Last week, I read an interesting article called 21 Ways Rich People Think Differently. Most of this article was a rehash of the book The Millionaire Next Door, but one thing in the article really caught my attention.
Average people focus on saving.
Rich people focus on earning.
A Hard Lesson for Me
This brought back some bitter memories for me. I spent the first decade of my working life scrimping and saving to get by, when I should have been concentrating on my career, my income and my education. I could have easily earned hundreds of thousands of dollars more, instead of saving a couple thousand dollars here and there. It was a hard lesson and I could kick myself now that I look back. At the time, I honestly thought I was on the right track, by concentrating on every expense. Now, I concentrate on my income and I’m much less concerned with life’s little expenses.
The Leaky Boat Theory
One thing I see posted constantly on financial blogs is how small expenses can add up to clobber your budget. In other words, small leaks can sink a ship. That may be true in a very small boat, but larger boats have bilge pumps to keep them afloat. Small leaks are expected and dealt with by design. The owner doesn’t have to constantly check the bottom of the hull for water, so they can enjoy a Piña Colada up on the deck, in the sunshine. Your budget should also be designed for small leaks, so you don’t have to be concerned about them sinking your ship.
The Cost is Relevant
For someone making minimum wage, a $4 cup of coffee is an extravagant expense. For someone making six-figures, the cost of Starbucks is irrelevant, even if they go there every day. To them, a 24 year old scotch is a luxury, not a cup of coffee. The whole point is the more you earn, the less things cost in terms of hours worked. A new car costs less to someone who is wealthy than a TV costs to someone who is poor. A house may contain 50% of the wealth of a middle-class family, while a huge mansion contains just a fraction of some people’s wealth. Raising your income reduces the percentage of your expenses, unless you also inflate your lifestyle.
People who Focus on Stuff
Most of the broke people I know seem to have the latest cell phones, nice clothes and eat out frequently. They generally have newer cars on payments and lots of techie gadgets. The amazing thing to me is how easily some people can justify any expense, when they obviously can’t afford it. People who focus on stuff instead of income are at a major disadvantage. Not only are they spending beyond their means, they are ignoring the one thing that can make everything more affordable to them, their income. If you are one of the people who can afford the finer things, then have fun and enjoy them. If not, think about their cost to your future.
Creating your own Income
Not everyone has the option to increase their incomes. Some people have union or public jobs and the salaries are fixed. Others are retired and live on social security. Some have a calling and work for churches or non-profits. Millions are stuck in low-paying professions, have unstable pasts or live in depressed areas of the country. All of these people should consider starting a business or developing a side-gig. There are lots of teachers and firemen who have become wealthy from outside interests. There are many entrepreneurs who wouldn’t have succeeded on the normal career path. Put the future of your income in your own hands, instead of living with the financial limitations created by others.
The Bottom Line
The bottom line is that a higher income should be on most people’s wish list, instead of a new cell phone or coupon organizer. The more time people spend on their careers, income and education, the less time they will spend worrying about bills and layoffs.
“I am indeed rich, since my income is superior to my expenses, and my expense is equal to my wishes.”
Edward Gibbon – English Historian
This post was featured on the Carnival of Personal Finance over at Free Money Finance. If you aren’t familiar with the Carnival of Personal Finance, you need to check it out. It’s the best place on the web to get your financial advice.