(Photo by rollerboogie)

In the first part of the Money Mindset Series, I highlighted some money mindsets that may be hindering our financial success and living a balanced life. In the rest of the series, I will take some common mindsets and expand on them. In part 2, I like to address the following common mindsets with regards to work and money:

• I have to work really, really hard to get rich.
• Striving for wealth won’t allow much time for anything else in life.
• I love my family, so I should work really hard to provide for them.

THE OLD SCHOOL MONEY THINKING

The old school money thinking teaches us to study hard, get good grades and get a well-paying job. Next, work hard and wait for the annual increments. If you are good at your job, there may be promotions every 3 to 5 years. With this concept, your income will increase over time as shown in the chart below. It definitely looks like a good idea, having the security of guaranteed income every month which is increasing every year. It does seems that good life is ensured with this approach… or is it?

With this mindset, people have to tendency to trade time for money. The longer the duration you’ve committed to a job, the more money you will have. The amount of salary that you draw is justified by the time that you’ve committed to work.

This mindset is still very apparent at the modern workplace today, where managers are overly concern about the issues like punctuality and if you are spending enough time in the office. Working from home is still very much a taboo topic and not encouraged by many employers. Managers also have a tendency to evaluate workers’ commitment based on how much time they spend at work.

YOUR SALARY - THE BUSINESS REALITY

Profit = Revenue - Cost

The above is a basic business accounting formulae - the bottomline of all profit-making organizations is to earn profits from the products and services that are delivered. As such, to maximize profits, one must maximize revenue while minimizing cost.

Salary is one common cost for business operations. By increasing employees’ salaries, cost is increased. This is contrary to the objectives of profit-making organizations. As such, the nature of business already presents little incentives to continuously increase employees’ salaries.

There’s a saying that I like to quote from Rich Dad, Poor Dad:

As negative as it may seem, I have to say from my work experiences that there is a certain element of truth in this statement.

Business owners will pay you just enough so that you stay happy with your job and not leave for another company. I am not saying that all business owners are selfish and greedy mercenaries; I have worked with really kind and good business owners. However, the nature of business is as such, that we need to make such tradeoffs for a business to be sustainable.

In order to maintain the same amount of profit, revenue must increase along with cost. This means the employees with high salaries are expected to deliver more and help the company generate more revenue to justify their higher salaries. As shown in the chart below, a common reality for many workers is to work harder as their salaries are increased.

SETTLING FOR JOB SECURITY

Despite the above scenario, many workers continue with their old school thinking.

From many of my friends, acquaintances and colleagues, the common stories I’ve heard about career are often similar - if one is passed over for promotion or increments, then the natural reaction is to put in more hours, take a course to upgrade, or to find another job. Essentially, it means work harder.

If this is the case, why do people choose to settle for such a rut? One reason I believe is that many of us have not realized the effects of old school money thinking (which is what I hope to educate readers through this blog), and the other common reason is the beloved job security.

We have bills to pay, debts to service and mouths to feed. With these financial commitments, the idea of guaranteed income every month is hard to pass over. On the surface, it may seem that the prospect of earning a stable income by appearing in the office from 9 to 5 is a good deal. As such, many of us settle for less by trading our precious time for job security.

For the sake of job security, many of us allow the amount of work to pile up and we react by pumping more time into our work. It is only a matter of time when the work level will raise to an unbearable level.

This, in my opinion, is one of the key reasons behind worklife balance challenges.

WHY JOB SECURITY IS BULLSHIT IN THE 21ST CENTURY

In recent years, the notion of job security is fast becoming a false reality.

The nature of business that I’d described has existed since the industrial age. However, it is only in recent years that this model starts to fall apart. With globalization and outsourcing of work to low cost countries. Businesses today are constantly facing pressures to deliver more with less resources. Competition has gone global; now, businesses need to cut cost and squeeze every drop of value from each employee to be sustainable.

If you are still thinking that by showing loyalty and diligence at your job, it will mean job security, you need to move out of this mindset quickly. Businesses today can no longer justify your salary by these same qualities. I am not saying these are not good qualities to have, but a business has other bigger considerations than these.

