There’s No Such Thing As Paid Vacation. (But There’s Something Even Better!)

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theres no such thing as paid vacationToday is my first day back at work after a one-week “unpaid” vacation. I’ll earn less this month than I did in the previous few months, since I only worked three-fourths of the time.

This is because I trade my time for money. I have a huge limitation on how much I can earn.

Everything I do these days – including my pledge to invest 100 percent of my income – is intended to cut the relationship between time and money. I’ll have “real” wealth the day I can unplug for one year without suffering a hit to my income. Wealth is measured in time, not dollars.

Some people believe that they already have stints in which they get paid to do nothing. They refer to this as “paid vacation.”

I’ve written before about my belief that paid vacation is a myth, but its such an important concept that its worth devoting a post to.

There’s No Such Thing As Paid Vacation

Casey searches for a job with paid vacation.

“Can you imagine?,” she says. “Laying on the beach and getting paid for it?”

She finds a job as a marketing assistant. Her new gig pays $50,000 per year, plus three weeks of paid vacation, health insurance and a three percent retirement match.

Casey is elated. During her first year on the job, she jets off to Aruba, visits friends in West Hollywood and goes skiing at Whistler. As she cruises down the slopes, she thinks, “Wow. I’m getting paid for this.”

Except … she’s not.
real paid vacation comes when you can unplug for a year
Casey’s boss, Shannon, launched the marketing company 10 years prior. For the first few years, he worked round-the-clock with only meager pay to show for it.

Shannon watched in jealousy as his friends enjoyed their steady flow of paychecks, paid vacations and company-sponsored happy hours. At times, he contemplated quitting. But he continued to build his business.

After two years, he was ready to hire his first employee. A year later, he hired a second person. Today, a decade into the company, Shannon has eight employees.

Casey became employee number eight. Shannon estimated that her efforts would help the company’s revenue grow by an additional $100,000.

So Shannon made an agreement with Casey: I’ll pay you for 49 weeks worth of effort per year. I’ll pay $53,300 in total — $50,000 in the form of paychecks, $1,500 in the form of a three percent retirement match, and $1,800 worth of health insurance, which has a fair market value equal to a $150 monthly premium.

In other words, I’ll give you $1,087 for every week you work for me. ($53,300 divided by 49). I estimate that my investment will add $2,000 per week in value to this company, so I’m happy to give you half.

For the sake of simplicity, Casey, I’ll space those payments out in regular two-week intervals. It makes the bookkeeping a heckuva lot easier.

And hey, Casey, if you take time off at the end of the year, then I’m paying you in installments for work you’ve already done.

Shannon Gets Real Paid Vacation

With eight trained and talented employees, a well-organized system and strong client relationships, Shannon isn’t worried about the day-to-day management of his company anymore.

He jets off to Aruba, West Hollywood and Whistler, just as Casey did. Shannon’s company turns a strong profit, even while he’s away.

Each of his employees create an additional $1,000 per week of net earnings, so Shannon collects $8,000 every week that he’s on vacation. He can do this, in perpetuity, forever, barring any sort of catastrophe. When he returns, his company is running even more smoothly than it was before he left.

Shannon gets a true paid vacation. Everyone else just gets paid in installments.


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19 Responses to “There’s No Such Thing As Paid Vacation. (But There’s Something Even Better!)”

  1. Matt
    26. Mar, 2012 at 12:31 pm #

    Such a smart post. It is amazing how easily we misunderstand the power of building wealth. You have to put in a lot of work to push over that hump. You need to live like no one else for awhile, and the returns start to filter in.

  2. Modest Money
    26. Mar, 2012 at 12:39 pm #

    Personally I usually just cash out my vacation pay, but I have heard of people who are forced to take vacation time instead. That is how it works in Canada anyway. I’m not sure if US employers also have to contribute to vacation pay or not. When I do take time off I usually end up putting more time into my side business. So at least I am still getting paid by someone.

  3. Dollar D @ The Dollar Disciple
    26. Mar, 2012 at 12:49 pm #

    Getting paid in installments is a fantastic way to look at it!

    A lot of business owners like the hypothetical Shannon can’t get away for a year. The difference between them and Shannon is that Shannon has worked *on* his business to develop it whereas most people just work *in* their business and become irreplaceable.

