very soon.

The final realization while working for a performance based position is the value of the platform you are on. A company like Facebook is a great example of this. If someone were to turn on a single banner ad onto all WhatsApp messaging interactions, the revenue line would go up $100M+. Turning on the banner ad is not hard and the person who decides to do this should not be paid $10M for it. Instead the value is in owning the actual messaging platform with millions upon millions of users. This final realization prevents you from demanding pay hikes incessantly. You’ll have to build your own walking business and create an *ownership* structure for yourself.

Stage 3: Income Streams Without Leverage

The performance stage lasts anywhere from 2-8 years on average (this is pure guesswork/estimation). After a couple of years of work you’re likely investing in assets, those can range from stocks to bonds to CDs. The type of investment is not of importance, the new income stream is. When each income stream comes in, the mind begins to see how each income stream can cover a specific “cost”. For example, if one were to put away $100,000 into an index fund with a 5% dividend, they would say the $5,000 a year covers a month of rent for the rest of their lives.

Generally speaking, the first investment is typically not a leveraged position. Instead it’s a lower risk investment that gives off a small return. Within a year or two, they realize that returns of 4% are not going to help them get rich. Especially when they have another 30 years to become a multi-millionaire, taking a risk-off position does not make a lot of sense. Instead of continuing down the boring path they look for positions of leverage.

All of this said, the vast majority of people get stuck in this third region. It is possible to become financially independent with no leverage and no change in career by cutting costs to the absolute bare bones. Knowing that they can cut down to practically nothing and avoid taking additional risk (burn out from constantly grinding to get to this point) they usually settle into a routine. This routine results in cost cutting (more cost cutting) and did we mention cost cutting? Since the majority of career employees take this path we now know why frugality is a popular topic at this time. While it’s certainly great to go down this route for many people, if you view life as short then risk needs to come on since you have 30+ years to make it.

Stage 4: Three Common Income Streams With Leverage

After stage three a fork typically occurs: the three people who make it either: 1) go into leveraged positions (mortgage/debt positions in real estate are a good example), 2) go into building another income stream by hand or 3) take more concentrated skill risk – think technology. These three paths have very different skill sets. People who take position number two will rarely interact with people in position 1 (except for of the comments section of this blog!). People in position 1 will also rarely interact with heavier risk exposed people in position three, think of technology positions interacting with home builders… rarely happens except when the technology person is buying an asset.

As you’re all well aware, we chose step two which is why we’re massively biased. And… Many of you have already realized we obtain all the Wall Street information from prior contacts at this point. That said there is no “right way” we’re just outlining three high probability avenues that have worked consistently.

Real Estate Route: This one is easy to understand, you’re taking on leverage in the form of bank loans or other types of debt to purchase properties that generate an income stream for you. The key is actually keeping your leverage higher since that’s where the returns are. If you’re generating $24,000 a year on a $240,000 property your return is 10%… If that position is leveraged (it should be if this is your path) then your cash return is closer to 20-30%  ($48K invested while the take home pay $9,600 a year after taxes, interest payments, etc.).

Spending Route: This is probably a confusing route for those uninvolved with marketing or online product sales…  and an obvious one for those in it! In this route, you’re building an income stream based on paid traffic. This is separate from what we do here on this fun blog since it’s all organic and yields a zero return (content is not a good business model). Positively, this is probably the route that most will take that read this website as they are likely reading this post from their work computers where they could be building online income streams from wherever they are sitting at this moment in time.

Concentrated Skill Risk: This is where the biggest pot of money is today. There is a reason why technology pays so much and it is because a good employee in technology can outperform 10, 20, 50 or even 100 mediocre ones.


Technology has reached a point where it is comparable to sports, the money can flow aggressively into a few hands (“the elite amongst the elite”). We have not gone down this route given that we’re no where near that field. The value of creating high quality recurring software revenue is incredible at this time (90% margins!).

The main reason these three streams of income have leverage? The first one is clear with financial leverage being debt. The second one is clear with a machine that sends the *right* type of traffic at all times into the same sales funnel and you’re continuing to do so until the target market is tapped out. The third option is unbelievable scale since it’s a set and forget recurring income stream so long as the product produces results. Leverage is typically confused with *only* being financial instruments when it can be applied to time as well.

Stage 5: Mastery of Spending or Scale

The ones who make it this far will now reach the last stage which is mastery of financial leverage, spending or scale (recurring income). Yes there are a few other ways to get rich, however these are the most common if interested in doing research on how millionaires made their money. The vast majority are 1) business owners, 2) real estate or 3) a scalable skill/position (heavy skew to business owners). Naturally, the last two typically translate to item number one over time.

