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The Algebra Of Choice

The Algebra of Choice

Quality, Consequences and the Construction Industrial Complex (part 192).       

Do what you always do, get what you always got. 

Not sure where I heard this but IMHO, it is a truism that can be impacted when using Life Time Value (LTV) to select projects and work assignments.

I was recently reintroduced to the power of estimating the LTV of how I spend my time generating income by a series of thought equations:

Salary Algebra

1. Salary i.e selling time & skills for money + spending in excess of salary = negative ROI.

2. Salary + saving 20% for investment = positive ROI and ability to calculate LTV, e.g 20% annual savings invested at X% average annual returns over X years = LTV of salary based work.

Therefore LTV of savings from day job earnings = compound returns over time from investing savings = : ) 

It is important to note that skill acquisition and development of competence which dictate salary are within our control. Also within our control are the choices we make allocating our money. 

The salary algebra for positive ROI & LTV was summarized to me as follows: 

  • Always be acquiring new skills i.e. be better
  • Always perform i.e. add value
  • Make investment, NOT consumption choices

Where things get interesting is deciding what to do as a side hustle project or second job. For example, if you develop and sell a software app or training course or book or (fill in the blank), the algebra changes.

Side Hustle Project & Second Job Algebra

1. Second job income + saving all income for investment = positive ROI & LTV, i.e. additional savings invested at X% average annual returns over X years = LTV of second job.

2. Time + cost of any outsourced work = Let’s say an educational video training course (this is a one time, sunk cost to produce the product).

 Then

Income from the course over its life time is the LTV. If the income is passive, the   only costs are marketing. This increases the LTV. 

I have a friend who developed and sold a video training course on Udemy.com. It took 2 weeks of his time, after that the only cost was marketing. 

That course has earned a total passive passive net income to date of ~ $20,000 USD. Say 2 weeks of his time was $5,000 USD, then the LTV to date is $15,000 USD which is increasing each year. 

This LTV can be further increased by taking this $15,000 and investing in the markets or a new business. 

Therefore the algebra for deciding how to spend time on a side project is: 

  • (Time + Cost of Any Outsourced Work = Product) + (Product Income x Investment choice) = LTV

My takeaway is that passive income from products or investments has the highest LTV due to scalability and compounding effects. 

Oh, the things I wish I understood when I was in my 20’s……….

Twitter: @BLDWhisperer 

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#184 – Everyone is in Sales  https://bldwhisperer.com/everyone-is-in-sales/

#180 – How are you Paid?  https://bldwhisperer.com/how-are-you-paid/

#178 – New Year Purge  https://bldwhisperer.com/new-year-purge/

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