How to make money: the levers that matter

When you search for how to make money, you usually end up with a ChatGPT answer or an article with thirty, fifty or a hundred ideas mixing things like:

• Sell things you don't use on Wallapop.
• Work as a freelancer.
• Set up an online store.
• Invest in the stock market.
• Create courses.
• Take surveys.

And, to be fair, they're not bad ideas. I do almost all of them myself. But what I find most curious is that, when they're presented as independent possibilities, it seems as though each one works in a completely different way, when many of them share the same mechanism..

That's why I prefer to start somewhere else: by understanding where the money you can earn actually comes from. Then we can see whether it makes more sense for you to look for a better-paid job, offer a service on your own or start a business.

Because needing extra income to make ends meet is not the same as wanting to build something that, over time, depends less on your hours.

This article is part of the series on how to start investing from scratch and it's one of the most important, especially if you don't already have a decent amount of capital. Before deciding what to do with money, it helps to have some. That's why it's essential to understand how to earn it and what options you have to increase your income.

Where money really comes from: the four engines

The best way I know to explain this is to identify the four sources that exist:

1. Work.
2. Capital.
3. Exploiting asymmetries.
4. Taking on risk.. 

You may also know the last two as “arbitrage” and “insurance”, although I'll use those words in a broader sense than usual.

They aren't four perfectly separate boxes. Consulting, for example, can combine specialised work, an information advantage and a fixed price that shifts part of the client's risk to the consultant. What's interesting about the framework is that it forces you to understand what you're actually providing that makes someone willing to pay you..

Mechanism	What you provide	What limits or complicates the income
Work	Time, knowledge and the ability to solve a problem	Your available hours and how much you can charge
Capital	Money invested in assets	Available capital, results and potential losses
Arbitrage, in the broad sense	An advantage in information, knowledge, price or attention	Competition and the disappearance of that advantage
Insurance, in the broad sense	The ability to take on someone else's uncertainty	Misjudging the risk or being unable to absorb it

Let's look at each one in a little more detail.

Work: you can charge more, but the day still has the same number of hours

Almost all of us start making money through our work. We do something another person or company needs and get paid for it, whether through a salary, an invoice or a one-off job.

It could be serving customers in a shop or bar, developing a website, teaching classes or fixing a breakdown. In all those cases, our time and our knowledge—more or less specialised—are required.

The fact that almost all of us start here doesn't mean you necessarily earn little at this level, especially if you're self-employed rather than an employee. A highly specialised professional can charge a lot, especially when they solve important problems and few people can do it. Think of the best doctors, lawyers, consultants, and so on.

The formula is generally simple. Imagine you could bill two thousand hours a year:

Amount per hour	Income for 2,000 hours
12 €	24.000 €
25 €	50.000 €
60 €	120.000 €
150 €	300.000 €

These are example figures, before expenses and taxes. Also, a self-employed person usually can't bill every hour they work: they also have to find clients, prepare proposals, manage collections and do other tasks nobody pays for separately. The table is there to show the relationship between time and rate, not to calculate what you'd actually take home.

The point is that you can increase the value of an hour a lot, but you have much less room to increase the number of hours available. You can work more for a while, although sleeping, resting and having some kind of life outside work also take time. 

So if you want to make more money this way, improving your specialisation, negotiating your terms or moving into better-paid work usually has more upside than endlessly adding hours.

In return, work can give you a degree of predictability that's hard to find with other kinds of income. A stable salary lets you organise expenses and save, instead of depending on whether you sell a course this month (self-employed) or an investment rises (investor). 

Not every job offers that security, obviously, but you shouldn't dismiss it either as though getting paid the same amount every month were a flaw.

Capital: using the money you already have to generate more

The second option is to invest money in assets that can produce a return. Some pay interest, rent or dividends. Others may increase in value and let you make a profit when you sell them (what is known as speculation). They can also combine both, such as a home you rent out that may also be worth more years later.

One distinction matters here: receiving money is not the same as owning something that has gone up in price. If an investment appreciates, your net worth may rise, but that increase isn't money you can use to pay for groceries until you sell. Interest or rent, on the other hand, can represent actual cash coming in, from which you still have to deduct the relevant expenses and taxes.

The advantage is that capital doesn't have the same direct relationship with your hours. Managing a ten-thousand-euro investment doesn't require ten times as much work as managing a one-thousand-euro one. That's why this route can grow without demanding a proportional increase in your time, although some assets, such as a rental property, involve considerably more work than the phrase “passive income” suggests. I know from experience.