It’s tough to say when someone has mastered the skill of spending or scale. We’d say the skill has been mastered once you’re excited to do your work and any “set back” is seen as fun. Lets say a project didn’t work. Instead of getting emotionally rattled a new lesson is learned and you’re *excited* about learning the new lesson. If you’ve made it to a high net worth already, this is a rare occurrence. It is a rare occurrence since most of the big mistakes were learned a long time ago. You’ll take the lesson in stride and happily go onto the next project with slightly more skill than you had before.

Concluding Thoughts: It is no wonder that frugality is popular nowadays. There is a huge difference in pay scale in America. Many people are living paycheck to paycheck while those with skills have moved into Career type positions and are working hard to move into stages 4 and 5…. Or they’re hanging out on frugality blogs in stage 3.  Frugality has gained popularity as those with Careers likely interact quite a bit with those on the paycheck-to-paycheck system and they see the upside if they were able to correctly obtain the right skills.

All of that said if you’re interested in learning more about making money, staying in shape and doing so without choking off your personality… You’ll probably like our upcoming book Efficiency. The benefits include:  1) How to get into the top 10% physically with 1 hour a day of exercise; 2) How to eat correctly to be in the top 10%; 3) How to figure out what type of intelligence you have; 4) How to use this type of intelligence to choose a career and the *right* company: Wall Street, Technology or Sales; 5) How to start an online business (the basics); 6) Clear outline of how to create and start an online product business with correct copywriting; 7) How to go into affiliate marketing if someone wants to take a stab at the competitive space; 8) Overview of how affiliate marketing operates and how to do it, 9) How to do all of this and maintain a normal social life (avoid choking off your personality). Efficiency will be available in July, subscribe to receive discounts or follow us on Twitter for the launch. Remember we can give the tools, but no one can execute on the plan but you.


  1. AnalyticalFrog says

    Would you advise a Physics major with *strong* numeric skills to pursue a career in hedge funds or in software engineering, given the current state of the economy (and taking into account that crash everybody keeps talking about)?

    Looking forward to the book!

    Thank you.

  2. Robert says

    Another gem of a post. Very much looking forward to the upcoming book.

    I’m currently in stage 3 and I guess dabbling in the early parts of stage 4, based on your description. Feeling a little stagnated with work. I’m one of the top performing loan officers at my company, a Fortune 1000 one at that, but the work is repetitive, and the client base is shrinking, or is getting less and less intelligent. The richer I get, the less patience I have to deal with idiots.

    However, I highly suggest that you young guys get into the mortgage game if you can. Great way to learn about the realities of the world. Don’t even need a formal education to get in. Just sell the guy hiring you and pass your licensing exams. If you have the patience to deal with borrowers and are willing to gring, the money is there. Cashouts and purchases are where we’re heading. People will always need to borrow money. Lots of people in debt.

    I am currently exploring ways to leverage my hobbies into income streams. My passion is building custom computers, so I’m really trying to think of ways to leverage my talent into something I can work with. I’m also interested in setting up a resale site. I’ve spent about $4500 building two really awesome and high performing machines with custom work done to them. I’ve been thinking about using social media platforms to share pictures of the work I’ve done to drum up business.

    I also have a lot of money invested in a publicly traded Fortune 500 technology company. I have a lot of cash as leverage, due to the nature of my work and how risky the investment is, but I’m up 207% on my investment. That’s with 12,800 shares owned. I ain’t talking penny stock either. Bought when the stock was low because I always knew it was undervalued. In May of last year a buddy of mine, who has since passed, bought 800,000 shares based on my suggestion and made around $10 Million on his investment. I figured I should put some money into it since he invested based on my suggestion. Been up ever since.

    Thought a bit about real estate, but I don’t like the lack of liquidity. I like having access to my money, and I don’t want to deal with tenants.

    Anyway, that’s where I’m at currently. Again, very much looking forward to your book release. I’ve been enjoying these regular posts. Better than so much of the financial blogs out there. I used to go to Marketwatch to get my financial advice. What a joke.

    • jrcollege says

      can you elaborate on the “mortgage game”? what type of companies would you look to apply to?

    • says

      “I don’t want to deal with tenants.”
      “I don’t want to unclog toilets at 3AM.”

      These two sentences bring a huge smile to real estate guys; it’s almost like actual, physical, money sliding into their pockets.

