I don’t care what anyone says, money is important and it’s for this reason that just about every person on Earth has financial goals. Some people want to become insanely rich while others simply want to have enough money to not worry about their bills. Unfortunately, no matter what your financial aspirations are, there is a high probability you will never meet up with these goals if you act as your own financial obstacle and as such let me explain the reason you may not end up becoming financially successful!
As I just mentioned, many people want to become wealthy or at least improve their financial positions yet they continue to act as the barrier in reaching their financial goals. One obvious way they do this is through overspending. I know it sounds remedial to some but the concept of spending less than you earn is incredibly hard for many people and as such can lead to a lifetime of consumer debt struggles and late nights staying up worrying about bills. Now, whether you are overspending because you didn’t grow up with a proper financial education or you overspend because your boss has you working on a demanding project and you need some retail therapy, fortunately this particular issue can be easily remedied with a bit of budgeting and self-control.
Another way that we hold ourselves back financially comes down to self-improvement. Let me ask you this, when was the last time you read a book, took a course or actively sought out financial advice from a mentor? I hate to say it but most people these days are so focused on staying up to date with their current roster of Netflix shows that they wipe out any chances they will ever have of succeeding financially. Now, sure you can watch TV from time to time but if you aren’t upgrading your skills that will make you inherently more valuable on the open market then how do you ever expect your boss or businesses in general to pay you more money?
Finally, perhaps you’re one of those people who holds onto their money tighter than my girlfriend holds my hand at a haunted house and saves every penny you make. Sure, saving your money is better than blowing it all and if you’re saving then I commend your efforts however saving is only half the battle if you are seeking to grow your wealth over time. What most people fail to realize is that saving will allow you to see your bank balance grow but unfortunately, the price of that carton of eggs or container of milk is rising faster which means that saving isn’t enough; you must invest instead.
Now, for your sake and my sanity, I hope that you’re not falling victim to any of these things. However, there is one more pitfall that so many people are falling into these days that is certainly going to guarantee they never become financially successful. What is that pitfall you may be asking? Succumbing to Parkinson’s law. If you’re unfamiliar, Parkinson’s Law states that “work expands so as to fill the time available for its completion” and in a financial context we often see that spending expands as income rises which is commonly referred to as lifestyle creep or lifestyle inflation.
While the latter definition of Parkinson’s Law probably seems more relevant to today’s discussion, I want to dive into why both are holding you back financially. By doing so, you can avoid one of the biggest mistakes people are making with their finances today and unlock the potential to make all of your wildest financial aspirations become a reality.
To reiterate the first definition of Parkinson’s Law, it states that “work expands as to fill the time available for its completion”. Chances are, whether you realize it or not, you’ve succumbed to this phenomenon before. For example, do you remember when you were assigned a project in school and while you knew it would only take you 3 hours to finish the whole project you let it drag on and only handed it in 20 minutes before it was due? Or perhaps at work you are assigned a task due next week and you find yourself scrambling to get it in right under the wire. This is Parkinson’s Law in effect.
Now, don’t get me wrong, succumbing to Parkinson’s Law doesn’t mean that you aren’t getting things done. All’s well that ends okay, right? The issue is that when Parkinson’s Law rears its ugly head, we often start to accept certain timelines in our life that end up holding ourselves back and this right here is the major mistake we absolutely must avoid. Let me share with you three examples to illustrate what I mean.
The first instance where Parkinson’s Law comes into play pertains to retirement. If I were to ask you how you were raised to view retirement, you would probably say something like you’re supposed to work for 40 years, save and invest regularly and then live off your nest egg in your old age. Now, is this the path to retirement most people are going to take? Yes. Is it the only path you can take? Absolutely not. More and more we are seeing people retiring in their 50s, 40s and even 30s because they are winning the game of money earlier in life by shifting their mindset around what it means to retire. How does this relate to Parkinson’s Law you may be wondering? Well, if you think you’ll only retire at 65 then you’re going to allow your retirement savings period match that expectation. However, if you modify your goal to retire at 40 then all of a sudden your plan and work ethic will be dramatically different and this leads us into my next example.
