It’s Time To Reframe How You Think About Money

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If you’re anything like me, for better or for worse, you probably think about money a lot. Maybe that’s part of the reason why you decided to follow this blog, because you want to learn about how you can make more money online and get out of the rat race for good. Or maybe you’re interested in how you can maximize your earnings from this blogging and Internet marketing “side hustle” while you hold on your day job for stability.

Regardless, you’ve got money on the mind. Maybe you’re saving up for a down payment so you can buy your first home. Or maybe you’ve already got a mortgage and 2.5 kids and now you’ve been sucked into the trap of keeping up with the Joneses. The comparisons on Facebook and Instagram are inevitable and you’re starting to feel like you’re coming up short. Maybe you are. Maybe you’re not.

But before you go any further, there are two key observations — and they are precisely that, because they’re not really lessons in the strictest sense — that you should take to heart as you reframe the way that you think about money.

You’re (Probably) Richer Than You Think

When you watch someone like John Chow bring in over $100,000 in affiliate earnings (not including income from other sources) in just one month, you can feel either incredibly inspired or remarkably defeated. Chances are that you aren’t bringing in over $1 million in annual income.

But if you’re doing modestly well and stop simply trying to guess how much your neighbors are making, you’ll soon discover that you may be ahead of the curve. According to data compiled by the Minnesota Population Center and depicted by Business Insider, the typical millennial in America only earns a little over $20,000 a year. And that includes high cost of living states like California and New York.

While it may not necessarily be appropriate to start patting yourself on the back for making more than $20,000 a year, this kind of statistic does put things in perspective. They do note that the figures could skew low, as it might include college students who only work part-time. Indeed, a more recent calculation based on the 2015 American Community Survey IPUMS shows that the median income for a 25-year-old in America is about $31,000 and for a 35-year-old is about $45,000.

If you fall somewhere in that range (and you’re in that age group), you’re doing about average. The interesting thing is that while the increase in median income from age 25 to 35 is about 50%, the increase in income for the top one percent of each age group grows by about 150% ($116k to $291k) over the same age range. What this means is that if you do manage to make (a lot) more money, your rate of growth will likely accelerate year over year.

It’s Not (Completely) About How Much You Make

Okay, so let’s say that you’re not making over $100,000 a year. Given the median income range, chances are that you are not breaking that threshold. Does that mean that you are a failure? Does this mean that you’re doomed? No, not necessarily. Not at all, even.

The second big observation that we need to make is that we need to stop fixating in income alone as the only measure. It is far more important to consider how long you can last if you suddenly lose your job or if all your income sources suddenly come up dry. In other words, it’s much more about the relationship between your savings and your spending habits, as well as how much you can expect to earn each year.

There’s a great article and chart up on The Simple Dollar that illustrates precisely this point. Let’s say “Kim” nets $80,000 a year and “Jessie” nets $40,000. If both of them are super diligent savers, spending only 50% of their income, they can both reach financial independence within the same time frame. This assumes a modest 5% return on investments and a 4% withdraw rate each year.

Basically, be careful of lifestyle inflation and how much you choose to save is just as important as how much you aspire to earn.

Be Rich or Look Rich?

Contrary to popular opinion, money can buy happiness, but only if you spend it the right way. It’s not about driving expensive sports cars, living in gorgeous mansions, and going on elaborate Instagram-worthy holidays on tropical islands. It’s about being rich rather than just playing the character online. Hopefully, at some point in the not too distant future, you’ll not only be able to be rich, but you’ll be able to afford to look the part too.

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