Globalization is a macro force that is well beyond the control of many of us, including employers and even governments. When there is a need to retrench a portion of the local employees and move operations overseas so that business is sustainable, then it has to be done. As such, from such a perspective, there is no longer any true job security per se.

IMPLICATIONS FOR EMPLOYEES - NEED TO CHANGE MINDSET

This article may seem rather pessimistic up till this point, but I truly believe that this is a bitter medicine that we all need to take before the disease of ‘old school money thinking’ becomes terminal. In any case, I do believe that it is not all doom and hopeless.

Workers of the 21st century need to move out of the old school thinking and adapt to changing times. The following are some of my recommendations to mindset changes:

1. Focus on value creation - employees have to move away from the thinking of trading time for a fixed salary, and instead start focusing on value creation. Only when you are capable of contributing towards the bottomline of your company, then can you be ascertained of your job security. Ultimately, when there is a retrenchment exercise, people of high value creation will certainly be last in the list to go (not those who have worked the longest time). As you can see from the chart below, when the value that you create exceeds your salary, it is an easier task to justify keeping you around.



2. Realize the true value of time - The only true resource that you own is your time. To be able to focus on value creation with the limited amount of time that you have, you have to start appreciating the true value of time. To illustrate my point, answer this question: “How much are you earning per hour now?” If you don’t know you can find out by using the following formulae:

   Hourly Rate = Monthly gross salary / 22 working days / 8 hours in a day

   The objective of this exercise is to help you focus on activities that can create value greater than your hourly rate. I understand that it is not always possible to quantify the exact value of your work but a rough estimate is still more useful than none. Once you have established your hourly rate, you can then focus on work activities that generate value greater than your hourly rate.

   To achieve this, here are a few tips I can provide:

   • Delegate lower value work to subordinates, assuming they have lower hourly rate than you.
   • Outsource the lower value work to others.
   • Outsource task you are not effective at to vendors who are more proficient at it than you are.
   By focusing majority of your time on creating high value work, you avoid overworking yourself by trying to do everything. This not only applies at work but also at home. Personally, I have outsourced my household chores to a part-time maid who is paid on an hourly basis. I pay her about $150 per month to clean up my house once a week. To some friends, it seems like unnecessary expenses and over-indulgence. Little do they realize that with the hours that I save, I am able to create work with value greater than $150 every month. At the same time, I enjoy a better worklife balance.

   (Following the Money Mindset Series, I will be publishing another series on work and career. In this series, I will also expand on this concept of value of time. So stay tuned for it.)

3. Stop depending on a single source of income - to enjoy true financial security, you need to stop depending on your primary job as the only source of income. There is simply no telling when the next economic downturn will affect your job security. You need to spend some personal time to develop secondary incomes sources as follows:
   • Develop passive income streams through personal work e.g. blogging, selling stock photos etc.
   • Passive income through investments in real estates.
   • Capital appreciation through investments in mutual funds, stocks and shares.

   Developing secondary sources of income requires that you be smarter and focused about how you spend your personal time. It will take some efforts upfront, but it will definitely be a better payoff over time.

INCREASE INCOME WITHOUT INCREASING WORK

To have more balance in your life, you need to shift your focus to value creation and generate additional income streams over time. The above 3 tips is aimed to help you develop the balance as show in the chart below:

Please note that I’m not saying that value creation does not require hard work. As the chart above shows, there is certainly some upfront efforts required. However, by focusing on value creation and creating additional streams of income, the amount of work you need to do will drop in proportion as the amount of value (and income) that you create increases. To a certain extend, the cliché statement “work smart, not hard” has its validity.

I believe that this is one truly sustainable approach towards living a balanced life. To do this involves changing your traditional mindset about work - working harder no longer matters as much; start creating value and additional income streams.

To do this, in part 3 of the Money Mindset Series, I will be expanding on the money mindsets related to investments in mutual funds, stocks and shares, which is a simple way of generating additional income. So look out for it!

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