Do you have an income shortage or a spending surplus?

Most will never ask themselves this question. The assumption is that if you have more month left over at the end of your money, then you don’t make enough money. This assumption is not without some merit; neither is it a universal truth. We can no more assume that everyone that lives paycheck-to-paycheck is underpaid than we can assume that everyone who doesn’t eat their daily intake of fruits and vegetables doesn’t know where their produce isle is located.

In reality, the reasons for our money shortages are complicated. However, if you want to tailor a personal finance solution that will actually work, your journey will move faster when you know whether you need to solve for your shortage of income or your surplus in spending. As someone who has struggled with both, here are some lessons learned that guided me to financial nirvana.

Spend Less Than You Earn or Earn More Than You Spend?

People prefer the simplicity of two choices because there is a 50-percent chance that even a random guess is right. I’m a Dallas Cowboys fan. Even in the face of impossible odds, I am no stranger to toxic optimism. This is not a sound strategy for your personal finances (It’s honestly not a good strategy for sports teams either).

Don’t get me wrong, the various solutions I’ll propose today aren’t a panacea. I readily admit that despite my exhaustive search spanning nearly four decades, I still haven’t found any get rich quick schemes; only get rich slowly schemes. I’ve charted many roads to riches but much to my dismay, to date, they all take work. However, how is that any worse than reaching the end of the retirement road only to realize you zigged at age 21 when financially you should have zagged?

People like round numbers. This is why we’re always talking about “six-figure incomes” and “seven-figure retirements,” even though both are pulled from thin air. These ‘one size fits all’ recommendations are notoriously flawed, however, for the ease of writing this post, I too will follow the financial gurus of our time.

With this in mind, I have acknowledged that there are fewer and fewer states where $1-million will sufficiently fund your retirement dreams. Alternatively, you can learn how to live on $1 million or less. These are not mutually exclusive realities. They are just two informed choices you can make, and the earlier you make them the more likely you are to succeed in your quest.

Related: Download our free 15-min Budget Tool. If you prefer automation, we recommend Tiller. If your outcome exceeds your income, continue reading.

A question to reflect on: Do I make too little or spend too much?

Break the Paycheck-to-Paycheck Cycle

You might wonder, “Why should I settle for less?” The more relevant question is, “Am I prepared to do the work required to settle for more?” The first question is asked in greater frequency but it is actually the second question that provides greater clarity.

For instance, I worked three jobs at once back in the day when I was young, bright-eyed and bushy-tailed and thought money was the key to happiness. Turns out working 60-80 hour weeks (for someone else) sucks, even when they’re paying you good money to do it. Worse for me was the fact that even with three jobs, I still managed to live paycheck-to-paycheck. Why?

At the time, all I knew how to do was trade time for money. Tragically, I chose to trade my excess time for finite money. Whenever I had any discretionary income, I willfully parted ways with the “extra” income precisely because I viewed it as extra income.

“All the bills are paid. I deserve to have fun!” – younger Marcus, lying to himself while spending lavishly on material pursuits and a life of grandeur. 

Just so we’re clear. I’m Young Marcus in this hypothetical true story. Don’t be like Marcus. Marcus was an idiot. In other words, my spending habits meant I was always indebted to someone: the clock, the bank, the bills, or the creditors.

1 in 3 Americans is so far behind in saving for retirement that they will have to work until they’re eighty. Average life expectancy is seventy-eight.” – Dollars and Sense

If you have discovered that you make enough, but spend too much, then you’re in luck. In your case, you can start to build a buffer between your income and your expenses almost immediately. All you need is a change in mindset. No one is going to do this for you, but just a Google click away, the internet is filled with suggestions. For what it’s worth, some of my simplest budget-cutting suggestions are here and here.

On the other hand, if you already spend very little, budget responsibly all the way down to the dollar, and save diligently, yet you still don’t have enough money to do anything else? Well, I admit your problem–which I can relate to–is a bit more difficult to solve.

Related: Paychecks and Balances Personal Finance Spotlights

When it comes to personal finances, we must frequently remind ourselves that improbable is not the same as impossible. The most common solution to making more money, albeit the most exhausting, is to get another job or side-hustle. The less taxing approach is to find a way to generate residual- or passive-income from something you already do (or could start doing). More on this below, but before we move forward, another question to ask yourself.

A question to reflect on: What job(s) do I have time to do today that could help me grow my income tomorrow?

You Can Make A Lot Of Money Doing Traditional Work, But…

There is nothing wrong with working a 9 to 5 if that is your choice. In fact, if you are strategic, you can make a lot of money working for someone else. You can even get rich. However, for many Millennials, a lifetime of working for an employer isn’t their first choice. Work is a means to an end right up until they see the quickest exit ramp to financial independence.

Employees of the past (our parents?) have shown us that even if we follow the traditional career pathway, about 90-percent of individuals’ will see their salary stagnate before age 48. The oldest Millennials are staring down 40 this year. Is it any wonder that they might take a keen interest in career and wage stagnation as they slowly began to overtake and become the largest generation represented in the workforce? Only the media would be shocked by something so glaringly obvious.

No one tells you what to do when you’re an employee that has reached, or is near reaching, a multitude of stagnating career intersections just when your financial obligations are multiplying to their greatest gross. Add to this Venn Diagram about 20 more years of work ambiguity, and is it any surprise Millennials are burning out like California wildfires?

