Amos is a boda boda rider. He rides for Fiona (the boss who owns the bike). He does not own the bike. He is paid a daily wage. His income depends on the number of rides and the time he is able to work. In other words Amos is an EMPLOYEE and can be fired any time by the boss. The challenge is that while Amos is riding the boda boda he can’t ride any other boda at the same time. Also he can only work for a maximum of 24 hours a day (that is if he doesn’t take any breaks). As long as Amos keeps riding bikes his income will never grow beyond a certain level.
Peter (Amos’ friend) is also a boda boda rider. Unlike Amos, Peter owns the bike. Peter earns a daily income. His income also depends on the number of rides and the time he is able to work. In other words Amos is SELF EMPLOYED. Peter can’t also ride more than one boda at a time. Of course he has more control over his affairs and no one can fire him. However Peter is also time constrained. If he doesn’t sleep he can only work for 24 hours a day. So as long as Peter keeps riding this one bike his income has a natural limit.
Fiona is not a boda boda rider. She owns 10 bikes. She has hired people, including Amos, to ride the boda bodas on her behalf. Fiona has hired her niece (Patricia) as an Administrator to manage the riders and collect daily cash from them. Patricia banks the money on Fiona’s bank account every day. Fiona started with one bike. She used her savings to buy her first bike. She later took a salary loan and bought nine other bikes. She pays the interest on her salary loan using the money she gets from the boda boda business. No one can really fire Fiona except her customers. Fiona is a BUSINESS OWNER. Fiona is thinking of acquiring ten more bikes when she finishes paying off her current salary loan. She plans to partner with her husband James to expand the business. Fiona’s income depends on the number of bikes she is able to deploy on the road. It also depends on Fiona’s business acumen to manage a large operation. There is really no upper limit on the amount of money Fiona can earn.
James is Fiona’s husband. James works in a large bank. He has since invested UGX 30m in Fiona’s business. In return he has received a 20% equity stake in Fiona’s business. James is not involved in the day to day running of the business. James receives dividends at the end of each year. He estimates that he will earn on average 15% per year (of course as long as the boda boda business still survives). James has also invested in a number of other businesses and assets like land, treasury bills, shares, etc. James plans to retire early from his job when his investment income exceeds his expenses. At this point James will be FINANCIALLY INDEPENDENT. Of course James can’t be fired. He can only be fired if he invests badly and the deal goes sour. We call James an Investor. James’ income is only limited by the amount of capital he is able to deploy and how well he manages his investment risk.
The question is, whom would you rather be?