Thinking In Terms of a Paycheck Is Part of the Problem

Especially when it comes to living at a time many of us have not experienced in our lifetimes, a period of high inflation where every dollar we earn has less buying power and must be carefully thought out before we spend any of it, there is still something I think that holds us back when it comes to financially getting ahead.

A paycheck.

That may seem like a silly thing to say considering a paycheck is of course, a means to an end. We can't really get anywhere without one. But it is how we think about our paychecks which happens to be the very thing that holds us back.

When it comes to income, it's the one thing most people consider as the source to having more money. If they could just earn a little more, ask the boss for a pay raise or find a better paying job, or find secondary or tertiary incomes like second jobs or side gigs, they'd fare better financially.

But the art of having money is not in simply earning it. The art is building wealth from what we earn. In other words, the more you keep and save the better off you are. 

Building wealth is not really so much about earning more as it is about making every dollar we have go farther, and letting our dollars endure the labors rather than us to produce more income. That means taking on some level of risk such as investing.

There is a difference between earning money and creating money. And once the mindset changes to understand that it makes a world of difference. It changes one's entire perspective about money and wealth building and creation.

When you work for a paycheck what you are really doing is simply chasing your tail. You earn some money, you spend it, and then you have to go out and earn some more. But you never really get anywhere. The cycle just repeats over and over again.

Richard Kiyosaki from Rich Dad, Poor Dad called it akin to being on a treadmill, being constantly in motion, but ending up exactly where you started.

The key is to find ways to make what you earn more valuable over time. What's a dollar worth if you spend it? Zero. But if you invest it a dollar could be worth $1.08. And with compounding, over a longer period of time that dollar could be worth $5.

This doesn't mean don't seek a higher paying job and earn more if you can. It doesn't mean don't ask for that pay raise. It doesn't even mean stop working. It simply means, don't think of that extra earned income as something to spend more with. Think of it in terms of something to build wealth from.

If you can get a pay raise through a better job or from your current one, pretend like you never got it and put the money to work for you.

A paycheck can be both a crutch and an opportunity. It just depends on how you think about it. It can either provide a level of comfort knowing if you just keep working, the paychecks will continue to come. Or it can offer you an incentive to put more of your money to work so that your paychecks become less and less necessary over time as an absolute means to pay for things.

As I have always said, paychecks are essentially worthless if all they do is maintain the status quo.

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What The Heck Is A Daily Consumption Rate?

When you think of how money is spent, there are two ways of looking at it. The obvious way is thinking of it in terms of how much money you spend directly when you pay for something. The other way is thinking of it in terms of how the the things you spend money on are consumed. The rate of consumption ultimately determines how much something actually costs.

Think of your consumption rate as an electric meter. Each and every second an amount of power is being consumed, and as a result the meter is turning and accounting for the consumption. In a given year you may pay an ultimate amount for the energy you use. But the cost is not in the total. The cost is in the rate of consumption. Paying attention to the rate of consumption is the key to understanding how far the money you ultimately spend will go. It is also the key to determining how you can slow down the rate of consumption. In other words, if you don't understand why something is costing more, you will never understand how to make something cost less.

The daily consumption rate is nothing more than a system of cost averaging. The trick is in keeping the average as low as possible. How do you that? If you take advantage of short term savings on the buying side, and pay attention to how you consume things, you will ultimately save money on the consumption side.

In the simplest of terms let's take a pound of pork to provide an example of what I am driving at. You can buy a pound of pork for $3.00 when you need it for a pork dinner. Or you can wait until a pound of pork is on sale for $2, and buy five pounds of it instead of just one, and freeze what you will not immediately consume. Your average cost of a pound of pork has been reduced by $1 per pound, and while the direct cost was more because you bought more, the actual cost considering time depreciation has reduced significantly the actual average cost you will pay for your pork over time.


How long you can make something you buy last, of course, also greatly impacts how much you ultimately spend on something. Let's take my 2001 Ford Explorer Sport Trac as an example. In 2003 I bought my truck for roughly $20,000 if you take into account the interest I paid for the loan I took out. If I would have kept my truck for just five years, my daily consumption rate would have been $10.96 per day. Because I have kept my truck for 12 years, my daily consumption rate for a vehicle has been reduced to $4.57 per day.

Granted, there are other costs associated with owning a vehicle to account for such as gas, insurance, and maintenance. But the simple concept behind the math remains the same. The overall cost of something is determined not just by how much you paid for it ultimately, but by how long you have made it last, or ultimately how you have consumed it over a specific time period.

Let's go back to that pork example for a moment, shall we? There is total consumption and partial consumption to account for.

If I buy a pound of pork for $2, and I eat only 3/4 of a pound of it, and throw away the other 1/4 pound, I have effectively increased the cost of my pork by 25%. My $2 pound of pork has now cost me, in effect, $2.50 per pound because throwing something away and not using it is the same as consuming it even if I did not eat it entirely, or use the leftover pork to incorporate it into another meal. I will have to buy more pork to make up the difference. Using the electric meter example, whether or not I am in a room to see the light, the meter will turn regardless and the cost of my lighting in a room I am occupying will cost me more. My daily consumption rate is being increased by how I am consuming my energy.

When you begin to think of money spent in terms of consumption rather than in terms of what you spend at the register, suddenly you find that money becomes more and more plentiful. And for those who like to make the argument that they cannot afford to save, perhaps what they are failing to pay attention to is their daily consumption rate. If you ate a pound of pork a day on sale, there alone you'd find you'd have saved $365 on pork in a year. Apply the daily consumption rate concept to everything you buy and consume, and the total savings become enormous.