Lesson 002: It's Not What You Make, It's What You Keep That Counts

This is a great reminder that your income level is only one aspect of your personal finance strategy. Granted it is a very powerful part of the strategy and it is the part you can likely drive the greatest change. Improving your skills, education, hours worked, projects completed, etc. can result in significant income gains. The sky's the limit. Lowering your expenses, however, has a minimum threshold you could reach relatively quickly. This anecdote helps us to be mindful that the gap between what we make and what we spend determines what we get to keep (ie. save and/or invest).

Of course, most people aren't anywhere near this lower threshold. Our incomes allow us to live very comfortably by worldly standards. That's not to say the typical American is keeping a significant amount of what is earned. Our culture encourages us to spend everything we make, and then some. We don't think in terms of what we can buy, we think in terms of what we can finance. As long as Joe Consumer can afford the payments, all is good right? Maybe, but because the inflow and outflow are so tight, unexpected expenses or delayed paychecks often create stress and financial crises.

There are many people for which their basic living expenses are barely covered by their income. For these people, a gap between what they make and what they spend doesn't exist. Unexpected expenses or delayed income checks surpass the crisis stage, it could become life threatening.

My goal is to share some of the various strategies for increasing income and decreasing spending in the upcoming series of blog posts. You'll have to determine which applies best for your situation. If you feel you've reached your maximum income potential for the time-being (nothing is permanent), you might focus on the reduced spending tactics. If you have reached that spending threshold, your focus might be on increasing your income. Many, many people have room to move in both directions.

Everyone can benefit from creating an emergency fund in order to protect themselves from financial ruin when unexpected expenses or an income delay occurs. Start small, a couple hundred dollars, and build it up to $1,000-$2,000. If your job is at risk of lay-offs, strikes, or government shut-downs, have enough to cover your expenses weather the storm for a month or two (or six). Don't allow yourself to be a victim. Building an emergency fund provides peace of mind and helps you put distance between yourself and the financial cliff.

YouTube filmmaker Casey Neistat recently posted a video called Being RICH vs Being POOR. I encourage you to watch the first 9 minutes of his video to hear his perspective on how money may, or may not, contribute to your happiness.