Why Rich People Focus on Earning
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
Recommended Reading
Don’t Quit your Day Job – I am Completely Worthless
My Family Finances – Your Net Worth is Lying to You
Money Counselor – Do We Control our Fortunes
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.
I think you make all the right points here Bret. I particularly agree with your observation that most broke people seem to have all the latest gadgets and extravagances. Baffling! Though the opportunities for boosting income differ depending on background and economic class, I think just about everyone can work toward earning more money. Furthering education and taking specialized training are often two good avenues to increasing earning power.
Thanks for mentioning my “Do We Control Our Fortunes? as recommended reading.
Any Time Kurt. Thanks for commenting.
I agree that almost anyone can increase their income. It is hard for me to listen to people go on and on about how it can’t be done, instead of trying to do it. I have almost quintupled my income over the past 20 years. If I can do it, other people can do it too.
It’s encouraging that the way rich people think differently isn’t really linked to intelligence per se, instead it’s a conscious choice to think in a particular set of ways about money and wealth. Pretty much anybody can achieve this, but even many intelligent people fail to ‘get it.’
Thanks for stopping by Drew.
Your comment reminds me of a popular book called Why Smart People make Big Money Mistakes.
It seems like faith and discipline are bigger factors to gaining wealth than intelligence. It’s really not that hard to increase your income and invest part of every paycheck.
For me, the first step was realizing it was possible and then getting started. Doing it every payday is the easy part. I am still a long way from becoming a millionaire, but I am confident it will happen.
Lots of good points here. If some people spent half as much time working toward ways to improve themselves and make more money instead of complaining about what they don’t have, we’d be a nation of wealthy people.
Thanks for stopping by Kim.
I agree with you 100%. Whenever I try to encourage people to increase their incomes, they have a dozen reasons why it can’t be done. I figure if I could do it, almost anyone can. But, some people just want to work 8 hours then watch TV. It’s a lifestyle choice, not a lack of opportunity.
Kim & Bret – Fully agree with you both here! Here I am on a Saturday night, reading personal finance articles before I grade papers and write a blog post. I don’t watch tv very often; I spend my off hours trying to improve my blog or make a little extra money for the family. (I’m a SAHM, blogger, and online college instructor).
If I hear one more person say, “But it’s not easy for me to make money online like it is for you….,” I’m gonna scream! 😉
It might look easy from the outside, but those people aren’t sitting beside me late into the night slaving away on blog posts and student questions.
I am right here with you Lena, working on my blog and commenting on others on Saturday night. I must confess that I watch a lot more TV, since we got a new 60″ LED. But, that will wear off sooner or later.
The only problem with the argument with career, income and education is this only a few people can make a lot of money not everybody can. I do not have the stats in front of me but I know that theirs not that many folks making a hundred thousand dollars a year. Far less than ten percent also the notion that education is some how going to give you the inside track to a big income maybe twenty years ago but not today high wage white collar jobs are being outsourced to places like india. Anybody who thinks that by simply educating themself enough is somehow going to solve their lack of income problems is gravely mistaken. I have nothing against higher education. I do have a problem with those that think that somehow someone without formal education does not have or cannot acquire knowledge institutions of higher learning do not have a monopoly on learning. These various degrees high school bachelors masters doctorate are now creating class stratification class structures that did not exsist before. The whole idea of education was to lessen inequality it has had the opposite effect because of the grading effect of these various degrees. I think it would be better to be self employed today than work for some large company that might outsource your job to india.
“… only a few people can make a lot of money not everybody can.”
Thanks for your comments Financial Directory.
Despite what some politicians say on TV, wealth isn’t a zero-sum game. Wealth and opportunity are most often created, not taken from others. And, there is no limit to how many people can make $100K or any amount. I make just under that amount and I’m nobody special. I have worked really, really hard to become successful in my field.
The majority of Americans will never earn $100K or become wealthy, because they aren’t willing to do what it takes to get there. That doesn’t mean you or anyone else can’t do it for themselves. You just have to provide enough value to earn that income and save enough of it to become wealthy. If one employer won’t pay you what you are worth, someone else will. The hard part is being worth it.
Jobs get outsourced, businesses fail and companies have layoffs. It’s the reality of the modern work environment. It creates opportunties for those who are flexible and problems for those who aren’t. I do agree that self-employment can be a better path than the corporate ladder for many. But, the self-employed are rarely off work at 5:00.
ANYONE who has ANY job can learn to do that job with more value. THAT should have been mentioned, but I think that for people who focus on value rather than cost, that’s a given, and for people who focus on cost rather than value, that’s not possible. Once you max out your value in a current job, the next one is coming your way. People notice value. Excellence breeds excellence. Mediocrity doesn’t even breed mediocrity, and mediocre people simply cannot succeed, genuinely succeed.
Hi Nancy,
Whenever this subject comes up, I think about one of my favorite quotes.
“If a man is called to be a street sweeper, he should sweep streets even as a Michaelangelo painted, or Beethoven composed music or Shakespeare wrote poetry. He should sweep streets so well that all the hosts of heaven and earth will pause to say, ‘Here lived a great street sweeper who did his job well.”
― Martin Luther King Jr.
When I first heard that quote, I was mowing lawns for my brother’s landscaping company. Within a couple of months, I had a professional job in the computer industry.
Whether someone thinks they can increase their income or not, they are usually right.
Bret,
This is a good point. People often ignore the fact that the average millionaire earns $350,000, which is significantly more than the typical American household. That is not to discourage anyone from becoming a millionaire, wealthy, or rich; however, you generally don’t get there through low wages. It is not impossible, especially over the long term, but it definitely isn’t easy or even typical.
No wonder I haven’t become a millionaire yet. 🙂
I didn’t realize the average millionaire’s income was that high, but it makes a lot of sense. It takes many decades to save a million dollars on an average working person’s salary. I still believe everyone should try to save at least 10% at any income level. But, saving is a lot easier at a higher level of income.
I think you’ve hit the nail on the head with your comment about it being a lifestyle choice, Bret. Many people are very happy spending their eight hours per day in a cushy job and then flicking the TV channels for the rest of the day. Rich people focus on money, earning more and then don’t have to worry about how many lattes they drink. The rest focus on other things and then have to cut the lattes to make the budget work.
Thanks for stopping by Kevin.
Sometimes, I forget that everyone doesn’t share my dream of financial independence. I will keep writing these kinds of posts to help people who do. Others are probably watching TV, instead of reading PF blogs anyway. If I can help just a couple of people, all of my hard work will have been worth it.
Bret – I agree with your points except you are forgetting there are people believe in the income > saving mold but have other priorities that prevent them from focusing on the earning side. I quit my job 5 years ago to stay at home with my daughter (and now I have 3), and because of this lifestyle decision, I have more time than money right now. I could go to work, but that would not match up with my desire to stay at home with my children.
While I can’t spend much time during the day making money, I do have time to save money by clipping coupons, etc. So, I guess what I’m saying is there is a time and place for both sides of the equation.
That’s a great point Lena and one I didn’t cover well in my post. Everyone’s financial situation is different.
We also chose a traditional lifestyle, where my wife stayed home with the kids. That put a huge amount of pressure on me to produce the entire income for our family. Going after the bigger income, including the travel, long hours and night classes at college, made sense for us. I just wish I had of done it sooner.