128 | A Spectrum of Sustainable Income

Income is any money coming into your household that is above and beyond what you have already saved or accumulated.

It's the purple bar.

For many, it has a way of tethering lifestyle to it in either direction. More income equals more spending. Less income equals less spending.

I think this is because there is something less psychologically taxing about using income for spending than there is dipping into what you have saved for spending.

Most folks are tempted to think it is a matter of maximizing income, but I'd challenge that it's more a matter of maximizing the sustainability of income.

Income that has no shelf life - no expiration date, no defined term, no day of reckoning on the horizon - takes personal financial freedom to a different level than any raise or signing bonus or new client can provide.

A dollar is a dollar no matter where it comes from. But the chances that additional dollars will continue showing up is how I'd measure sustainability.

Here's a rough spectrum of income sources (or purple bars!) from least sustainable to most sustainable...

Income from a gift - much like the $20 bill you find in your pocket, income from a gift is surprising, novel, and fun, but hard to depend on repeating forever.

Income from the sale of something - we're not talking about selling a service or inventory as part of a business model. We're talking about selling a business, a car, a property, a collectible, or anything else that you own that is valuable for a one-time profit. Sometimes the profit is enormous, but usually the number of things you can sell is finite.

Income from a gig - often it's the only way to get started in a new career or venture, but at least initially, it's as sustainable as your marketing efforts or your existing network allow it to be.

Income paid on an hourly basis - an upgrade from a gig, but there are a finite number of hours in the day. If your hourly rate is sufficient for your lifestyle, then move this further up the list. If you're unsure whether it is or not, then you're on a slippery slope of endlessly trading time for money.

Income from something you're dying to quit - at best this income is paying the bills, and at worst it's distorting your view towards work, money, time, and relationships. This one feels like a sneaky unsustainability that is often accommodated and ignored at the expense of almost everything else.

Income from a business that is no longer relevant or profitable - this one is a matter of time - how much longer until the oil well runs totally dry?

Rental income from a property you are managing into disrepair - this is the real estate version of the previous one. From an income perspective, this one is less about the current tenant and more about who's next when the current one inevitably leaves?

Income from a business that is not yet relevant or profitable - this one is a matter of time - how much longer until your patience, perseverance, or energy gives out?

Income from a physical activity - Just ask a 38-year-old professional athlete how sustainable they believe their salary to be.

Salary or fixed compensation from a specific role - more sustainable in the near term, less sustainable in the long term. When things hit the fan, management can't help but eliminate fixed costs. This one is as sustainable as your ability to add value for management.

Bonus, commission, or variable compensation from a specific role - less sustainable in the near term, more sustainable in the long term. Taking responsibility breeds sustainability and getting paid for production means you're responsible for what does or doesn't happen. This one is as sustainable as your ability to add value for clients.

Rental income from a property you are maintaining well - a waiting list is a sign of sustainability. If people are lining up to live there, that's a good sign. And it seems likely that people will always need a place to live.

Dividend income from an established business in which you are a key contributor - income that comes from the profits of a business directly to its owners. Often there is significant upside potential as a key man or woman, but the concentration risk of putting all effort and energy into one business has a way of undermining sustainability.

Income from something that you'd be willing to do for free - in terms of exchanging effort for income, it's hard to think of something more sustainable than transforming "effort" into "pleasure".

Dividend income from a business that does not require you for its operation - Of course, dividends are never guaranteed, but once you start receiving them from an ever-growing list of companies, you can begin depending on them in a different way.

Interest income - income that is required to be paid by a contract and ensures you're first in line to get paid if the business hits rough patch. The more of these arrangements, the merrier from a sustainability perspective. A healthy appreciation for inflation and possible loss of purchasing power is the only prerequisite with this income.

Pension income from a company - there's a reason you don't find many of these anymore, the sustainability was a holy grail for a former employee and an anchor around the neck for the business still trying to innovate and operate.

Social security benefits - it's hard to find something that can be sustained longer than an inflation-adjusted monthly payment from the government against whom all other creditworthiness is judged.

Of course, income is only part of the story - if you spend more than you make, then no level of income is sustainable.

But if you're moving up this spectrum, chances are you can depend on your purple bar to be around as far as you can see into the future.