How much do you make?

So… how much do you make?

Have you ever been asked this question? I have been asked this by my wife and financial advisors, and that is 100% acceptable.

But 2 weeks ago, I was asked this by the person cutting my hair, and it was terrible.

I was uncomfortable.

After telling the guy who was cutting my hair that I owned my own business, he asked how much people at my company made. I then explained there were a few different roles so it varied, and I thought that was the end of the probing… but I was wrong.

As he washed my hair, he then asked, “so what kind of car do you drive?” And after I told him, he proceeded to make an estimate of what I make based on the car I drive.

The whole experience made my skin crawl.

Lesson #1: Don’t ask someone you don’t know how much they make out of the blue

Lesson #2: Probably don’t go to Sports Clips in Georgetown, Texas

Okay, but really, how much do you make?

I only want you to ask yourself this - not someone else. And don’t reply back in an email to this question.

Got that number in mind? Okay - now let’s look at my balanced personal finance equation. It’s simple:

Income - Giving - Saving - Living = $0

That’s it. That’s the goal. What you earn, minus what you give, minus what you save, minus what you live on equals $0.

We often overcomplicate our finances, but we don’t have to.

Just because something is simple doesn’t mean it’s ineffective.

If the above equation balances to 0 in your life, that means you’re able to give & save what you want to, and still live in a way that doesn’t require you to live with any revolving or increasing credit card debt.

Let’s look at the numbers

Let’s say you want to give 10% of what you make and save 10% of what you make. You certainly don’t have to give, but I will suggest (& talk much more at length later) that the most financial fulfillment you can experience is when giving is a consistent & meaningful part of your financial plan.

Here’s how that equation might look:

• Estimated After-Tax Monthly Income: $4,000 (~$64K / year salary)

• Giving: $400

• Saving: $400

• Living: $3,200

or

• Estimated After-Tax Monthly Income: $2,250 (~$40K / year salary)

• Giving: $225

• Saving: $225

• Living: $1,800

For this scenario, let’s consider your giving and your saving as non-negotiables based on your priorities. If that’s the case, you’re then left with the question of “Can I balance the personal finance equation with my current living expenses?”

If yes, way to go! Keep earning, giving, & saving.

If no, and your equation is unbalanced (meaning it’s negative), then you have two considerations:

1. Do I need to reduce my living expenses? or,

2. Do I need to increase my income?

In my experience we often focus heavily on the expense side of the equation.

• How much am I paying in rent?

• How often can I go out to eat?

• How many subscriptions do I have that I don’t need?

• Can I carpool to save on gas?

And while these are worthwhile questions, I also think that we often spend too little time considering if our income is in line with where we want to go or what we want to do.

5 ways to increase your income

If you’ve come to the conclusion that you’re not where you want to be, or that you can’t live in the way you want to live without significantly changing your expense base (like going from living alone to living at home, or selling your car), then it’s time to consider how to increase your income.

Here are 5 simple ways to increase your income.

1. Ask for a raise with your current employer

2. Get a new job (or a job if you don’t have one)

3. Get a second job to supplement your income

4. Start a side hustle to supplement your income

5. Perform better if you have any type of variable compensation in your role

These likely feel overly simplistic. But that’s also my intention. Increasing your income doesn’t have to feel out of reach. There are likely some opportunities directly in front of you to increase your income and balance your personal finance equation. It might require some hard conversations or short-term instability, but in the long-term, you’ll be glad you took those steps.

Be patient… things are looking up

Lastly, I want to encourage you to be patient with this equation.

Income generally trends up over time. As you progress in your career, you gain more skills & become more valuable to your current or future employer and as a result salaries reflect that.

The chart below shows that the median income increased 50% from age 25 to age 55.

So even if it’s hard to imagine the equation balancing for you right now, it’s not going to be this way forever.

Your turn…

Open up a note in your phone and answer the question:

If it’s not - consider if you have expenses to manage or income to increase.

Next week, we’ll talk about the other side of this equation with budgeting & expense management.

Until next week.