Aside from our family, health and time, money is the most important resource in our lives. It’s for this reason that the majority of us trade copious amounts of our lives for a paycheck hoping that one day, way off into the future, we can stash enough money to enjoy a few years of leisure.
Now, while I hate to bring this harsh reality to the forefront, the fact of the matter is that most people will have to work for the next 40 or more years but many less will ever be able to enjoy the fruits of their labour. Why is this? Because they’re already falling behind and if you suspect you may be one of those people then let me share with you what I believe is the most critical difference between living a life of financial despair and one that will have you reaching all of your wildest money goals!
The Current State of Finances
This is probably not going to surprise you but most people struggle with money on a day to day basis. Now, unless you were raised with a silver spoon, then you yourself have probably faced some financial challenges in your life to date. In fact, if I were to pinpoint the three biggest financial hurdles most people face these days, the first would definitely have to be low wages.
I think we’ve all gone through that period of time in our lives where we are just finishing school and are excited to see what our careers have in store. We can’t wait to start putting our degrees to work but more importantly, we can’t wait to finally start cashing some adult sized checks. However, if you had a situation similar to mine then those paychecks you received as you started your career were not exactly worth writing home about. I know for myself personally, my expectations were rather high given that I had completed a diploma and two degrees before stepping foot in the workforce. As you can imagine, it was pretty crushing to see my peers making as much if not more than I was with only a fraction of the education.
Well, the harsh truth is that as an employee, your company really doesn’t have much incentive to help propel you towards your financial goals by paying you more money. Now, I’m not saying that your company is bad or evil, it’s just that every extra dollar they pay you, they can’t keep for themselves and if you haven’t noticed, companies are always trying to raise their profits. In fact, if we dive into the research, we can see that real wages have been stagnant for years which means that working a 9–5 job may not be the path to wealth that you thought it would be.
Unfortunately, those disappointing paychecks only make up a small fraction of all the financial issues most people struggle with these days. To make matters worse, not only are wages growing at a snail’s pace but the cost of, well everything, is constantly on the rise! A really good example of this was the lumber shortage that we saw during the pandemic. Due to work stoppages and supply chain issues, the price of lumber nearly tripled in many markets and it’s been estimated that these rises in price added on average $30,000 to the price of a moderately sized family home.
Now, let me ask you this, did your boss give you a $30,000 raise this year? I am guessing no and this is just one example of items that have gone up dramatically in the last couple of years. When you start to assess the rises in the price of gas, food and other commonly bought items, you can see pretty quickly that most people are only sliding further away from their financial goals as time goes on.
At this point, you’re probably starting to truly appreciate the struggles that most people go through on a regular basis but the most insidious part of this whole mess is still to come. You see, you probably already knew that most people are underpaid and that prices continue to climb on the daily. However, the worst part of all this is that people have absolutely no clue how to get themselves out of this deep, dark financial hole they find themselves in. Why is that? Because most people have received very little financial education over the course of their lifetime.
Unless you went to a vastly different type of school than I did, I’m sure you can attest to the fact that school does a terrible job teaching students about money. As a result, unless you pursue this form of education on your own accord then your chances of making the right financial decisions in life will be slim to none.
Now, there are of course basic money principles that I would hope most people know. Examples include spending less than you earn and putting money aside for retirement but with a lack of proper financial education, especially around optimizing your income, these principles are rather futile in nature.
You see, it’s rather hard to save for the future when you’re making the terribly low incomes that we previously went over and sadly, most people aren’t naturally wired to understand how to make more money. In fact, I would say that 90% of people rely on raises and promotions for any type of increase in their income and sadly, this is far off the optimal income path.
If you ask me, realizing life changing increases in your income doesn’t come from some stroke of luck or that guy you happened to bump into at the coffee shop by your house. Raising your income, to a point where you can start to see your bank balance rise exponentially, requires a shift in mindset.
You see, the 90% of people who struggle to get by every month all maintain the exact same mindset. What is that mindset? It’s the consumer mindset.
The Consumer Conundrum
Think about how most people spend their day. They wake up, go on their phone for a bit, watch TV while eating breakfast, complete their work day, lounge around after work only to top off their day by continuing that Netflix series they and their partner have been enjoying for the past couple of weeks. Do you notice a trend here? If you were paying attention then you would have realized that other than the hours they spent at work, the rest of the day was spent consuming. Consuming content on their phones, on their tablets, on their televisions. Do you know what happens when you consume like this? Nothing and that’s the problem. You move absolutely no closer to getting out of the financial rut you’re in.
