Take a moment to consider the following questions:
- Is personal finance about the money or the person that money is supposed to serve?
- How much can one save by carving money out of a fixed budget and marginal pay increases over time?
- Is it possible to grow the potential of a PERSON faster than their money?
- Is a person’s ability to earn limited by the finite number of hours one person can work or the price clients are willing to pay them?
Much of Personal Finance is based in principles of Scarcity. Economics is a social science built heavily on the challenge of managing or allocating scarce resources. Finance as a subject grew out of economics with a focus on money as a specific resource and how it can be put to work over time. Though money may seem like a scarce resource at the moment, it is measured.
Take another moment to consider that money is a tool created for the purpose of facilitating – simplifying – transactions.
What is money?
Money is a representation of value tied to physical resources or performance of a service. The quantity of physical resources available at any given moment may be finite, however, the potential to increase the value of these resources through refinement, repurposing, recycling, milling and manufacturing is significantly greater.
Furthermore, the potential value that can be produced via delivery of services, entertainment, education or enlightenment at any given moment is only limited by any (and all) individual’s willingness to Pay or Perform. This means that money in one way or another is only limited to the value perceived by one’s willingness to offer and another’s willingness to pay for what is offered.
Considering the potential for any of the 7+ Billion people on Earth to serve one another in any number of ways, money starts to look like a fairly abundant and renewable resource based heavily on the confidence of people in each other to create value, produce goods and follow through on promises.
This TIP was introduced in a Socratic form via questions. Any answer to these questions may never be complete, but these points are offered as a starting point.
What is personal finance about?
There is potential for money to cause people to work 24 hours a day, 7 days a week, 365 days a year, without complaint. This is why Personal Finance can and should be about empowering people to get their money working for them rather than feeling or becoming like a slave to it.
Ultimately, my goal is to get away from any need to trade time for dollars by figuring out how to put systems and dollars to work on your behalf instead!
This is really a consideration between two competing mindsets, scarcity vs. abundance.
- Scarcity – a budget is employed and sound financial principles are applied to “pay yourself first” by diverting 15% of total income to savings and investments for the future. I call this scarcity because most wage earners are limited to small marginal wage increases of 1-5% per year, and because the average American household pays roughly 1/3 of their income in taxes and another 1/3 in financing to pay for their Home, Car and Credit Cards. This leaves roughly 33% to live on AND save FROM, so saving 15% would feel like carving their current lifestyle almost in HALF, in hopes of not outliving their savings in retirement!
- By comparison, if we focus on Abundance … on the PERSON that earns this income and work on developing their skills – their awareness of highest value potential and AND their ability to focus more of their time and attention on the tasks that produce the highest value to clients for the business. The individual’s earning potential can be multiplied far beyond the 1-5% raises many fight to win in the scarcity example above. Such a shift in focus has the very real potential to raise an individual’s income by 4-10 TIMES. Saving 15% of 400-1000% more income, even if they’re still only living on 1/3 of the income, would result in 4-10x more savings and a current lifestyle increase of 3-9x!
Robert Kiyosaki’s “Cash Flow Quadrant” describes four different ways to generate income:
E (Employment) B (Business)
S (Specialist/Sole Proprietor/Solopreneur) I (Investment)
The E and S quadrants on the left represent a trade of time for dollars as wage income. Though the S quadrant generally involves a significantly higher number of dollars per hour such as might be earned by a Doctor or Lawyer, it also represents income from sales commissions and small business operations. The limiting factor presents itself any time the individual doesn’t show up to trade their time for dollars and doesn’t get paid for that time.
The B and I quadrants on the right allow for multiplication of income through use of systems. Business Systems provide a repeatable process within which Employees and Specialists can earn an income, but the system also provides profit to the business which can be scaled up as cash flow allows.
Business Systems can also involve intellectual property and electronic learning or entertainment products that provide a potential for income that is only limited by the presence of a market that is willing to pay for them. Price may be set, changed or even varied to reflect value, quality or simply to cover costs for producing or streaming their product or idea.
Once a digital product is produced and available to share, there is little if any ongoing cost to deliver 1 or 1 Billion copies. Investment is a skill that can and should be developed – judiciously - over time. Both the B & I quadrants have the power to create income for people while they sleep or are on vacation.
Ideally, one can identify ways to generate income in all four quadrants simultaneously or from the B & I quadrants exclusively. However one chooses to devote their efforts or resources, their time need not be monopolized producing the income required to fund their lifestyle.
There is much that could be added to each of these questions and answers. I hope they spark some thoughts or further questions and that you’ll consider sharing with me as I’ve shared these with you.