      If you’ve ever had even a passive interest in Real Estate, consider simulating a landlord-tenant relationship with Airbnb. You can specify the exact length of time you want to open your house, and you might be surprised at the results.

  3. YM says

    Wondering if the sequel to Efficiency is Leverage.

    Learning how to succeed financially, in fitness/health/looks, and through relationships by focusing on the 1-2 “leverage-points” in each bucket.

    • Wall Street Playboys says

      Ha no plans for another book at this point, already cringing at the opportunity cost. The reason for the creation is simple, no excuses.

      Anyone with a few bucks will now have everything they need to succeed at least at a basic level. Or they can spend their times on hundreds of websites selling multiple products that could just be covered in Efficiency alone.

      • Blin says

        Good slogan for the book, “Here is everything you need, if you stay a failure it’s on you”

  4. Yb says

    “Instead the value is in owning the actual messaging platform with millions upon millions of users.”

    Blockchain assets allows one to own the “real estate” on which the messaging platform and users interact.

  5. Mercari says

    I’m in a unique position. Trading time for money on one side, however, leveraging the client base from that employer to build equity in another company which has a lot of recurring billing.

    Built a product website, going okay so far very young and first attempt.

    Some money invested in shares. If website conversations start tracking up, I’ll be taking that money and buying visitors.

    Doing bare minimum at university (degree is unfortunately needed for the company with equity due to regulations).

    • Fute says

      “Trading time for money on one side, however, leveraging the client base from that employer to build equity in another company which has a lot of recurring billing.”

      This is time for money only on paper, my friend.

  6. Jay says

    As a software engineer, the “Concentrated Skill Risk” is a little confusing of a topic for me. You seem to be suggesting that you could theoretically make a killer app that “scales” with millions of users. Top 25% of iOS developers make more than $5,000 per month which is nothing to sneeze at but it’s not Wall St. Playboys level rich either. To earn far more than that, which I think is where you’re getting at, it would require an entire development team budget that you most likely need to open an entirely new business for, and at that point it’s probably your own startup. Correct me if I’ve got you totally wrong.

    • Rahul says

      “Top 25%” isn’t what Naval is suggesting in his tweet or what the top-earners are. Not sure if this is what WSPs intended, but here’s my two cents… If you’ve been around SV, you’d see that engineers who are rolling in $ tend to fall in one of a few camps:

      1) Top 1% individual contributors w/ any 1 or 2 of: open source thought leadership (libs or contribution), multiple large apps, experience learning under other top engineers, experience at hot startup in scaling phase, design experience, etc. These folks tend to be world-class on one axis with varied experience across the stack (older too, mid-to-late 20s).

      2) Independent devs with multiple products built start-to-finish (either on contract or their own).

      3) VP/Director of Engineering at a medium sized company. Usually had the good fortune of landing at the right startup out of college or shortly after. Best companies to target for this are companies that have just raised an A or a B from a top firm that are in a good space. Even in cases of failure, these folks tend to have an elite network.

      If you’re in any one of these camps, you can readily earn (all-in comp) $2-300k+ a year. If you’re shocked at the prospect of individual engineers earning that much, realize that engineer comp works on power laws.

      It’s no question that the ultimate model is to be very closely aligned w/ revenue. In engineering terms, this either means building and owning a product or technology company — which requires more breadth than depth (design, business skills though much can be outsourced). Alternatively, being responsible for mission critical systems (e.g. learning “hard” things and owning it, e.g. architecture, infrastructure, ML, etc.). This will get you compensated readily in options at large companies, particularly in the later stages of your career (or jump to a hot startup as a VP/Director). If that’s not your game, people w/ these skills are so rare that they can command $1000+/hour doing consulting. Leverage the rest of your time as you see fit.

      Ultimately, at the end of the day, mediocrity won’t let you earn. There are many paths to earning financial independence as an engineer–some safer than others–but they all require skill, either technical or in identifying and positioning yourself for serendipity. Career planning is very underrated, many engineers are satisfied making $100-150k early in their career doing the job of a coding bootcamp grad. This won’t help you win. My advice: network with engineering leaders, contribute code or write blog posts that establish engineering or technical leadership, or develop peripheral skills (design or sales). Good luck.

      • Jay says

        Interesting.. I work in a mission critical team as a new grad. Like our firm relies on our code to power the core databases and if we are not there to continuously maintain the systems, then everything in the company literally doesn’t work, from the website to the physical stuff. And it’s a huge huge company. I’ve been fixing bugs and learning about the system for the most part, but I’m finding my city pretty undesirable to me and have thought about moving. What is the comp structure if I decide to stay for x years? Like 2-300k in 5-8 years?