  4. BusyExecutiveMoneyBlog
    26. Mar, 2012 at 2:03 pm #

    Excellent post. I think the other thing I see is related to your “ditch the laptop” post. Most of us actually take our work on vacation with us anyway using some poor logic that it will just pile up if some isn’t done on vacation. What’s the point?

  5. MrFrugalFrank
    26. Mar, 2012 at 2:17 pm #

    Just had a conversation with my wife about this…Works @ Walmart makes about 2x min wage….Want her to do something free lance…She can’t think of anything…I explain I don’t work much but when I do I make $50-100 per hour sometimes more and I M lust a blue-collar worker…Gave me 100 excuse why she can’t well I can think of 100,000 reason per yar she should..she is always amazed by how I look @ things Say we have very little money and want a new car instead of “borrowing” (I Hate payments) I say need $20,000 now how can I make a easy grand 20 times in a short period of time(say with-in a year or 6 months) or that might be hard to so the plan might be make $20 1000 times or 4-5 x per day? WoW I know how to make a easy $20 I do it all the time been coming up with money all my life without a “real” job..I do many,many different things…I see money all over the place…My simple trick is when I was a teenager I did odd jobs for a rich banker(small town) he said anytime U talk to someone vision a 20 dollar bill on thier head and you have to talk them into givening it to you…U see where ever there people money can be found……

  6. YFS
    26. Mar, 2012 at 4:27 pm #

    “Shannon gets a true paid vacation. Everyone else just gets paid in installments.”

    I love it!

    This is why I setup the real estate business. Because, it’s truly passive and I can literally not be around for it to work. You also touched on he fallacy of “owner your own business” and “be your own boss”. Life, isn’t all sunshine and rainbows when you run the company. You put in long and hard hours, much more work than your employees. Until you can land a serious client or put a system into place to remove yourself from the equation.

    • AffordAnything.org
      27. Mar, 2012 at 1:12 am #

      @YFS – I bought into the “be your own boss” fallacy for years when I thought that being a freelance writer made me a business owner. I only recently realized that as a freelance writer, my income is still tied to my time, and there’s no way for me to build a system that disconnects those two elements, unless I become the publisher.

      • YFS
        27. Mar, 2012 at 7:33 pm #

        So…. when are you going to become a publisher :-). Unless, what you really are saying is freelance writing is what you love to do. Nothing wrong with that.

        • AffordAnything.org
          28. Mar, 2012 at 2:11 pm #

          @YFS – You hit the nail on the head! My goal (via investing 100 percent of my income) is to become a publisher — owning the means of production — rather than being the writer who contributes to the production that someone else owns. Of course, that’s easier said than done. It might take years, but I’m working on it one day at a time!

  7. Anree
    26. Mar, 2012 at 5:03 pm #

    This post really makes one think. I don’t really brag about “paid vacations” but taking an objective look at the relationship between owner and employee, in general, was worthwhile. Thanks for such a great Monday post!

  8. Money Infant
    27. Mar, 2012 at 7:39 am #

    Excellent point and excellent post. It is so obvious that ALL your compensation and benefits are factored into your salary and yet almost no one thinks that way. I’m going to pay you in 2 week increments because it makes the book keeping easier…for Shannon! I wonder how many people would take their “paid vacation” if they only got paid for the 49 weeks they work and had to make do for the other 3 weeks from their own savings?

  9. Johann
    28. Mar, 2012 at 4:19 am #

    Shannon is a crafty one and I like that. To condition employees that they have the best job in the world and is happy to do that for you while you reap in the profits is one great strategy. Don’t get me wrong, I don’t disapprove of the method, I’m just impressed on how it was done.

  10. Grace Pamer
    03. Apr, 2012 at 11:15 am #

    Such a thoughtful post and one that got me linking your way as I thought it was something my readers should check out. I agree I’m all for being the publisher rather than the writer. That is the way to go!

    Thanks
    Grace

  11. rashmi
    06. Apr, 2012 at 2:18 am #

    Very logical thought and well written article. That means no one gets paid vacation.

  12. FrugalCat
    23. May, 2012 at 1:54 pm #

    Did Casey fly to Aruba, West Hollywood etc for free? Did her company pay for the lift tickets at the ski resort? Then it wasn’t paid vacation. Even if you still get your salary, all the money you spend that week is Money Out of Your Pocket! Remember this folks!

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