The obvious drawback is that you first need to have the money you intend to invest. For most of us, that means working, spending less than we earn and building up a surplus that we can then invest. 

And with little capital, don't expect returns to replace a salary: at the beginning, improving your earned income can have a much bigger impact than any investment. That doesn't mean you shouldn't start investing as soon as you can.

Finally, there's the emotional side. A portfolio can lose value. And seeing that on a chart isn't the same as watching money that took you years to build up fall in value.

Being able to withstand that means both knowing what you've bought and not needing that money for your near-term expenses. In this article I explain how to start investing step by step, with a system designed to minimise these risks.

Arbitrage: taking advantage of something you see or know that others don't

I'm using “arbitrage” here to talk about opportunities that arise because people don't have the same information, knowledge, contacts or access to a market.. 

Strict financial arbitrage has a more specific meaning, involving the exploitation of price differences through offsetting transactions. The examples below aren't all pure arbitrage, but they help show the value an asymmetry can have.

Imagine you know the second-hand computer market well. You find a cheap machine because its owner just wants it gone and doesn't have time to value its components properly. You know what's inside it, what people usually pay for something similar and where you could sell it.

That information can give you a margin, provided you've accounted for transport, possible repairs, fees and the risk of having to keep it longer than expected.

Something similar happens when a client pays you two hundred euros to solve a problem in fifteen minutes that would take them two days, such as setting up an email marketing tool correctly. There is still work involved, but the price is not explained by those fifteen minutes alone: you also know how to solve the problem and save them two days of effort.

Another option is to have an audience a company wants to reach: you can charge for sponsorship because you've built access to people that company can't reach directly.

In this last case there's also content, prior work and accumulated trust. So it makes no sense to call every profitable activity arbitrage. What the examples have in common is that there is an exploitable difference between what you know or have and what another person needs..

The problem is that those advantages can shrink.

If lots of people discover the same cheap product to resell, competition will increase both to buy it and to sell it on. If a tool makes it easy to solve the problem you used to be paid for, you may have to rethink your service. Learning how to spot and assess opportunities is far more useful than learning one specific method and assuming it will last forever.

Insurance: getting paid to take on someone else's uncertainty

The clearest example is an insurance company. You pay a premium in exchange for coverage of certain losses if something specified in the contract happens. The company takes on that risk and has to price it well enough for premiums to cover claims and its costs.

Outside strict insurance like the example above, there are agreements that share some of the same logic. For example, if I quote a fixed price for a consulting project, the client knows how much they'll pay for the agreed scope. I, on the other hand, take on the possibility that it may require more hours than expected. The client gets price certainty, while I have to factor that uncertainty into the quote.

Not everything I charge is compensation for risk: there's work and expertise too. But accepting a fixed price changes how that risk is shared compared with billing every hour used. If I misjudge the effort, the mistake comes out of my margin. And if the client asks for something outside scope, we need to agree how it will be charged, because a fixed price doesn't mean unlimited work..

A monthly retainer can work in a similar way when it includes a variable workload for a fixed amount. The same applies to certain guaranteed deadlines or commercial guarantees, provided the person offering them is genuinely committed to responding if something goes wrong.

The key is to understand what uncertainty you're accepting and what an adverse outcome could cost you. Having lots of clients doesn't solve the problem by itself if they could all need you at the same time.

Now that we've understood the levers behind money, let's look at earning it from another angle: the structure through which your income is generated.

Employee, self-employed, business owner and investor: Kiyosaki's quadrant

Robert Kiyosaki presents another classification in his Cashflow Quadrant:

• Employee.
• Self-employed.
• Business owner.
• Investor.

The employee works for an organisation. The self-employed person depends on their own activity. The business owner, in the sense used by the model, has a business that can operate through a system and other people. The investor earns returns from capital.

The framework is useful for distinguishing situations, but it isn't a ladder where every rung is better than the one before it.. 

As we mentioned earlier, a good specialist may not need a team to make a lot of money. Or a well-paid engineer at a large company can invest part of their salary.

So although the ideal for many people is probably to reach the point where they can live from investments, the other three positions may be just as preferable for different kinds of people..

But let's talk a little more about each one.

The problem isn't having a boss: it's depending on your hours

Becoming self-employed doesn't remove your dependence on time. If you used to work eight hours for one company and now work eight hours for four clients, you've changed your employment relationship and perhaps gained autonomy, but you still need to work to get paid.

