Throwing away an old rule
Fellow peasants, unite! The time has come to overthrow the old order! GRS rule #3 says, “Spend less than you earn.” But why should we continue to do that always? Because of tradition? Because of authority? Because that's what everyone else claims they are doing? To the guillotine with the old rules, I say. It's time for revolution!
It's time to turn the old laws upside down. It's time to say something better. It's time to declare a new rule #3:
“Earn more than you spend!”
Was that a huge letdown? Did you expect me to tell you to spend wantonly? Or am I just repeating the same old thing?
Mathematically, I agree it all boils down to creating a surplus. But psychologically, the new syntax makes all the difference. The emphasis is elsewhere. And this change expresses a value statement, a core belief, a declaration of intent.
Different emphasis = different results
What's the first thing that comes to your mind when you think of personal finance? Spending? Or earning? (Or maybe investing?)
Language has a way of framing the issues, and I think that when we say, “Spend less than you earn,” we think of cost control. Spending is the foremost concept in that sentence, and it frames the issue from that perspective. Consequently, we focus our mind on spending less. And less… and less…
I had this minor epiphany about rule #3 when GRS made a challenge for people to save $250 this month. Many said they would do it, but plenty readers also said, “Too much!” and “I'm already at rock bottom!” Several readers wondered if they couldn't try to make $250 extra instead of cutting any further. I said, YES!
So I started drafting this article while sitting on a table on a weekend morning, selling DVDs my wife and I made, waiting for customers. It's not something that we usually do (other people do this for us and we sell wholesale), but here was an opportunity, and we took it. We still have to make an extra $65 to meet the challenge for the month, but we're well on our way and confident we can make the quota.
Why change things around?
Times change, contexts change, rules need to change as well.
When we come from a place of overindulgence, and wanton waste, and shopping out of boredom, it makes sense to consider spending less. When our attics and garages are brimming with unused possessions, it makes sense to think of spending less. When we take a second mortgage to go shopping for new furniture, it makes sense to say, “Whoa there, that's a huge waste of money, you're mortgaging your future, and you gotta spend less.”
However, when we're dealing with stagnant or shrinking incomes, when we can't find a decent job after graduation, when we have already cut expenses to the bone, when we are stretched so thin we're ready to break apart at the seams, when we're using debt to pay for groceries and utilities and school supplies for our kids, maybe it's time to consider that “spending less” just isn't cutting it anymore. And it's time to change the rules.
There is a lot of poverty, even in rich countries
Yes, most of the readers of this blog live in rich, developed countries. And we often ridicule “first world problems” here. But even in the United States, in 2011, we had more than 46 million people in poverty. Children under 18 were more likely to be in poverty (21.9 percent) than people of ages 18 to 64 (13.7 percent). Median household income declined between 2010 and 2011, and the real income of full-time workers declined 2.5 percent. In spite of some small improvements in health coverage (due mostly to an increase of government plans), 15.7 percent of the population remained without any kind of health insurance.
Other developed countries may have more social protections, but they aren't without problems: Spain and Greece have 26 percent unemployment, Portugal and Ireland hover around 15 percent, France is almost at 11 percent. Other countries in our current barely-below-8-percent neighborhood are the UK, Belgium and Canada.
If these statistics don't strike a chord, let me just say that at the DC General Shelter in Washington, D.C., there are 600 homeless children today.
So, even in rich countries, with all our highways and airports and traffic lights and escalators, with underground mass transit and high-speed trains, with all our power lines and seaports and computers, with widespread Internet, with an overabundance of energy, with medical advances and technology, with air-conditioned supermarkets and shopping malls, and a thousand channels of TV, there's still a lot of room for improvement. Now think about the rest of the world! That's a lot of work that needs doing.
Putting earnings first
“Earn more than you spend” places the emphasis on the earning end of the formula. We want to get rich slowly, not live poor comfortably. And for this we need to make enough money so that our surpluses can actually get us rich.
PF articles of recent years have tended to treat income as a fixed quantity, touting savings as the great challenge ahead. I'd like to make a different call to arms.
When we put earnings first, we task our intelligence and imagination with finding ways to make more money, instead of asking them to figure out 101 ways to squeeze blood from a stone.
Please understand that I don't equate “making more money” with “spending 14 hours at the cubicle every day of the week and never seeing the kids.” Money is an expression of economic value. If we can manage to increase the value of what we give to the world (products, services, labor), then we can increase our income without excessive toil, and we can find time for family, and friends, and vacation, and all the good things in life. As just one example of this, Jason Fried from 37signals runs his company by emphasizing quality over quantity.
Even with the high level of unemployment that we have today, there are millions of positions vacant in industries that cannot find qualified employees! (The Jason Fried article mentions that too.) There are needs that aren't being serviced by the market. There are products that have yet to be invented. The world is hungry for good and honest and smart work.
We can all grow rich together
Sometimes we are sabotaged by the illusion that if we seek greater earnings we are taking those earnings away from someone else. This illusion comes from a narrow view of economic activity: there is a limited budget; if we take more from the budget then someone else gets less. If you get a promotion, somebody gets left behind. You dominate your market, another business loses.
But things don't work that way in the larger picture. The economy is not a zero-sum game. When we work less, and make less, and give less, there is less to go around for everybody else. The more we produce, the better we serve, the more and better there is to go around for everyone as well. Just think about how good roads, street lights and mass transit benefit everyone in a city, not just the people who made money building and installing those things.
People like Bill Gates, Steve Jobs, Larry Page and Sergey Brin beat their business competition in their day, but they didn't get rich by making humanity poor. They made fortunes, but they also made everyone else richer in the process. Remember the time when you had to travel to special places to find information? Remember digging into libraries and archives in search of basic facts? Remember how people had to buy encyclopedias in monthly installments, which only few could afford? Remember when there was no VoIP and long-distance phone calls cost a fortune?
Nowadays, the collective knowledge of humanity and the ability to reach everyone in seconds are accessible from a little rectangle in your pocket (and as the joke goes, we use that awesome power to look at pictures of cats and argue with strangers). And even if smartphones aren't universal (yet), people in less developed countries can still read Wikipedia (which I used for unemployment stats in this article) or take free online courses from Stanford.
How can you earn more and make everyone else richer in the process?
In a follow-up to this article I'd like to discuss going from mere “earning” (money) to “creating” (great things?); and switching the view from “spending” (money) to “consuming” (resources). But for now I've run out of space, so I'd like to ask…
How does your work add to the world? How can you do better? How could you earn more and help others earn more? (And do you want to? Why, or why not?)