Are You Brittney Spears or Minimum Wage?

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Over the past week I’ve written a series of articles about the most important personal finance habit to develop, spending less than you make. To recap, here are the articles:

• How to Develop the Habit of Spending Less Than You Make
• 51 Painless Money-Saving Tips
• A Simple Approach to Budgeting
• 10 Online Budgeting Tools

The reader response to these articles was terrific. In comments and e-mail, many readers noted that it’s not about how much you make, but how much you spend. And that reminds me of Britney Spears and a reader who goes by the name Minimum Wage. Please allow me to explain.

As detailed in court papers released last week, Ms. Spears earns approximately $737,000 a month (yes, a month) and spends it all (yes, spends it all). Entertainment alone costs her $100,000 a month. She really, really needs to read The Dough Roller. Imagine Britney sitting down to use a retirement calculator. “$737,000 times 12 months times .8 means my savings will need to cover just over $7 million a year. Assuming a 4% withdrawal rate I will need 25 times that amount in savings, or $175,000,000. Hmm, I think I’ll party instead.”

But let’s come back down to earth. Clocking in at just under what Spears earns, one reader who goes by the name Minimum Wage had a different perspective:

My monthly (net) income is a little less than $900, I have student loan debt plus debt resulting from an extended uninsured illness and hospitalization, and I’m paying (below market) more than half my income on rent, plus I have an aggressive creditor who wants $250 a month. I’ve been selling off a small coin collection to keep the creditor happy but now I’m out of coins.

Dunno how to spend less than I earn given the above constraints.

And this brings me to the point of this post and the second habit of personal finance: Making more than you spend. If you’ve cut your spending to the bone, the only thing left is to make more money. But how? I’m going to be writing several articles on this subject over the next few weeks. Some of the articles will be very specific, some more general. To start, here are some very high level observations about how to make more money:

• There is no one right way to increase your income: I took the traditional approach of going to college and graduate school and then landing a good job. My father took the approach of failing the ninth grade three times (yes, three times), getting Cs and Ds in college, and then starting what turned out to be a very successful wholesale business. My father-in-law joined the Navy, learned the electrical trade, and then later started a successful electrical contracting business.
• Technology has opened up new and innovative ways to make money: This blog is a perfect example. Am I anywhere near quitting may day job? Nope. But I do earn a few bucks from The Dough Roller, which obviously would have been impossible before the advent of computers and the Internet. Technology has created many opportunities to earn money, including earning a nice income from home.
• Increasing your income is hard work: I’ve never fully understood the phrase, “Work smart, not hard.” What about working smart AND hard. Improving your lot in life takes effort. Sure, there are some who have fallen into easy money, but they are the rare exception, not the rule. To put that into some perspective, when I started The Dough Roller, I was up every day at 5 to work for two hours before going to work. I worked every day at lunch, and two or three hours at night after the family went to bed. Be ready, willing and able to work hard.
• Don’t forget about your responsibilities: If you have a family to care for, you should consider them in all your money-making decisions. As with everything in life, there is balance between work and family. Making some more money can be important, but so is spending time with your family.
• You are NEVER too old: My mom went back to college after her three children were grown, got a degree in education, and now teaches ESL at the high school level. If you’re breathing, you can do it.
• Be prepared to fail: Anytime you try to improve your lot in life, you should recognize that failure is part of the process. I’ve failed many times as an investor. My first mutual funds were horrible investments because I didn’t know what I was doing. They had front-end loads with high expenses. I’ve been turned down for jobs. Some years I haven’t gotten a raise. I don’t mean to suggest that these setbacks were the end of the world, but recognizing that failure is part of the process will help take the sting out of the occasional setback.
• Learning is a life-long process: There is always more to learn and new and fresh ways to look at your life. As soon as I think I’ve got it all figured out, something comes along to remind me of just how fragile my understanding of life can be. Never stop learning.

I’ll conclude this post with a book recommendation. What Color Is Your Parachute? 2008: A Practical Manual for Job-hunters and Career-Changers and What Color Is Your Parachute Workbook: How to Create a Picture of Your Ideal Job or Next Career are great books if you are (like me) still trying to figure out what you want to do when you grow up.

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