Last week I gave a lecture in a Leadership course at the Strathmore Business School. To understand what wealth is we went through a case study about an individual with a high income, great lifestyle etc. When I asked them to list down the advantages and disadvantages of this individual’s situation, the high income or salary was listed as both a disadvantage and advantage. One of the discussions we then had was about salaries and what they mean to us.
Some people like their salary, others are in a constant state of believing that their salaries are not enough, others don’t have a salary. Ask anyone who does not get a regular salary and they will tell you how fantastic it would be to get that constant income. I have been on both sides of this equation. I have had a salary and I have also had times without a salary. These experiences really changed my perspective on salary and I concluded that it could work for you or against you depending on what you are doing with it. Most people however have found themselves in the trap of decent incomes but doing nothing for them. Here are a few key points to help you understand what you fit into.
Your salary does not work for you:
1. You pay everyone else but yourself. I like putting it this way – you build everyone else’s factory but yours. As you read this you may be thinking you do pay yourself because you make sure you got to nice places, buy yourself something nice every month etc. Just really look at where you spend money and you will understand whose factory you are building.
You salary goes into rent (landlord’s factory) groceries (supermarket owners factory) transport (gas station, oil companies, mechanic’s factory) school fees (school’s factory), entertainment (bar, restaurant owners factory), clothes (shop owner’s factory), repayment of consumer loans (banks factory). Of course you need other peoples factories. You need to eat, children need to go to school, you need a roof over your head, you want to have fun etc. But are you only going to build other peoples factories? I have met people earning seven figure incomes but continue to build other peoples factories but just with bigger contributions. Every increase in salary is used to fund bigger expenses. Your debt is lifestyle debt cars, shopping that continue building other people’s factories.
2. Your single solution to problems is to get a bigger salary. Inflation is up, expenses are up, you’ve enrolled your children in expensive schools and the equation of income minus expenses is negative. A lot of your income is going into debt repayments and you are feeling the strain. In both cases you feel helpless because there is no salary increase forthcoming. You have no solution. Or alternatively investment opportunities come up, you do the calculations and because it cannot be accommodated in your salary, you let it go. You have lost the ability to be resourceful outside the borders of a salary.
You may have time, ideas, knowledge, hobbies you can use to generate income but you just don’t see it. Who has told you your regular salary is the maximum you can earn? You can be more efficient with your expenses and use the money to pay down debt faster. If you do want a bigger salary it will not be because your expenses are up.
Your salary works for you:
1. You use it to build your factory. You use it to plan ahead. It is not used for the hand to mouth living that was discussed above. For example if you know you are receiving Shs 50, 000 every month, then immediately you can plan to invest Shs 15, 000 per month. That is Shs 180, 000 every year. Even from the first month you can start learning about and looking for investment opportunities in the Shs 180, 000 range.
You can even partner with 5 or 6 people who have Shs 180, 000 each and do an investment worth one million shillings. With a plan like this you will save the Shs 15, 000 first before spending. That’s the true meaning of paying yourself first. You will be putting money aside to build your factory not just somebody else’s factory. Your factory consists of investments that will one day be able to fund your lifestyle whether you report to work or not. Because of planning, when you get a salary increase you are more likely to spend it building your factory. When you take debt you are likely to use that debt to accumulate investments not personal belongings.
2. You are in control of your salary; your salary is not in control of you. The current salary you earn does not narrow your line of sight. You know you can be earning Shs 10, 000 but still learn and work towards a one million shilling investment. If you do want an increase in your salary you are every clear what you are actually doing about it. Your plan may dictate you invest more next year so you know what you are doing to justify that increase or bonus.
Things don’t happen to you, you make things happen. You network with people who earn higher than you or are wealthier than you because they have something to teach you. You are not defined by your income. You may earn what is considered little but still work towards and do big things. Spend the time when you are not at your job in a resourceful way. You may earn what is considered to be a lot but not succumb to misinformed social pressure to consume.
What is your salary truly doing for you?