Ivy | Work harder = Living paycheck to paycheck
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Work harder = Living paycheck to paycheck

Work harder = Living paycheck to paycheck

Working hard feels good. It’s a necessary ingredient to reaching financial bliss. However,

working harder, will not make you richer. It will make you trapped, defeated, and, ultimately, make you give up your financial dreams because they will seem unattainable.

Bold statement? Perhaps. But this “working harder solution”  is such an epidemic that I could give you endless examples of how it destroys freedom. Here’s one. I intentionally chose a client that earned a lot. It’s easier to see the truth when it looks exaggerated.

I have a client named Walker. He has two special needs children and a lovely wife. He earns $255,000 a year. Sometime more! Yet, he is living paycheck to paycheck. No, they aren’t taking fancy trips, and they don’t live in the Plaza hotel, but they are one one paycheck away from “ close to broke.” What gives?

Well, for starters, Walker intellectually knows he makes a lot of loot, but he feels that doesn’t make enough to get ahead. Walker’s definition of getting ahead is to easily pay bills, take family vacations, and, in a nutshell, not worry about money.

He feels that they are just scrimping by. So, he decides to  “work a little harder” to make his financial wish list come true. (How seductively trapping this thought can be. Do not bend to this siren call!  She is singing lies.) So, he works harder. Translation: he is working overtime!  He is dog tired at day’s end, and he doesn’t have time to do much else. If you felt like this what would you do: cook dinner or order take-out?

Walker orders take-out. On the surface this doesn’t seem like a big deal, but because he feels this way all the time, he does it all the time.  The take-out and other things he buys out of convenience simply fill the call of “I don’t have the energy or  time to do xyz.”  But they don’t make him feel like he is enjoying the fruits of his labor.  So, by the time the weekend rolls around he feels he deserves a treat for working so hard. So, he spends more. But the fun of spending isn’t even that fun because it comes with a cherry of guilt. Then the stress of having to pay the bills. This is the cycle that is caused by working too hard.

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Just take a look at the numbers.

Walker is spending $3,530 on food. That includes groceries, eating out, work lunches. The whole kit and caboodle. He only needs to spend $800. The rest is for convenience, and a dollop of pleasure.

He spends $1,392 on transportation.  He lives in NYC. He only needs to spend $234. The rest is for convenience.

He spends $2,255 on bounty. Bounty is fun money. It can include eating out, drinks with friends, going to the movies, and other like activities. Everyone needs a bounty, but Walker’s bounty is producing a low rate of return. I know this because I meet with him every month, he is spending $26,000 a year on “fun,” and he is not having the time of his life. He’s stressed about money. That means the bounty is not being spent on things that make him feel rich and abundant. It’s being spent on convenience.

These three categories add up to 70% of his take-home pay. 70%! This doesn’t even include the mortgage, child care expenses, or a vacation, for goodness sake. 70% of their income is being spent on convenience. How can a person get ahead like this? If Mr. Walker chooses to work harder, do you see that “convenience” spending and “I deserve a treat” spending will only increase?”

 

Food and Dining $3,530.00
Auto and transport $1,392.00
Bounty $2,255.00
$7,177.00

So, what’s the way out of this rat race? Work smarter, not harder. Using Walker as an example, he could hire someone to stock his fridge with the most delicious treats every Sunday. Pay them $150 for the effort.  And be $2K richer by month’s end. ($3,530 –  $800 groceries – $600 chief = $2,130 monthly savings.)

If he took the subway he could easily pocket another $1,000.

Using his original bounty and his newfound savings, he could go on a $5,500 vacation in one month!

(If that example didn’t resonate with you because Walker seems like a foolish, “rich” gent that lets his fortune fly away, let me know and I will showcase one on a client that earns $50K. The pattern is still the same. The take-away: The savings, on any scale, is all you need to capture your freedom.)

However, Walker will not do this because he feels like he doesn’t make enough money! Let alone enough money to hire a private chef. So, how can Walker get out of this situation? Well, this is the tough part because smart people have a hard time understanding that they do not have the financial education needed to solve the problem.

To solve the problem it is imperative to understand that Walker’s financial education is what put this vicious cycle into motion. Let me show you how.  When Walker  started to feel that he “didn’t make enough,” he devised a strategy based on what he has been taught.  His entire financial education was pick up by osmosis from his family and friends. It can be summed up as follows: get a good education, work hard, and save.**  (Now, please don’t get me wrong, this is a great base! It’s just limited. As the story goes “to a person with a hammer every problem looks like a nail.”

To create his strategy, Walker simply reviewed what he had been taught. He was taught that working hard would bring him success, so working a little harder sounds like a strong solution. I agree, it sounds good, but, as we have seen above, it produces inferior results.

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So what’s the solution? It’s a two-part answer. First, the entire situation started with one thought: “I don’t make enough to get ahead.” That thought was taken at face value, but the million-dollar question is:  It that thought true?

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You want to turn that thought into a question: Do I make enough money to get ahead? This can be answered by a mathematical formula. All you have to do is run the numbers and you will have your answer. (Do it here.)  However, I’m going to sound like a broken record here, but because of past programming it’s not easy to believe the information. So, you need one more piece of the puzzle to get a foothold on belief.

Walker’s current financial education is telling him that making more money will solve his financial problems. He thinks his earning power will create the freedom he desires. However, it’s not the earning power that creates the freedom, it’s the investments.  Do you see what I’m saying, that almost everyone is focused on making more money, but to get financial freedom the focus must be on investing. Contrary to popular belief, you don’t need a lot of money to start investing. If you make enough to get ahead, as calculated above, all you have to do is to start thinking differently about investments. (To be continued … July 12, 2016.)

How can you know if you’re working too hard?

If you make enough to get ahead, and if you find yourself saying, “I don’t have any time!” then you are working too hard. To be successful beyond your wildest imagination you need white space. Time to think, and plan.  It’s the thinking that creates the fortune, not the labor.

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