Sadly, many people would rather stay up to date on the latest Netflix series or play through the newest video game then save themselves from the financial despair that they currently face. If you ask me, these are all masking agents that help us escape from the harsh financial realities that most people face.
Now, if you’re presently in this situation, consuming for the majority of your day then trust me I understand why you’re probably living this lifestyle. I can resonate with it because I too used to spend the majority of my day consuming useless content and it wasn’t until I found myself in dire financial straits that my eyes were opened to the harm I was causing myself.
You see, back a few years ago, when I was working in management consulting, I was making a terrible salary, working 60 hours a week and at the end of every day, I just wanted to shut off and forget about all the client demands and stress that I would inevitably face the upcoming day. In short, I used TV and video games to ease the pain. However, when I realized that my company was never going to give me the money I needed to make significant financial strides in my life, I realized that I had to make a change and this is when I shifted into producer mode.
Think about the parts of the day when you’re making money. For most people, this is when they are actively trading time for money at their jobs. They are producing value for their organizations and as such are being compensated for said value. However, the rest of the day, you are likely not getting paid to sit around and watch Netflix which is the consumption part of your daily schedule.
When you take a step back, you’ll come to realize that the key to raising your income is simply to produce more. Now, you may be wondering what I mean when I say “produce more” so let me dive into the details right now.
Producing can be defined as any situation where you are providing value to others. It can be when you are completing your responsibilities at work, are making content like I do or when you are selling a product or service to others. There are literally a million ways to produce, the key is that you start doing more of it.
However, before you go full throttle on producing a lot more and consuming a lot less, it’s important to understand the two forms of production.
The first form of production is active production. This is where you are trading time for money. When you think of active production, think of working a 9–5 job, doing freelance work and the like.
Then, there’s passive production. This can be working on an asset now that will yield fruit in the future or outsourcing your production for others to complete.
Now, depending on your situation, you may decide to choose one production route over another. For instance, if you are someone that needs more money now then action production is what you should be pursuing. This can be through picking up a part-time job or working more hours at the job you presently have.
However, if you have money to deploy or are willing to wait for future rewards then passive production may be the best path for you.
I know that I’ve taken both paths in the past and I think that the best approach is to combine the two. In fact, that’s exactly what I’ve done to exponentially increase my own income to date. First, I started to raise my income through freelance work which was active production. Then, I took all that extra income I had earned and funneled it into assets that produce income for me without my involvement.
In fact, I first learned about this tactic from the book Rich Dad, Poor Dad written by Robert Kiyosaki. In the book, he goes over the mistake that most people make of earning income and only directing it towards your expenses versus using it to acquire assets instead. The trick here is that once you acquire enough assets, they will be able to generate enough income for you to never have to work again and isn’t that what everyone wants at the end of the day? The crazy part is that this gem is just one of many life changing lessons that I got out of this book and if you haven’t read it to date then you’re missing out.
Consumer To Producer Shift
At this point, you’re probably wondering how you make the jump from being a consumer to a producer so let me share with you how I made the shift. First, create a log of how you spend each waking hour for the next two weeks. After the two weeks go by, assess how you’ve been spending your time.
If you’re anything like me then you will be shocked at how much time you spend on your phone, watching TV and the like. Then, commit to allocating 80% of that time towards producing. Again, this can be through making content online, picking up extra hours at work or any other activity where you are providing value to others.
As you probably noticed, I didn’t tell you to cut out all of your consumption and this is for two reasons. First, I don’t want your partner to kick you to the curb when you tell them you can never watch TV with them again. Second, I think that a good life has some amount of balance and you should be using consuming as a treat and not as a day to day routine activity.
Finally, as you start to produce more and ultimately make more money, the final thing I ask is that you avoid falling into the lifestyle inflation trap. Just because you’re making more doesn’t mean you need to spend more and if you’re truly intent on seeing dramatic improvements in your financial life, then do what I did and re-invest what you make. By doing so, you can eventually reduce your active production and maybe, just maybe enjoy a little more consumption over time!