That is … until it drives you INSANE because all you do is work – all of the time!
All too often we make the mistake in our careers by having the notion that taking on more and more projects will convert proportionally to more income. But then we’re disappointed when all that happens is we end up working way too much and the whole thing just blows up in our face.
Believe it or not, there’s a theory in economics that can help explain why this is an effort in vain. But as you’ll find out, where one door closes, another one can open.
Let’s take a dive into understanding how this all works together.
The Law of Diminishing Returns:
When I was studying for my MBA, there was a really interesting concept they taught called “the law of diminishing returns”.
What in the world does it mean?
Though that many sound like a fancy term, it’s really a pretty easy concept to understand.
Example – Building a Deck with Your Friends:
Suppose you decide to build a deck for your house. For one single person, that would be quite an undertaking!
So you decide to get some help. You get one of your friends to come over and help you. Now there are two of you to work on the deck.
That’s better, but there is still quite a bit of work to done.
So now you call over two more friends for a total of 4 people. Now the work is very manageable for each person.
So what would happen if you invited two more friends over for a total of six people?
Each person might work, but its likely that at least a few of the people wouldn’t be working as hard as they could be. They’ll probably share some of their work load with some of the other friends and not really be working at maximum capacity.
Now what if we had 8 or 10 people? That would be quite a deck-building party!
But in all honestly its not going to be a good “party”. I’d be willing to bet that half of the people are probably standing around doing nothing while the other ones are working at about half efficiency.
The more people we seem to add, the less productive everyone seems to get. Plus the more chaotic the project seems to become!
If we could go back, we probably would choose to just keep the number of people working on the deck to just” 4” because that seemed to be the “optimal” number of people to do a good job.
That’s the law of diminishing returns at work.
It demonstrates how throwing more resources at something doesn’t always produce the desired effect.
Noticed how as we went from one worker on upward, things became more productive. But then at some tipping point adding more people to the project actually made things worse.
Feeling the Effects of Working Too Much:
I know what you’re thinking …
… I’m not building a deck any time soon. What does this got to do with me?
Though you may think this law has no relation to your life, the truth is that it can actually reveal something very important about your day to day work life that you may have never considered before …
How Many Hours Do You Work?
Think about how much effort you put into working every week at your job.
Remember that “effort” could be measured by lots of different factors:
- Physical stress
- Emotional stress level
A lot of people start a job or new position with lots of ambition! They sike themselves into believing the more they work the more they will start to see their pay go up!
They say to themselves:
- I’ll work more hours!
- I’ll take on more projects!
- I’ll take on more stress!
Now you start to take on more and more. Your superiors are very pleased with what you’ve accomplished, and thus the reward is now even more handsome! The initial notion that work and reward are proportionally related seems to be holding true!
So what’s the only logical thing to do? If you want more money, keep on piling on the work!
And so the cycle of madness continues.
… until one day something strange happens …
You start to see fewer rewards.
Not knowing what to do, you continue working too much and putting in more effort than you probably need to. You’ve got way too much on your plate. AND again there is no-to-little increase in reward.
With too many balls in the air, you start dropping them.
- Deadlines get missed.
- Details are over-looked.
- Communication is poor.
Your superiors start to get upset with your performance, and now not only are you not getting any rewards, your job is on the line!
At the same time working way too much has now negatively affected:
- Your marriage
- Your kids
- Your health
- And pretty much every other aspect of your personal life.
The law of diminishing returns has again held true.
The Lesson Learned:
Taking a big step back from this scenario and looking at the big picture, again you will see there was a bell curve.
For a short while harder work and more effort paid off. But that strategy didn’t work forever. In fact it worked against you if you worked too much!
This is NOT to say that we shouldn’t work hard or do good at our jobs. We certainly should provide a good service for the wage we’re paid. But simultaneously we must also be smart about this and know when the scales are not in balance.
As the captain of our own ships, we absolutely need to make sure that we keep a good work-life balance! We need to find out what our own personal optimal point is on our bell curve and stick to it.
Chasing endlessly after bigger rewards is a fools game; only to ultimately end up costing us more than we stand to gain.
The Beauty of Diversification:
So this then poses an interesting challenge:
… If working more hours won’t make me richer, what will?
My Working Through Lunch Example:
It’s become somewhat of an institutionalized office concept in some industries that everyone works through their lunch hour.
