In this newsletter, I share content I encountered over the past month that will help you become more financially savvy.

This is not financial advice; it's just education. Please consider your situation before applying anything you read here.

This month's recommendation:

10 Businesses To Start BEFORE You Get Laid Off In 2024

https://www.youtube.com/watch?v=mzY4vnvKb68

Commentary

While the title of the video talks about starting businesses, I'd like to focus on the general framework she put out instead of the specific businesses in the video.

This is a great video because it highlights how the expected returns of a business tend to be proportional to what you put in.

The three main resources you put into a business are Money, Skill, and Time.

If you have no Money and no Skills, then you need to invest a lot of Time to make the business work.

If you apply both Skills and Time, you'll tend to make more money than someone without Skills.

If you want passive income, then you'll have to put in enough Money to compensate for the lack of Skill and Time you'll be investing in the business.

There is no such thing as free income. If you're lacking one resource, you'll generally have to make up for it with another resource to achieve the same income level.

Why does this law tend to hold for most industries?

Businesses often follow this "law of equivalent exchange" because of competition.

Let's say you're the first Sichuan hotpot restaurant in the Philippines. You're making so much money you have to turn down the majority of the people who visit your store.

People will not just sit around and let you take all that money. Other restaurateurs will open their own Sichuan hotpot restaurants. This will dilute your market share, reducing your profitability until profits reach the average of the restaurant industry.

Why will it generally stop dropping at the average? Because any lower, and new entrants will say, "The profits of this will be too small. Not worth it to enter."

Exceptional profits are rare because wherever there's money to be made, new competitors will try to enter to take market share, reducing industry profitability.

(There are, however, exceptions to this dynamic. You can read about them here.)

Conclusion

Returns in business tend to be proportional to what you put in.

If you want more profits for your business, you'll generally have to put in more Money, Skill, or Time into what you do. You generally can't get money for free because other business people will not just sit around and let you take all that money - they will tend to want to compete.

So if you want to increase your business income, ask yourself: How can I deploy more of my resources towards making money?

KEITH LIM