I spent the formative years of my upbringing near the coast of South Carolina, in an area known as the “Lowcountry”. It’s a natural landscape of low-lying swamps, creeks, rivers, and islands – with the ocean nearby. Oak trees, some of which are centuries old, line the backroads. The breeze tangles with “Spanish moss” hanging down from the branches. The area is majestic and has its own vibe. 

It was on one of those backroads many years ago that I learned a valuable lesson from a mentor. This gentleman was a well-known businessman, who ran a local advertising company that he operated with his wife. It was a solid, prosperous business that made him financially independent. 

He was a salt of the earth type of guy. High school education. Hard work ethic. Great salesman. He was getting on in years and spending his time sharing his wisdom with young whippersnappers like me. 

While driving him home from a meeting one day, we came to a red light at a well-known intersection. We sat quietly for a moment, taking in the scenery. 

He broke the silence, “Samuel, there are only three ways to make money in life. Only three.”

“Go on,” I prodded.  

“If you go left, you find people who make money with their hands. If you go straight, you find people who make money with their brains. And if you go right, you find people who make money with their assets. Hands, brains, and assets… the only three ways to make money.” 

I knew the area well and could picture what he was telling me. To the left was a rural area with old farming communities. The people who lived there were largely uneducated. They made their living as laborers – either on their own small farms or sharecropping the farms of others. This was the “hands” crowd. 

Straight ahead was an up-and-coming suburban community full of young professionals, most of whom worked for companies in the nearby city of Charleston. This was the “brains” crowd. 

And to our right was a freshly-paved road leading to a private island community. It had a world-renowned oceanfront golf course. Tennis courts. A neighborhood Main Street with an ice cream shop and a deluxe grocer. Everyone drove a Porsche. Every lawn was manicured. All tightly secured behind a security gate and a guardhouse. This was the “assets” crowd.  

My mentor didn’t explain any further. He didn’t need to. I grasped what he was saying immediately. At that intersection, I started to understand upward mobility. My mentor was showing me how to climb the economic ladder. 

Of course, the local scenario he described that day has historical roots. 

Until a few hundred years ago, most people were either farmers or they had a trade. They traded their physical effort (hands) for money. This was the basic unit of economic output in agrarian society.

The Industrial Revolution changed everything. Larger groups of people started working together in factories and offices. New groups of workers emerged – the managerial and professional workers – who started making money with their brains. This new group of workers has exploded in recent times, creating a huge shift from people trading physical effort (hands) for money, to people trading mental effort (brains) for money. 

Back then, those who made money with their assets were almost exclusively the owners of land (and then the factories themselves). The equity holders of property and enterprise. The owners. This third group was then – and still is – the smallest cohort, representing the final rung of the economic ladder. But it’s a growing group and now accessible to anyone. Hence, the private island.

With one simple example, my mentor made the economic ladder look more like a video game than some mystifying amoeba. No one had ever explained it to me that way before. 

And once you understand the game – the economic ladder with hands, brains, and assets – you can start to explore the best way to play. 

It all comes down to how you spend your time. First, with your time allotment towards your income-generating activity, and then how you spend the excess.

When you’re making money with your hands, you have to spend your excess time acquiring knowledge

When going from hands work to brains work, you have a lot of options. It’s easier than ever to acquire knowledge while working with your hands. Most laborers can listen to podcasts while they work and do courses online during their off-time. Education has become free and readily-accessible. The concept of “school” is outdated, and the time needed to gain new knowledge has shrunk. Anyone can do it – anytime, anywhere.

The key at this stage is to acquire knowledge with your excess time, continuously. Then you can make the leap to the next rung in the ladder and start making money with your brain.

When you’re making money with your brain, you have to spend your excess time acquiring knowledge, and your excess savings acquiring assets.

First, the need to keep learning continuously never changes. Knowledge acquisition is a prerequisite to climbing the ladder and how you increase the value of your time. 

Once you start making money with your brain, you can increase the value of your time through learning (per above). This allows you to charge higher rates and accumulate savings. Once you’ve accumulated enough savings, you can start to invest in assets. This allows you to make the leap to the final rung on the ladder.

Once you’ve accumulated enough assets – if you’ve chosen them wisely – you can start to generate income from your assets. 

Assets is a broad term. Classic examples are things like buying real estate, or making financial investments in stocks & bonds. Often overlooked is the importance – especially early on as you’re climbing from brains to assets – of investing in your own business. Or, perhaps investing in other cash-flowing businesses that you can oversee and derive profits from. 

Asset income comes in the form of profit distributions, dividends, interest payments, asset sales, and the like. Once the asset income stream is large enough, you no longer need to trade your time – whether physical effort (hands) or mental effort (brains) – for money. You’ve completed the climb up the ladder. Now your assets are doing all of the work for you.

The only way to leap from the brains crowd to the assets crowd, as stated above, is to invest your savings wisely. Making wise decisions about which assets you invest in is arguably the most important component of making the leap from brains income to assets income permanent. Choosing the wrong assets pushes you back down the ladder, in the wrong direction. This is where the continuous knowledge acquisition comes into play. You have to get smarter along the way. Woe is the tale of the ambitious businessman who makes a lot of money but doesn’t learn as he does it. Makes for a great story, but it usually doesn’t end well.

And that’s it – the only three ways to make money. Hands, brains, and assets.

With one simple example that day under the oak trees in the Lowcountry, my mentor ingrained in me a powerful framework of how to view the economic ladder. 

I’ve been climbin’ ever since.