Finance is NOT about the numbers- Income

Today we will examine the role of income in wealth accumulation. Income is a significant component of your ability to grow wealth. How do you manage your income? Do you have a systematized approach? Do you spend first and save later or save first and spend what’s left? Are you making conscious decisions as to where, how much and on what you spend your income on? It may seem that I am always asking questions. There is a purpose to my questions. It is to make you stop and take stock if you aren’t doing so already. Questions allow us to define tasks, expose shortcomings and outline issues. Only when we ask questions can we find answers.

Now let’s examine the factors that determine our income and explore some possible strategies you can take to maximize your earning capacity. There are two factors that determine one’s level of income, these are education and ability. Your education determines at what level you will enter the workforce. Your ability, will determine how far up the ladder you will raise. Each of these factors is a function of several other factors that are specific to you.

Let’s start with your education.  It’s the door opener. Your income level is a function of your educational qualifications (which is a function of your cultural background and your parent’s educational and financial background).  Your level of education determines your entry position in the workplace.  It generally determines your life time income. The chart below shows a direct correlation between life time income and level of education. It may seem discouraging if you don’t hold anything above a Masters or even a Bachelor’s Degree.


However, things are not always what they are graphed to be! It has been the general paradigm that higher education means higher income. However, we have notably examples of individuals who didn’t graduate from college and who have made more money and have had more impact on the world than we can dream of.  A few names come to mind: Steven Jobs, Oprah, Bill Gates. Walt Disney didn’t even finish high school.

The world is changing every day. How we do business, how we communicate, how we work, are all under the process of transformation.  The old paradigm of study hard, get a degree, then find a steady job until retirement is fading way into the distant past. There is also a brewing revolution in education as well. People like Sir Ken Robinson and Sugata Mitra are challenging the current educational paradigm and both make very compelling cases for change.


How is this relevant to you? Well, it means that your level of education DOES NOT dictate: who you are, what you are really capable of and what your true earning capacity can be. This brings us to the second factor that affects income and that is ability.  Your ability is not always a function of your academic qualifications. It extends beyond that (I dare say sometimes it’s independent of it).  There are always avenues for advancement; you just have to find them. Here is where to ability comes into play. How resourceful are you? Do you know where you want to be in your career?  Do you have what it takes to make your way up the ladder?  Are you willing to do what it takes to climb your way to the top? What’s stopping you, gender, age, archaic policies?  How can you overcome these hurdles, if they exist?

There are three dominant key factors that significantly affect one’s earning capacity in any field or industry and can offset any negative bias. These are:

  • How others value what you do?
  • How well you do what you do?
  • How difficult is it to replace you?

If you are able to create value while doing an outstanding job you will become irreplaceable. All great companies and valued employees meet these criteria exceptionally well.

Value is an intangible perceived benefit that someone will pay you for, because they derive a high level of satisfaction from consuming whatever it is you’re selling.  If you can explain to your customer or boss why they should choose you and you can demonstrate to them that you are the best person for the job, you would make yourself valued and indispensable. Case in point, Apple is not the only store selling phones and computers. Amazon is not the most prestigious book seller. Tiffany isn’t the cheapest jeweller. People buy from these companies for reasons other than their products. They buy from them because they represent a lifestyle or philosophy that people resonate with and want to be part of.  You may not be the employee with the most academic qualifications, but you may be the one that is able to rise the fastest in the organization because: you are well liked, you do superb work, you innovate and come up with clever solutions, and you naturally motivate people around you. The point is your success doesn’t’ lie solely in your academic qualifications, but rather in your ability to add value and become indispensable wherever you go.

If you want to start creating value and become indispensable in your organization start taking some initiative. Here are some ideas for you:

  • Always be willing to help, ensure that your colleagues see you as someone who can get the job done. Take on challenges.
  • Always deal with problems swiftly and fairly.
  • If you can find alternative solutions which are more efficient or can save the company money, speak up
  • Always be prepared. Know your field inside out. People should come to you for answers.

By now, I think you are starting to get the idea that although the secret formula for wealth is simple, the process of wealth creation is a bit more intricate.  Your income level determines the scope and speed of your ability to accumulate wealth. So it is important to understand the ways in which you can maximize your earning potential.

What is the one thing you can do today to start adding value with your business or place of employment?  I would love to hear what your plans are, drop me a line and let me know.

Until next week…
Dr. M


Published by Dr. M Finance Blog

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