Regardless of how much money you make during your career, funding your life, let alone investing for retirement, grows in difficulty when the numerator in our life-ratio remains unchanged while the expenses of our denominator is increasing to encompass family, housing, debt, and more each year.

This isn’t some kind of Millennial voodoo. It is how basic math has worked for generations.

A question to reflect on: Given that both scenarios offer their own set of potential long-term financial risk–with both pros and cons for each–do I prefer the safety of a consistent 9-to-5 check or is it time I began exploring additional income streams, even if that means I may have to risk or lose the day job over time?

Financial Independence Exist in “The Gap”

Additional income, whether through residual, passive, alternative or other means, can be found when you work on a product or service and continue to generate revenue thereafter. Traditionally, your work hours are defined (or limited) and your salaried wages end at whatever an employer deems you worthy of for a 12-month period. On the other hand, once you hit ‘publish’ on a product or service you own, it will pay you regardless of how much or little work you put into it going forward. That sounds a lot more like independence than the former.

For instance, this website and very sentence you are reading is one form of residual income (Thank you for the click!). While this post itself may have taken me a few hours to write, it will now exist on the internet forever, or for as long as we pay this domain fee anyway.

These various residual income streams might have taken anywhere from a few months to a few years to develop, however, upon completion, they have the potential to generate income forevermore. Despite the fact that we are Senior Millennials ourselves, every click is registered towards an aggregate counter that we can show how popular and cool we are to sponsors, affiliates, and business partners of the future.

Ok, I know this is the internet. On the internet, you are only interested in exact, specific, examples that apply to your life and your life alone. The above examples (writing books, podcasting, speaking, etc.) might not apply. I get it. If that is your only takeaway, then you are probably the type that can’t see forests because of all the trees.

Your key to success is to find whatever equivalent activity you can do that might take a little upfront work, yet upon completion, the potential for income exist every day thereafter. To be fair, if you cannot think of anything, there is nothing wrong with trading time for money. That is, after all, what most people will do. It is the most predictable means of making money, and the ends justify the means.

The bigger point is that regardless of how and where the money comes from in your life, you’ll always be chasing after more of it until you create a (growing) buffer between the money you make (income) and the money you spend (outcome). This isn’t rocket science. It is just basic math.

You must solve this problem, or no matter how much time passes or how much your income grows, your expenses will continue to eat while you stay hungry. Grow the gap between your income and your outcome! In the gap is where financial independence exists.

A question to reflect on: what goods, services, or skill are you sitting on today that could be paying you tomorrow/next month/next year?

Someone Is Hiding All the Best Get Rich Quick Schemes

In the past, if I wanted more money, which I pretty much always do, I would sign-up for the latest get rich scheme. Over time, I realized most get rich quick schemes simply transferred my money from my bank account to the sellers’ bank account. I never got rich (though I still try from time to time). I will trust by the law of averages alone that someone somewhere got richer from one of these many get rich quick schemes. I can only attest that someone was never this one.

If you want to be different, think and act differently. Most people, if they solve for it all, try to solve for their income shortage (or spending surplus) by working one traditional job in the workforce. While trading your life in for more work hours is mathematically sound, it is not the solution proven to have the highest probability of success.

While wealthy individuals are represented in all areas of work, “most of the affluent in America are business owners, including self-employed professionals.” Only 20-percent of affluent households were headed by retirees. – The Millionaire Next Door 

In the present, I focus on streams of income I control or generate myself. Ideally, in time, the increase in funding from these various pursuits will force my financial cup to runneth over; whereas, before my cup was barely half full on my best days (or had a hole of debt draining it). Better yet, after hitting ‘publish,’ most of these outlets work themselves. I do not work for them.

Wealth Only Comes Before Work in the Dictionary

Some things suck because they suck

There are times when people ask for personal finance or debt management advice. Before they’re done with their question, I’ve already realized they don’t want the truth. They just want to hear their preconceived conclusions repeated back to them in a dulcet tone.

They’re asking for ‘advice,’ but in reality, they want to hear me say “here’s an easy way to do what you want to do with…[insert easy-to-follow advice anyone can do without making any significant changes to their budget or lifestyle here].” I could say these things, but I’m not a salesman. If I wanted to tell jokes, I would have become a clown.

Not everything in life sucks, but temporarily restricting your lifestyle for long term gain is one of those things that does. In almost every case, self-imposed restrictions always suck. Even the ones that are good for you. The only thing I hate more than thinking something won’t suck in the beginning is finding out it sucks to high hell halfway through.

I haven’t found a way to not make budget restrictions suck. I just accept they suck and keep it moving. No pain, no gain, AMIRITE? For those of you who somehow made it this far, today I have covered no guaranteed roads to riches, only alternative routes.

On this journey, I guarantee you there will be days that suck more than others. You can choose to meander about in confusion allowing those days, months, and years to pass by arbitrarily. Or you can use your responses to the questions above like financial signposts along your money map. We know how the former path ends: disappointingly and likely broke.

On the other path, you are rewarded financially at the end of your journey. It is the smarter choices made over the days that lead to the better accruals over the years. The choice between the two seems clear unless you subscribe to the idea of, “more money, more problems.”

I guess you can always invest in more get rich quick schemes. Please let me know when you’ve found one that works. I will be eagerly waiting.

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