On top of that come lead generation, administration and chasing invoices, none of which happen by themselves, so you may end up working more hours to achieve the same thing, especially at the beginning.

That's why the interesting question is whether your income can grow without your hours having to grow in the same proportion. 

That's where leverage comes in, understood as using resources that amplify what you can achieve with your work. I'm not talking here about borrowing money to invest, but about relying on products, technology, people, distribution or capital.

A book lets you sell many times over work you did once. Software can serve new users without you personally solving every task. A recorded course or a piece of content can reach more people, and a team can make it possible for your business to handle more projects than you could deliver alone.

The first three are assets . The last one, a team of people, is only an asset if it allows the operation to run properly without you. As you can see, assets can help you earn more. The more you have, the less your income depends on the hours you put in.

Part of the effort involved in creating or acquiring an asset can be used more than once, opening up possibilities you don't have when every unit of income requires starting over and spending another hour of your time.

The strategy I followed (and recommend) for making extra money

If you aren't absolutely sure what you want to do on your own, I see nothing wrong with working for other people. Above all, it gives you perspective and learning. Then you'll be in a better position to decide whether you want to strike out on your own.

With that in mind, while you're employed, you can start developing side projects (side-projects). ). That's what I did at the time and what I always recommend to people who are just starting out.

That way, your job can give you income, experience, contacts and access to real problems that would be hard to discover from the outside. And as long as you're around people you can learn from, it can also be training that you get paid for.

Side projects will give you:

• Different kinds of learning.
• Experience dealing with clients.
• Management and prioritisation of your own resources (time and money).
• The possibility of creating assets whose income doesn't depend on your time.

The advantage of keeping a main source of income is that you can experiment with less pressure. If the project immediately has to cover your living expenses, every decision comes with the urgency of bringing in revenue. If your life is already covered, you can spend time understanding the problem, talking to potential customers and checking whether it's worth continuing without committing as much money.

It also changes what you can learn. Setting up a small online store forces you to think about suppliers, pricing, margins, technology, sales, customer service and operations. Offering a service forces you to deal with quoting, negotiating and delivering something someone is willing to pay for. Even if the project is small, you start connecting areas that you might otherwise see separately in a specialised job.

And the thing is, the general experience and the lessons you take from these projects are things you can never get by working for someone else..

That's why I think a side project can initially pay you mainly in knowledge. But don't use that idea to justify carrying on indefinitely with something that consumes time and goes nowhere.

If you don't know how to start, think about what you can offer and mention it whenever it makes sense. When someone starts paying, you have your first signal of demand. That still doesn't prove you can live from the project: you still need to see whether there are more buyers, whether there's any margin left and how much effort it takes to serve them. 

From there you can decide whether to grow it, keep it as extra income or shut it down. Not every project has to replace your main job to be useful.

I prefer this process to recommending that you quit your job to chase an idea nobody has validated yet. There will be situations where going all in makes sense, but it should be driven by what the project needs and what you can afford to take on, not by the idea that entrepreneurship requires jumping in without checking anything first.

In my case, almost from the moment I started working for other companies, I've been building side-projects:

• I've created lots of websites and marketing campaigns.
• I've created content.
• I've done consulting.
• I've delivered training (in person and online).
• And I've created my own projects, including companies that I later sold for good money.

That's why, looking back at my path, it's what I recommend to anyone who wants to earn more and doesn't mind putting in more work in exchange for increasing their future optionality.

Earning more isn't the only way to have more money

Although it's the most obvious one, if your main goal is to have more money there are other routes besides earning more.

Spend less

Since I have an article dedicated to how to save money I won't go into detail here. I'll simply remind you that if what you want is to have more money available each month, how much leaves your account matters. Earning an extra three hundred euros net or eliminating three hundred euros of unnecessary spending improves your monthly balance by the same amount. 

The word “net” matters: billing three hundred euros more doesn't always leave you with three hundred euros available after expenses and taxes.

That doesn't make saving a substitute for earning enough. Some expenses can't be reduced much, and there are situations where the main problem is simply that income is too low. But you can also earn more every year and still accumulate nothing because your spending rises at the same pace.

My view of saving has more to do with reviewing what you pay for than with living worse. A subscription you don't use or a purchase you make out of habit may give you far less value than other things you're perfectly happy to spend money on. 

Before cutting anything, you need to know where your money is going. Here I explain how to analyse your expenses, which is the first part of my system.

