In the 4-Hour Work Week, Tim Ferriss discusses relative vs. absolute income:
“Absolute income is measured using one holy and inalterable variable: the raw and almighty dollar. Jane Doe makes $100,000 per year and is thus twice as rich as John Doe, who makes $50,000 per year. Relative income uses two variables: the dollar and time, usually hours.”
For salaried employees, it’s hard to influence the time you work and the income you receive. You can read the 4-Hour Workweek to learn more about becoming time and location independent.
As an independent worker, I have a lot more control over my hours and income. Generating an income is pretty important. I need to pay the bills, right? That's why every month I track my income, expenses and profit to work out how effective I'm being.
We give so much thought to income, so why don't we give the same thought and attention to our time? I've always been aware of this concept of relative income, but now I want to start taking is really seriously. That’s why I’m adding a line at the bottom of my income statement that shows hours worked and my relative income (profit ÷ hours worked).
This figure for relative income is arguably far more important than the actual amount you earn. Sure you could earn $120,000 in a big fancy corporate job but if this requires you to work 80 hour weeks, your relative income is only $28/hour. If instead, you could earn $40,000 working only 20 hours per week your relative income is $38 for working quarter of the time. Not bad!
Freelancers, consultants, coaches and solopreneurs – listen up! Yes, tracking your income is important but tracking your hours worked to generate that income is incredibly valuable. Look back at your calendar now and see if you can quickly calculate your relative income. You might be surprised by the figure.