  7. mk says

    Went from 1 to 3 while reading this here WSP blog; if there’s one thing I learned, it’s that practice makes perfect.

    If one engages in any given activity long enough, they’ll eventually get pretty damn good at it (career, biz, or otherwise).

    Lastly, the 1 to 3 path is a bit uncomfortable – worth noting.

    • says

      “Practice makes perfect”

      Respectfully disagree. Practice makes permanent. Bad practice will lead to permanent failure.

      You have to a) identify the mistakes, b) understand why and c) fix them, ie classic learning process.

      Only then are you on a path of growth.

      A subtle difference, but an important one.

  8. Nizar says

    As a 21 yo guy who studies and works at the same time and lives in a 3rd world country (Morocco) since I’m Moroccan… I don’t know how I’m going to level up through the stages so I can reach the 5th Stage (The stage of freedom)… Cause things are pretty different here in Morocco, but I’ll find a way with time…

    Looking forward to the book because your advices about life, health… works in every country on this planet.

    Sorry if I’m making linguistic mistakes… English is actually my 4th language

    Greetings From Morocco and Thanks for all the posts WSPs

  9. Nizar says

    As a 21yo guy who works and studies at the same time and lives in a 3rd world County (Morocco) since I’m moroccan… I really don’t know how i’m gonna level up through the stages so i can reach the 5th stage (the stage of freedom)… Cause things are different here in Morocco but i’ll find a way with time…

    Greetings from Morocco and thanks for all the posts WSP. I’m looking forward to the book because your advices about life, health… Are useful in every country on this planet haha

    English is actually my 4th language so sorry if i’m making any linguistic mistakes…

  10. Throwaway7224 says

    In group 3 of the first stage. In high school working about 40 hours a week in retail and it sucks, but I learned I never want to do this again after this time in my life. Not looking forward to losing everything I’ve made to college, but c’est la vie. Thanks for the great post, I’m working towards landing a job in IB in a few years.

  11. Martin says

    “3) take more concentrated skill risk – think technology”

    I am puzzled by what you mean by this and it wasn’t really explained later — please could you clarify?

  12. says

    “This is separate from what we do here on this fun blog since it’s all organic and yields a zero return (content is not a good business model).”

    100% agree. Sites with quality content are not the most appropriate way to monetize. The average person still looks for products that instantly solve their main dreams and fears. The class of people ‘without shortcuts’ is very small. But it’s a class made to shine. They just need the tools, as you mentioned. And offering the tools to these guys is incredibly rewarding.

  13. Bob says

    Funny you should mention homebuilders. Having covered them as an analyst some years ago and recalling a vocal sell side guy (from goldman sachs)…well he went from there to a hedge fund to now the founder/ceo of a tech-aided real-estate investing platform, leveraging network & industry contacts.

    Around 30 years old I believe, golden example of a well played WSPer lol

  14. REWannaB says

    Currently in a position in a large RE professional services firm in a English speaking developed country. However I have been networking like hell in the past year. This is not in the US. I am thinking about going in appraisal (valuation). It takes two years with bad comp before you qualify. There are two options:

    Option 1: Qualify as a appraiser. The compensation structure is that once qualified if you cover your budget x 2.5 then you get 40% of the fees you generate over and above that threshold. Estimated earning are USD110k-170k at a sub-director level with little politics. Hours at maybe 50-55 a week. Director level would be USD200-300k but you’re bringing in business at this level. Basically churning out reports so once you get up to speed on a particular market/asset class its all good. Would this qualify as a performance related position and if so is it worthwhile going for given that it is low risk?

    Option 2: Qualify as a appraiser but then transition over to a fund to work on the acquisitions side as an analyst. These positions are usually taken by guys who can’t deal with the hours in appraisal and cap out at USD150k. Better hours and more involved in capital allocation decisions make it more interesting. Possibility of a bonus but it depends in the firm. In the US these positions would normally be taken by MBA’s not appraisers. Higher risk due to smaller shop size and more politics. Might be able to get into a better position like a bigger RE PE fund, get tight with investors to raise capital but that’s a pipe dream.

    There are specialised asset classes which look interesting like Hotels but once you’re in its very hard to get out and go into industrials or office. Not really prepared to go into agency or transactional role despite the better dollar as its a lot riskier but if I stay in appraisals its an option due to ease of lateral transitions between service lines.