Another financial marker that is often tied to our age is our income potential. So many people think that you need to wait until you’re in your 40s or 50s to start making big money, which is ironic given that many of the most well-known billionaires in society today hit billionaire status in their late 20s or early 30s. However, this again is Parkinson’s Law in effect. We set this expectation in our minds that as a young adult, we can’t or shouldn’t be making big money but this isn’t the case. The only reason we allow the timeline to be so long is because we’ve imposed this forced timeline on ourselves — a timeline that doesn’t have to exist. For instance, when I was in college, I thought that I’d have to wait well into my 30s to start making six-figures and for many years it was looking that I was going to be right. Then, fortunately I realized that I could manipulate this timeline by building up online businesses and my YouTube channel and these tools allowed me to break into the six-figure club well before I had initially anticipated. What changed? I removed the limitations that Parkinson’s Law imposed on me.
Speaking of businesses, who says that you can’t build a successful business in a short period of time? I think most people believe that in order to build a profitable company, it takes decades upon decades because we often hear about the startup journeys of companies like Amazon or Apple. However, chances are you aren’t about to go on a journey to create a billion dollar company and that’s okay! There are numerous small businesses or companies of one that can offer you an amazing lifestyle and financial position without spending years to get things going.
For instance, in the digital world we live in today, people are starting online stores, YouTube channels, blogs and the like and are making big bucks in just a few years time. Unfortunately, beyond skills and work ethic, to make any of these endeavors a success, you also need to ditch the notion that it’s going to take a ridiculous amount of time to be successful. Sure, you likely won’t be an overnight success but at the same time you shouldn’t be placing limiting time constraints on your ability to succeed because those results may happen sooner than you think!
Now, let’s say that you ditch the slow lane timelines that you or someone else has probably imposed on you and you start making significantly more income. All is good right? Not quite. Remember the definition I gave for Parkinson’s Law as it pertains to your money. I said that as your income rises, your spending rises too and this phenomenon that we call lifestyle inflation is seen all around us. In fact, one of my first interactions with lifestyle inflation came a few years ago when me and my cohort of fellow colleagues got our first promotion. At the time, we all received a $10,000 raise and the ways that money was used varied greatly among us. While I stashed my cash in the bank, I was seeing new suits, new cars and new phones all over the place. Now, I am not against treating yourself but in many cases, that $10,000 was gone before it ever hit their bank accounts.
At this point, you may be wondering how you can avoid lifestyle inflation’s sinister ways but not live life as a miser either and don’t worry, I’ve got you covered. I recommend you use the 15% rule. The 15% rule recommends that you spend 15% of any after-tax raise or bonus and save and invest the rest. For instance, if you were in my position and got a $10,000 raise which is likely $7,500 after tax, you could spend up to $1,125. This way, you can have your cake and eat it too and to me that sounds like a yummy proposition.
Now, if you’ve been paying attention then the grander lesson that you should be taking away here is the fact that just because most people are doing something doesn’t mean you have to be doing it too. It’s like when your Mom used to say, “If Billy jumped off a bridge, would you jump off too?”. Well, whether you want to admit it or not, your Mom was right. Doing what other people do, whether that’s retiring at 65, waiting until 40 to make bank or thinking that it takes decades to build a business is not the optimal path to achieving financial success.
But what if you’re already set up on this trajectory, what do you do? Good question. Well, first let’s tackle retirement. Right now you may be depending on your work’s pension program to retire but what if you sped up that timeline by contributing more of your disposable income towards this end goal? Doing so could easily allow you to hand in your two weeks notice years sooner than initially planned. However, to contribute more, you need to earn more and how do you do that? You improve your current skill set, gain new skills or set up a system that adds more value to others.
Remember, you don’t get paid based on how long you work, you get paid based on how much value you provide. Finally, remember that patience is a key ingredient to success but that doesn’t mean that you should expect slow results. Working smart while working hard can exponentially speed up your path to wealth so don’t set timelines that can be sped up if you have the right strategy in place.
Therefore, given that you are now well-versed in Parkinson’s Law and its impacts on your financial success, you have two choices. Choice one is to allow it to continue to slow you down or choice two is to acknowledge its presence and maneuver around it to achieve quicker financial success. I’d choose path number two but hey this is your story to write, not mine!