Work gains one more hour from you. You lose one more hour of your life. BUT we tolerate it because we believe it is necessary to chase after that bigger reward!
Consider for a second what would happen if you took back that hour. All for yourself.
What if instead of filling out forms or responding to emails (or whatever you do at work during this time), you instead learned more about investing.
As we’ve proven time and time again on this blog and in my eBook, understanding simple concepts like how tax-sheltering can ultimately make you millions of dollars richer by the time you decide to retire! (If you don’t believe me, just check out this post here.)
Ask yourself – What would you rather do?
- Those mindless work tasks that no one really cares about OR learn the skills that add over a million dollars to your bottom line someday?
I thought so!
To illustrate another example, there have been many times I’ve returned to my desk around lunch time to respond to blog advertising requests. Within that hour I might pull in an extra $100, $200, or more of extra income!
Not a bad haul for a lunch hour!
I think those forms and emails can wait …
Diversifying Your Income Streams:
If you’ve felt this way at your job for a while now, I want you to do this:
- Think about a place or time where you could shave off 15 minutes, 30 minutes, or even a full hour from your daily routine. It might be your lunch hour, not staying so late, etc.
- NOW devote that time to some other money making effort!
It doesn’t matter what it is! It could be:
- Writing an eBook
- Researching real estate
- Or any other extra income idea! (Check out our whole list here)
Put your talents and knowledge to task and challenge yourself to get a BETTER rate of return for your time!
And also remember – have some fun with it!
After 4 years of blogging and continuing to be a life-long student of personal finance, I can guarantee you: The rewards are there!
You won’t be disappointed with what you find.
Readers – Do you believe in the law of diminishing returns? When do you feel working too much doesn’t pay off any longer? What are you doing to diversify your income streams and get a better rate of return for your effort?
Featured image courtesy of Techniker Krankenkasse | Flickr
[email protected] says
I definitely believe in the law of diminishing returns. It is really hard to shut work off when you work for yourself. My goal each night is to NOT check my email. It is pretty pointless for me to stress out about work stuff in the evening when we’re trying to relax.
I’ve got the same rule I try to abide by (mostly for my regular job email).
John @ Frugal Rules says
We see this all the time as well, which is very much why we try to diversify as much as possible to have different revenue streams coming in. When we first started our business I thought that more work was always better because it meant more money. I still deal with this from time to time, but you start to notice that you end up either rushing through things or simply stop enjoying it altogether. Finding that balance is key.
Well said! I find myself slipping into this bad habit with blogging and trying to build other income streams as well. Every now and again I have to take a step back and ask myself “if I do more of this, is it really going to help?”
Jayson @ Monster Piggy Bank says
I just remember an example of law of diminishing return when I was in college. Regarding slices of pie. How much utility (happiness, enjoyment, etc) do you get from that first piece of pie? Now, you eat another piece of pie. Maybe it tasted even better. However, by that third piece of pie, you’re beginning to feel a little queasy. Eating a new piece of pie makes you more a more achy. That is diminishing return.
You just described my dessert eating habits at Thanksgiving dinner last year! 🙂
Abigail @ipickuppennies says
As someone with chronic fatigue (but a Type A personality), I struggle with wanting to earn more but also needing to take time for myself.
My husband is pretty integral in keeping grounded. He sometimes gets a little too tough on how much extra work I take on, but we’ve mostly figured out some good compromises.
Spouses are really good for that! Though we often encourage each other to do more, sometimes they can also be there to keep you from biting off more than you can chew.
I should take this advice instead of working over 40 hours each week. Though I do spend my lunch breaks reading about investing and blogging.
Thankfully I don’t do any work on my lunch break. Any customer that bothers me off the clock would learn how angry an angry retail banker I can be.
ARB–Angry Retail Banker
Reading about investing and blogging during my lunch hours (and at night) is how I got started down this path!
Dividend Growth Investor says
The law of diminishing returns is everywhere. This is why it makes better sense to do the bare minimum at your job, and use the extra time to research ways to earn money on the side (investing, blogging) or cut expenses (taxes).
In the book about Warren Buffett ” The Snowball”, there is a story about Charlie Munger ( Buffett’s investing partner at Berkshire Hathaway).. He earned money from his day job, but also hustled on the side to earn more in real estate. Your story of working on your own projects during lunch hour reminded me of the story:
“Charlie, as a very young lawyer, was probably getting $20 an hour. He thought to himself, ‘Who’s my most valuable client?’ And he decided it was himself. So he decided to sell himself an hour each day. He did it early in the morning, working on these construction projects and real estate deals. Everybody should do this, be the client, and then work for other people, too, and sell yourself an hour a day.”