  15. MBPlayboy says

    Currently at stage 0 at 17 y/o, building skills. Saw that you recommend trading time for $ at my age but if I can pull it off I’ll avoid it since day 1. Rather leverage my skills and start my biz while on college(obviously with a scholarship) and drop out if I “make it” so to speak

      • says

        I’m currently 18 and my online businesses bring in around $4K-5K per month.

        I spent the last two summers working (supermarket + office job) and am glad I did it.

        Why? It sucked and made me realize how much more enjoyable building my own side-hustles is.

        More importantly, it taught me the crucial lesson that I am worth more than I was getting paid.

        First year, the job gave me extra reason to start building online streams of income. By the second year, I was sitting at my job KNOWING that I am losing $$$ every minute I spend working for the company instead of myself.

        I would recommend doing the same, but of course, it is your choice.

        Bonus: After working a summer job that sucks, set yourself a goal income and if you don’t hit it by e.g. March, you force yourself to work again the next year.

        Good luck.

  16. Marco says

    Excellent post, and much appreciated.

    Would be great if the book included a bit on savings/liquid worth; IE: You have a major event/investment which brings you $1-1.5+ million in cash/liquid assets.

    In your posts you speak about events a lot, but what if we do have these events and become a millionare? What then do the WSPs recommend; quit your job and live off of dividends/real estate investment?

  17. Value my privacy says

    Solid insightful post.

    For long time readers will we find the book informative & more detailed?

    You’ll be hard pressed outdoing yourself as the info on this site is more than enough for serious action takers…

    Unless the real value will be in the clarity & presentation?

  18. Belgian Beau Gosse says

    Great post once again.

    I’m definitely having problems with the part where my character chokes off. It’s finals time again and every time during this period I get on the verge of being the worst human being alive.
    I have a really hard time going from analytical study mode to being social and laid-back. I have no problems talking with my serious friends about serious subjects but when I come across my non-engineering “friends” at the library I can hardly say a word without mumbling or looking like an idiot. Everything I say is in short, cold statements and I also tend to be more cynical as well.

    So… can’t wait for your book to come out, I will happily buy it and I’m certain that if it even comes close to the quality of this blog it will be a great investment.

  19. A says

    Pretty straightforward.

    Put yourself in spot 2 (Sales/Wall Street) and move to 3-4 while working on biz ideas on the side until something clicks (5)

  20. says

    Can’t wait for the book. I’m buying it for my children, for when they are old enough to read. I’m not implying this is a children’s book, just saying my kids will be someone else’s boss one day and they need to have a historical reference to success.

  21. Brent says

    * Am I delusional or misguided….


    I have a slightly different view on a career path so here lays my crazy plan w/ a background analysis:


    1.) Worked low income jobs trying to find my skillset until I joined the military then got hurt and was medically discharged.

    2.) So here I am with only 12k in savings at 26yrs old moving to my dream city in San Diego to start my businesses and working in the federal sector for 3k/month because my face and mental health (PTSD) is too screwed up for sales.


    1.) It’s a waste of time trying to find a better paying job because my only option is aircraft contract work in the middle east for 100k/year doing long hours in a culture I despise and a miserable place to live and anytime spent not building my private label ecommerce online business is a waste since that’s the end goal and why waste a single second not chasing that goal that will put me where I need to be?

    I will make enough to cover bills and put 1.5k in savings a months and the rest into business/expenses. I might try and hire contractors to build high end shipping container homes for 40k a pop and rent them out but the first one you make can take about a year to find the right land due to zoning laws and other regulations.

  22. says

    Ten percent of value is a terrible exchange.

    You give me ten dollars. I give you one.

    Traditional jobs are modern day salt mines. You work for a purpose that doesn’t care about you. When you’re ability to produce ceases, you are fired.

    In the historic pretense, killed.

  23. Vincent says

    I’m a young software engineer at a very elite Silicon Valley company (at the NYC office). Personally, while I’ve been recruited aggressively my whole life for deep mathematical and Computer Science roles, I’d really prefer to be a tech advisor to startups and to business investing in emerging tech (speech recognition, neural nets, etc). My technical degrees and background have given me a very strong understanding of how the entire ecosystem works ‘under the hood’. The business side I’ve sort of picked up through my own curiosity.

    Is there some way to turn advising into a ‘recurring revenue’ income stream? I don’t want to be a consultant trading time for money. I want to turn what I enjoy doing, making complex tech ‘explainable,’ and thus usable, into an asset rather than a service. Maybe you know people that have done the same thing in other industries (Sales, Real Estate, etc).

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