Blog | Entrepreneurship

Why You Don’t Want to (Just) Make a Lot of Money

The difference between high-paid employees and entrepreneurs

America has a love affair with celebrity. Most people spend lots of time and energy keeping up on the lives of their favorite movie stars, and many idolize them.

It’s understandable. After all, the lives of movie stars seem very glamorous and who wouldn’t want all the stuff they have?

But the reality is that movie stars, for all their glitz and glamour, are just very high paid employees, though admittedly with a lot of clout. But here’s the deal, if they don’t show up to work, they don’t get paid. Just like a CEO, a lawyer, or any other high paid employee.

As a consequence, they work insane hours and rarely have free time. Not exactly as glitzy as it sounds on the surface.

The smartest actor in the bunch

That’s why I find this article a ran across in “Vanity Fair” (“The Highest-Paid Actor of 2018 Didn’t Even Have to Make a Movie”) so fascinating.

According to the article, the highest paid actor in 2018 was George Clooney, but he didn’t even make a movie. So how did he pull that off?

Turns out Clooney is an entrepreneur too.

• According to the Forbes World’s Highest-Paid Actor list for 2018, in between social engagements with the royal family, Clooney managed to rake in a career-high pre-tax income of $239 million in between June 1, 2017 and June 1, 2018. No, he didn’t make any new movies or TV shows in that time—but he did sell his liquor company, Casamigos Tequila, for up to $1 billion. $233 million of Clooney’s $239 million of pre-tax income came from Casamigos; the rest came from endorsements and his older movies.

I’d say that this might make Clooney the smartest actor in the bunch.

Runner up…

The second highest-paid actor was Dwayne Johnson, also known as The Rock. He made $124 million. To earn that, he had to do three films and a TV show. As “Vanity Fair” points out, “that guy probably hasn’t slept more than a collective 39 minutes in the past 12 months.” It’s a lot of work, but with a big pay day for sure.

This is an interesting contrast, however. Clooney made almost twice as much as Johnson, while probably working a lot less hours. And it serves as a great example of why being an entrepreneur is always preferable to being a high-paid employee.

Say hi—or bye—to the tax man. Your choice.

Beyond having more time on his hands, Clooney most likely paid a lot less in taxes than Johnson did for his money. As a high paid employee, Johnson has to pay the highest tax rates for his earned income, currently 37%.

Clooney, because he sold a business interest, only had to pay long-term capital gains rates, which equal out to be 15%, more than half of what the earned income rate is.

So not only did Clooney make more money doing less, but he also kept more of it than Johnson did thanks to the tax codes that favor business owners.

Cash flow is king

In addition to his business sale, Clooney also enjoyed passive income from both endorsements and his older movies. Most likely Johnson did too. The beauty of this is that they make money while they’re sleeping.

As mentioned above, employees, even high-paid ones, have to work or they don’t get paid. By contrast, I can write a book and once it’s published, it makes money for me long after the effort I put into it is over.

The same goes for my business. I put the effort into building it, and now it is run by really talented folks, making money for me even when I’m not working actively on it.

That is the secret that all wealthy people know: cash flow is king.

The definition of wealth

I’ve written a lot about it before, but many people think having a lot of money makes you wealthy. It doesn’t. The only thing that makes you wealthy is if you can stop working and still pay all your expenses. That is the true test of financial freedom.

The beauty of being an entrepreneur is that you can make money work for you, not the other way around. I still do a lot of work on my business, but it’s because I want to, not because I have to. I could retire today, not work another hour, and never have to worry about money. That is what I call wealth.

Start dreaming differently

I know a lot of people who dream about having a high-paying job. I also know a lot of people who wish they were a famous actor. In both cases, it’s not as great as it seems. You have to work a lot when you get to that level. The money is nice, but it’s only there if you’re showing up each day.

Rather than dream about a high-paying job or a shot at stardom, I’d encourage you to start dreaming differently—and if you have kids, helping them to dream differently as well. I want to challenge you to dream of entrepreneurship.

What could you do today to start moving towards starting your own business and as a consequence, owning your financial future? It will be the best decision you’ll ever make. After all, money isn’t everything. Financial freedom is.