What if you could make all the money you want working only a handful of hours of work per week? You could travel, read, be healthier, hang out with friends, and do whatever hobbies you want instead of slogging away for eight or more hours every day just to make money.
This is the promise of the classic book on productivity and online entrepreneurship, The Four Hour Workweek. (That’s an Amazon Associates affiliate link – you can search for the book on Amazon by it’s title if you don’t want to click it.)
It’s possible to create a life in which you have all you need financially and only work a handful of hours per week. You might not need to work at all.
Here are three paths:
Path 1 – Live Off Passive Investments
The best option for passive investment income is ownership of an S&P 500 index fund. As soon as you divert from a simple portfolio such as 60-90% of your money in an index fund, you risk getting into active management. Then your freedom, your time, and your ability to sleep at night are all at risk.
The historical after-tax return of the S&P 500 is around 7.5%. Some experts think it will be somewhat lower in the future.
An alternative is to own a handful of amazing businesses that will continue to prosper for decades. Choosing such companies is difficult, but the rewards can be as good or better than owning an index fund or your own private company.
“Owning a non-controlling portion of a wonderful business is more profitable, more enjoyable, and far less work than struggling with 100 percent of a marginal enterprise.” – Warren Buffett
If you can save up enough money so that you can live off less than 4% of that amount annually, you likely don’t need to make any more money. For example, if you save $1 million and can live off $40,000 (4%) per year, you’re likely set for life.
If an investment requires your active management or means you can’t sleep well at night, it’s not passive. If you own an investment property and have to find new tenants, swap out tenants, make repairs, or wonder if you should sell it, it’s not a passive investment. If you’ve put money into a speculative asset such as a cryptocurrency, hoping you’ll be able to sell it in the near future at a profit, that’s also not passive.
Passive means zero work required.
Path 2 – Build an Automated Business
This is the path The Four Hour Workweek focuses on. I don’t think it’s possible for most people.
The problem is if you build a business, systematize it, and expect it to continue to produce profit year-after-year, you’re going to be disappointed. Soon enough, competitors who are working 80 hours per week will beat you.
If done well, you can ride the success of this type of business for a while, possibly years. Eventually, it will decline until it produces no further cash flow for you.
In any business, you will have a tough time competing long-term working part-time against competitors working full-time.
If you get lucky or are extremely disciplined in how you spend your four hours per week, maintaining a cash-producing business long-term might be possible. I don’t think it’s likely though for 95% of us.
Path 3 – Transition from CEO to Chairman
If you own a private company, there’s an alternative automating its processes and hoping to competitors don’t outwork you. Instead, you hire and properly incentivize one or more people to do the full-time work necessary to compete for the long-term.
You transition from the CEO of the business to the Chairman of the Board. Once Chairman, your primary job is to hire, manage, and replace, if necessary, the CEO of the company. This is a job which can take far less than four hours per week.
With a good CEO or President, you can prosper from your ownership in the business with zero day-to-day operational responsibility. If you want, you can own an unlimited number of companies all of which build your wealth for you day-and-night. You become more of an investor rather than an operator of private companies.
I’ve been on this path for a few years now. At times, I’ve been able to participate in the growing cash flows of my companies with zero work required of me. The respective CEOs and Presidents of the businesses I own are compensated based on performance with unlimited upside potential. So they work hard and smart every day.
However, it doesn’t always work. Currently, I’m spending 8-10 hours per day trying to turn around the profitability of one of my businesses. The business has faced significant industry changes requiring rapid problem solving and testing to get it back on-track. I’m all in on fixing that problem until it’s solved.
Once solved, I hopefully can reduce my workload while the company grows without the need for my help.
We Don’t Really Want a Four Hour Workweek
Using the first or the third path above, I think it’s possible for any of us to create a life in which we only have four hours or less of required work per week.
But is that what we really want? I don’t think so.
Business can be fun. Making money is fun. Having more money is fun. Having more freedom and being able to do more for people are fun.
What we don’t want is to feel like we have to put in hour-after-hour of stressful work every day of every month. We want rewarding, meaningful work.
At times, I’ve been able to completely remove myself from the operations of my businesses and the businesses have done fine. Did I stop working? No. I just did different kinds of work. I read, planned, and learned more. I looked at new business opportunities. I thought about more ways to share what I’ve learned like with this blog.
I don’t know Tim personally, but from all the projects I see him involved in, I can guarantee you he has worked full workweeks almost every week since writing The Four Hour Workweek. But he’s doing what he loves and he’s great at it.