NEW SOURCE OF INCOME OR MANAGING WHAT ONE CURRENTLY EARNS, WHICH IS MORE IMPORTANT?

This is a synthesis of the different perspectives received from my participants on: creating new source of income or managing what one currently earns, which is more important?

The discussion question was opened up on Facebook on November 15, 2016 through @drcharityblog, and received several comments. These comments represented different perspectives from which individuals view the idea of financial success.

As you read through this summary, reflect on how the different perspectives align with your own thoughts, and also see how these suggestions can be beneficial to your journal to financial success.

NEW INCOME OR MANAGING WHAT ONE CURRENTLY EARNS – THE DIFFERENT PERSPECTIVES

Rising Expenses

I think we need to create new avenues because expenses is increasing and for how long can you manage your current earning?

The above perspective reveals a problem of increasing expenses. Most individuals and families see their expenses rising even higher than their current earnings. Based on this premise, one will be inclined to prefer having new sources of income in order to meet up with the rising expenses. But what if creating new income is not feasible in the short run and we decided to work with what we currently earn? Let’s take a look at another perspective.

The Nigerian Economy in Perspective

In Nigeria now, there is recession. The price of goods and services is skyrocketing. If you choose to remain at a fixed income means, there will be nothing to save from, and any existing savings will be spent. But there are other ways of generating income, one should devise those means too.

This is an interesting argument. Majority of the consumers in Nigeria will follow this reasoning. A question for us to consider in this case is this: what if one does not have the opportunity to create new income? Would it be a good start to work with what one currently earns?

The basic amenities are not available in Nigeria. We only have a government that levies and tax us. They don’t provide anything. In fact they are frustration in persona. However one tries to manage the available resources or the current earning, there is still a high demand. In economics, when demand is far greater than supply, prices will continue to rise. The income means of Nigerians are decreasing while expenses are increasing. There is demand and no supply.

No Growth but Depreciation

Here is an interesting perspective:

There is no growth in managing what one earns, but depreciation.

I find this very thought provoking. So, does one actually find growth by managing what he currently earns? Or does one actually find depreciation?

Growth occurs when one is able to multiply what he currently has. When you make an income and spend it all, you are actually not going to achieve any growth. In fact, your finances will be depreciating as you keep spending, and you can go into negative finances when you spend more than you earn. This situation can happen whether you have new source of income or not.

This is what I mean: if you make more money and still spend more to match your more earnings, you are still more likely to run into negative finances. The reverse can also be the case.

Don’t Put all Your Eggs in One Basket

I think both are important. When you can’t manage your present income, you will also find it very difficult to move ahead. Creating new income is what our society needs now. My people will say: don’t put all your eggs in one basket. So, it is equally very important that one creates new avenue of income.

Based on the above perspective, one has to do both. But how can one manage the present income? What strategies or tips can one adopt? Here is a thought on the question.

Give your job or source of income ALL IT TAKES. Slothfulness and lack of commitment to your job, your business or responsibilities is what makes you fail. Put in your best where you are working. Even though they don’t know it now, they will know it later.

Tips:

1. Be known with your job.
2. Have joy in the work you are doing.
3. Never catch yourself doing nothing for one whole hour. Make sure you are doing the right thing at the right time.

Those are some great tips one can utilize in the workplace, whether as an employee, or as a business owner.

Be Prudent, Control Cost, and Diversify

Both are important and can also work concurrently. The situation in Nigeria now requires one to be prudent in spending and apply cost control mechanism.

 Furthermore, one needs to create additional sources of income as multiple streams of income is the solution to the economic recession Nigeria is currently facing.

Diversification is the key now, having realized that what this Nation is facing today is over dependent on Oil. (The essence of diversification is to minimize risk/uncertainty).

These are great points and worth noting. However, one might decide that managing what he currently earns does not matter, as long as additional income keeps coming in. Is this a valid reasoning? Does this make one better off?

A bird at hand is better than 3 in the forest. You need to manage your earnings judiciously, in fact apply prudent management. Accounting for every kobo you earn will help to improve your financial capacity.

Also remember if you can’t manage the resources at your disposal now judiciously, it will be difficult for you to cope when you have other streams of income.

The jackpot!

The above statement hit the jackpot. If you have any take away from reading this post, it should be this last perspective. Let me restate: “if you can’t manage the resources at your disposal now judiciously, it will be difficult for you to cope when you have other streams of income”.

Creating new streams of income is important, but that is the second stage. This can only make your finances better off, when you have mastered the acts of managing what you currently earn.

Here is a hypothetical example:

Situation 1:

I earn $1000 monthly and spend $1000 monthly. This leaves me with $0 at the end of each month. To me, I need to make extra income so as to be able to save and grow my wealth.

Situation 1b:

I earn $1500 monthly. Now I have to upgrade from synthetic hair to human hair, I need to update my closet, I need to start eating organic foods. I spend $1500 at the end of each month, with $0 left for me to save.

Situation 2:

I earn $1000 monthly and cut my unnecessary expenses. I spend $800 monthly, leaving me with $200 to save.

Situation 2b:

I earn $1500 monthly. I still cut my unnecessary expenses, and spend only $800 monthly. That leaves me with $700 to save.

The above scenarios are for the same amount of earnings for two different situations. The outcome reveals that managing what one currently earns is the most important step to building wealth. As you continue and grow more wealth, you will now be able to live your desired lifestyle because you have built enough wealth to support it.

HOW TO SUCCEED WITH CURRENT INCOME WITHOUT BORROWING

I have been asked the strategies to succeed with the income one currently earns without having to borrow.

Here is my take: It takes commitment and drive to make it all work. While there are many habits that put our finances at risk and many strategies to succeed with what we currently earn, the first key to success is to know “know where the money you make is going”. It is a habit most of us find difficult to keep; but you will find it to be a very important key to your financial success.

In a simple term, “track your expenses!” There are tons of other things you can do, but these things will start making sense when you are able to track your expenses. It allows you to see how your expenses align with your income. You will be amazed at what you will discover. The first time I tracked my expenses, I said to myself, “I can’t believe I spent this much on clothes alone!”

Tracking expenses allows you to cut your expenses from the things you don’t really need, and spend only on the things you need. Take the money you would have spent on those things you don’t really need and “save” it! Continue like this and stay committed.

At some point, take all that you have saved and put into where you can earn more interest such as fixed deposit, money market, treasury bills etc. Continue, stay committed, save! save!! save!!! No matter how little! When you have saved enough to meet your current expenses and emergencies, then you can start investing for long term.

So, it is not enough to just cut your expenses, you have to know how to cut it so your wellbeing is not affected. When you track your expenses, you are able to identify the expenses that you don’t really need, then you can reallocate those resources to savings. I leave you with this challenge; track your expenses just for two weeks, come back and share what you discovered!