Career

4 Important Income Lessons They Don’t Teach You In School

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Ryan Ong

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A few years ago I quit business school. That’s because I urgently needed money, and business school turned out to be the second worse place to find it (coming behind finance, which is just where mathematicians go when they’re tired of being unemployed). Either way, here are four things they both should squeeze into the syllabus:

 

1. Income Should Be More About Investments Than Salary

Income refers to your salary plus the money from your investments. This is covered by most schools. It’s even explained as early as Secondary school, assuming you had a decent financial literacy programme (The one I got was a three hour workshop explaining how drugs and AIDs were caused by poor people).

I notice though, that we focus too much on salary and too little on investment. Right through University, I hear students talking about the importance of a well-paying job. It’s a rare few who talk about what they should invest in.

That’s strange to me, since most people find financial freedomthrough their investments and not their jobs.

The chances of getting rich through your salary alone are slim – not impossible, but slim. There are only so many CEOs, directors, and presidents who will get rich, and of thousands of employees who won’t.

And while skills upgrading can help you to earn more, I have yet to read “Office Worker Becomes Millionaire through Skills Upgrading” on the Straits Times front page.

Now a well-paying job is an advantage, but I’d suggest the money from the job is meant to give you the opportunity to make good investments. To buy that first property, to buy your first lot of blue chip stocks, or to get seed money for side-businesses.

Investments are also a safety net. In the event of emergency, your property and your portfolio will keep on working, even if you stop.

So maybe we should tell students to stop obsessing so much over what course they’re doing, and not to be too worried if their jobs don’t pay $5 million per minute from the second they graduate.

What we should do is clarify how most people get rich (i.e. not their day jobs), and why they should start investing as early as possible.

 

2. Accept the Possibility of Rejection and Be Ready To Negotiate

Some bosses pay careful attention to your work, and will give you a raise or promotion based on your success. These bosses mainly exist in the theoretical wonderland known as “career counseling”.

In reality, most bosses are prepared to give good workers a raise…should they ask for it. Most of us don’t dare to, because we fear the possibility of rejection. Imagine if the boss gets mad, or even worse, laughs and ignores us.

Yet in many cases, we’re actually in a stronger bargaining position than we imagine. Most bosses would rather give you a raise than train someone from scratch to do your job. And if you’re a good performer, they’d rather hold on to you than gamble on someone new.

If your boss really does laugh you off, that’s an advantage too. Painful as it may be, it’s a clear indicator of where you stand. That’s a signal that you need to find another employer, because your prospects have reached the ceiling.

In any case, you seldom get more money if you live in fear of rejection. Even if you run your own business, you have to be willing to raise prices on clients, once demand for your services go up.

Yes, you may get told off or rejected. But it’s less painful than living at an income cap forever.

 

3. Failure is Okay When The Potential Upside is Bigger

Side-businesses and investments are the main sources of a higher income. It’s much easier, for example, to run a blogshop that brings in $800 a month than to persuade your boss to raise your pay by that amount.

Still, most of us avoid buying stocks or starting side-businesses, for fear of failure. We’re afraid to lose time and money on these efforts. Yet without these (see point #1), we’re stuck on the same old “salary only” mode of income.

Here’s what I suggest instead:

Compare the potential upside to the potential downside, before you invest. If you start, say, a brochure design side-business and it fails, how much do you lose? Probably a bit of time, and maybe $500 in equipment.

If it takes off though, how much do you stand to make? An extra $500 every month for the next three or four years? Maybe an extra thousand? That’s clearly a failure you should risk, since the potential upside is much larger.

And you can expect multiple little failures like that, one after another. But it’s all right! All it takes is for one moderate success to make up for a dozen of those little failures.

And that, by the way, is a lesson that’s sadly lacking in most business schools. They’re so focused on teaching you the nitty gritty details, they often forget to tell you that a series of failures is to be expected. And that those failures are okay, so long as you keep the failures small.

 

4. Thrift Alone Will Never Make You Rich

Thrift is when you save a few dollars on lunch, skip cab fares to take the bus, or never upgrade your phone till someone offers to replace it with two tin cans and a string.

According to a million websites and self-help books, thrift is everything. It ensures you don’t rely on credit, keeps you from financial stress, finds you a girlfriend, and works more like occult sorcery than finance.

What they never tell you though, is that no amount of thrift is likely to make you rich. In fact, common sense will tell you that your degree of thrift reflects how much further away you are from financial freedom.

You may save a ton of cash living on discounts and coupons, and denying yourself every pleasure in life. But there’s no point saving all that money, and then putting it in a bank account that grows at 0.125% interest. Or 1% interest, or whatever rot-your-money deposit scheme is hot right now. Thrift doesn’t help your saved money keep up with inflation.

Also, there is a limit to thrift. If you earn $2,500 a month, and you are so thrifty you live naked in a cave and forage for berries, you’ll still only make $2,500 a month. Period.

That said, I’m not telling you to blow your whole paycheck every month. By all means, build up an emergency fund of six months of your income, and set aside 10% as savings every month.

But when you need money for something, find ways to get that money first (e.g. side income), and scrimp as a last resort. And don’t just save money, do something with the money that you save.

Keep trying different investments and side-businesses, and risking those small failures. Every attempt, successful or otherwise, takes you closer to the goldmine. And if you want to learn more about how to invest your money, follow us on Facebook!

 

What are the money lessons you wish you were taught in school? Comment and let us know!

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Ryan Ong

I was a freelance writer for over a decade, and covered topics from music to super-contagious foot diseases. I took this job because I believe financial news should be accessible and fun to read. Also, because the assignments don't involve shouting teenagers and debilitating plagues.