That’s a great story! I did not know that that’s how Charlie Munger got started. But I’m glad to hear that he and I think alike on these sorts of things! It gives me hope for the future.
Great post!! I definitely agree with this. It’s all about finding the happy-medium with work and life. With freelancing, I tend to either be super busy or super slow (like now, haha!), but overall it balances out. Working “more” is usually never the answer, it’s working smarter 🙂
Working smarter is always the better alternative. The more return on investment you can get for your valuable time, the better your hustle!
[email protected] of Investing says
I’m definitely more focused these days on trying to ‘optimise’ my work hours, and not put in tons of overtime each week in the very slim hope of another little payrise or bonus! Too many people just put the blinkers on, head down, and plow into their work without stepping back and seeing whether the benefit is worth it.
The only challenge I see sometimes is whether putting all that extra time into a ‘side hustle’ is really worth the effort, especially when just starting out. It seems like a long, slow road to get any traction, but I guess eventually that’s when you start climbing up that hill of increasing returns!
I can definitely see your skepticism. It took me at least one year before I ever started to see decent income from my blogging efforts. But now after plugging along and earning an extra five-figures per year in addition to my regular job, I can testify – It’s worth it!!
diane @smartmoneysimplelife says
I learned early in my career that working more didn’t necessarily help you climb the ladder, it was being *seen* to be working more by the *right* people that really mattered – the Schroedinger’s Cat theory of productivity. I’ve never had the patience for that!
It might sound selfish or self serving but I’d rather work smarter and save some time and energy for my own benefit. At the very least, it gives you the feeling of having some control over your life. Case in point, when my last contract ended, I chose to work full-time on my side business. Having that choice was liberating!
Everyone should keep a little (preferably a lot) of their lives for themselves.
There’s absolutely nothing wrong with being a little selfish with your own time. Especially if you’re going to get a better ROI, why not!
[email protected] says
The best work days to me are when I can bring in some extra income during my lunch or breaks while I’m in the office. I used to be way overextended and you’re right that extra hours do not equal extra reward. Diversity is the key.
Its such a great feeling seeing those Paypal payment notices roll in – all for doing some advertising or hustles while you were at lunch or on your phone.
The one drawback is even though you know about diminishing returns, it doesn’t stop your boss from assigning you too much work or projects that are themselves the law of diminishing returns by their very definition.
Just another reason to treat yourself as your most important customer.
That is completely true. A good boss will know exactly when his people have hit their limit and can seem to take on no more. Of course from time to time it is our job to speak up and let them know we are at our breaking point as well.
EL @ Moneywatch101 says
Very good concept and explanation behind the law of diminishing returns. Building passive income should be on everyone’s mind. Having a good life balance is key to not going insane.
I think a little diversity with income streams could do a lot of people good and not make them feel so bogged down to the every whim of one job. It’s up to every person to figure out just how they want to go about making those extra passive income streams and then getting them started.
Dane Hinson says
I’ve always thought about getting into a side hustle. Tried a few things over the years but never really found the right niche. This world of blogging is all new to me. I’ve always wanted another outlet outside of my 9-5. I started a blog two days ago and it has been so great to get my thoughts out there. If you have any advice for me I would greatly appreciate it. There seems to be so many aspects of setting up a site, collaborating with others, developing content, etc. that it’s a bit overwhelming. But I’m looking forward to embarking on this blogging journey.
Good for you Dane for deciding to do this! I will send you an email with some help.
Really good one! Am also a strong believer in the law of diminishing returns. It is always good to find a good balance between work and personal life, taking good healthy breaks, even weekend travels that make you recharge and refresh. The you get back to work with fresh ideas and energy, ready to deliver!
It really helps to keep things in proper perspective when you recognize the differences between work and play!
Jon @ Money Smart Guides says
It’s definitely a good idea to figure out where the line is. For many we just assume the more work the more reward, but we burn ourselves out in the long run and as you mentioned, our personal lives take the hit because of it.
It’s hard to know where that line is when your work dangles a carrot in front of your face saying you’ll get more money if you just do this one more thing for us. Only each person can know where that line is and enforce it.