Paying less tax (legally)

The other route is to keep a larger share of what you generate through legal tax planning. I'm not talking about hiding income or tax evasion, but about understanding the rules that apply to your situation, the expenses you can genuinely deduct and the options available to you where appropriate.

A salary, business activity, dividends or gains from selling an investment may all receive different tax treatment. The structure of your income, the timing of certain transactions and some tax-advantaged products can also have an impact. That's precisely why, for example, I often recommend funds over ETFs.

That said, avoid choosing an option solely because it appears to pay less tax without looking at its costs, obligations and overall outcome.

Speculate, invest or protect: what to do with the money you accumulate

We're nearly at the end. At this point I'm assuming you've accumulated some money or, at the very least, that your income exceeds your expenses. Now another question appears: what to do with the money you have left over.. 

You can keep it available, use it to develop a business or buy an asset, but before choosing you should understand what you're trying to achieve. Because we often call any purchase we hope will make money an “investment”, even when it really isn't.

One way to make this clearer is to distinguish between speculating, investing and protecting. They aren't completely separate categories, and the same purchase can serve several goals, but I find it useful to separate them so you know where you expect the profit to come from and what can go wrong..

Speculating

When you speculate, you're mainly trying to benefit from a change in price. For example, you buy something because you think you'll be able to sell it for more later, such as a flat to renovate and resell, gold or Bitcoin.. 

You may have studied the market carefully and have good reasons to think it will rise, but your result depends on that move actually happening and on being able to sell under favourable conditions.

That doesn't mean speculation is bad or worse; it simply means you should recognise what you're doing instead of calling it investing just to feel better about it..

Investing

When you invest, you put money into an asset or activity from which you expect a return based on what it produces.. 

If you put money into a business, what matters is its ability to sell and generate profits. If you buy a property to rent out, you need to look at the rent it can generate and the expenses you'll have to bear.

The difference from the flat you renovate and resell in the previous section is that, although the eventual sale price can also affect the result, you're looking for more than simply the expectation that someone else will pay more later..

Protecting

Protection has a different goal: preserving what you've already built and preventing one problem from putting too much of your wealth at risk.. 

That can mean keeping money available for unexpected expenses, diversifying your investments so you don't depend on a single asset, or covering a risk you couldn't absorb on your own.

Here, the outcome you're looking for isn't always a profit: sometimes it's being able to handle an expense without going into debt or selling an investment at a bad time. 

Or passing wealth on to your children in the best possible way so they pay less tax on it.

Conclusions: what I would do if I were starting today

If I had to start again, I'd do the same thing, but with a few nuances: I'd try to secure a reasonably stable source of income and develop a skill someone needs and is willing to pay for. 

I'd look for something I could improve at through practice and that would let me charge more over time, without assuming the first solution is to work more hours or start a business. In my case I was lucky because I moved into digital very early, and it has only kept growing since then.

At the same time, I'd test a small project with a cost I could afford—perhaps only time—and a real opportunity to learn.

If I wanted money quickly, I'd start by offering a service I knew how to deliver. If I wanted to build something for the long term, I could spend more time on an ecommerce business, content creation, software or another project that might take longer to generate income, as long as it didn't require too much extra effort from me.

Once customers appeared, I'd look at how much money was left after serving them and what would have to change for the project to grow. A second income stream can be useful even if it's small, but you need to know whether it justifies the time you spend on it and whether it has a chance of working without demanding more and more hours from you. With that information, I'd decide whether it was worth expanding or keeping as a complement.

At the same time, with the money I accumulated, I'd first make sure near-term expenses and possible contingencies were covered and that I had room for unexpected costs (an emergency fund). Then I'd consider what portion I could allocate to investing. Not in property, as I did in my case, but using the system I explain here..

You don't have to follow my path, though. Depending on your situation, the first step might be negotiating a salary, learning a skill, reviewing an expense or finding out whether anyone would buy that service you've been thinking about offering.

I hope that once you understand how more money is actually generated, it becomes easier to decide what to do.

Next steps

If you want to go a little further, I invite you to continue with the next article in the series:

1. Investing from scratch: where to invest your money.
2. Types of assets you can invest in according to their role in your portfolio.
3. How to buy assets: investment vehicles.
4. Investment platforms: where to buy investment vehicles or assets.
5. Risks and guarantees of investing.
6. My investment system.
7. Wealth: how to grow it, protect it and pass it on.

And the extras:

1. How to start investing: the essential steps.
2. When to start investing.
3. How to make money.
4. How to save money.