Offense vs Defense
Financial success is dependent upon one’s ability to not just accumulate savings, but also prevent wealth from disappearing due to a careless lack of spending awareness.
There are certainly some game-like aspects of finance.
It would be hard to argue that there isn’t at least a significant amount of strategy involved; if you want to win anyway.
I do love a good strategy game and maybe that’s why I enjoy studying finance.
I also really enjoy football and today I want to use it as a metaphor for how we manage money. I want to do this for two reasons:
- Metaphors are a helpful way for me to understand a concept;
- I use the reference to offense and defense frequently when talking about money. I want to establish the vocabulary so I can start writing it into my posts and backlink to this one for those who join in later.
What do we mean by Offense vs Defense?
If you don’t know a lot about football, that’s fine. I hope you’re at least familiar with the concept of Offense vs Defense.
In football, each team has 11 players on the field at any given time in the game. Throughout the game, one team will have possession of the ball, attempting to score with it. The other team will try and stop them.
When a team has the ball, they’re on Offense. When a team is trying to stop the Offense from scoring, they’re on Defense.
Each team takes turns attempting to score and whoever has the most points when the clock hits zero, wins the game.
In personal finance, we’re trying to score points by accumulating more money. This is what I mean by being on Offense in a financial sense.
Offense is the things we do to acquire and grow our money through work, businesses, investing, selling things, etc.
Defense is what we try to do in an effort to stop money from leaving our possession.
Defense is things like spending less money, avoiding risks to our savings, and looking for cheaper or more efficient ways to spend.
Of course, the more direct way to look at this is as two key variables of the money equation.
If your Equity (your net worth) is the sum of your Assets (the things of value that you own) minus your Liabilities (your debts), then it becomes clear that we would want to do everything in our power to manage both assets and liabilities to produce maximum equity.
Offense vs Defense: Winning by One Point is Still a Win
Here’s the important thing to remember. It doesn’t really matter how much offense or defense you can put on the field as long as the result is a positive net gain for you.
For example, in one of my favorite books, The Millionaire Next Door, a wealthy physician is profiled in order to analyze his household spending.
As I recall, his income was north of $700k per year! That is what many would consider a high-powered offense.
However, he and his family were basically spending it all.
Their net worth was a little over $200k. That is a positive number, but a little shocking considering the income level.
I recall their clothing budget in particular. They spent over $100,000 per year on clothes alone!!!
I know this is judgmental, but that is insane!
On the other hand, I’ve heard of millionaire teachers and janitors who didn’t have quite such a high-powered offense, but they played excellent defense by keeping their spending very low.
As a result, these teachers and janitors enjoyed net worths that exceed the physician’s with a $700,000 plus annual income.
Hopefully, this ability to control at least one side of the ledger will motivate you to do everything within your power to ensure the outcome is a net gain for you, your family, and your future.
Offense vs Defense: Playing Solid Offense
When evaluating where to direct our attention (offense vs defense0 people tend to focus on offense for the most part, and for good reason.
After all, if you can improve your income without reducing spending you obtain a net gain without having to sacrifice your standard of living to obtain it.
With that said, the options can vary quite a bit from one individual to the next. Age, profession, education & skills, and even your geography can all play a role in determining the best strategy to approach gaining more income.
We’ll cover a few popular ideas here, but this is not meant to be an exhaustive list.
We’ve organized these concepts in order of how one would traditionally approach them in a chronological fashion in their life and career, understanding that application will vary greatly from person to person.
Get Educated
The Bureau of Labor Statistics is a treasure trove of data illustrating the positive impact education has on one’s quality of life.
For example, the average American with a bachelor’s degree enjoys an annual income that is 67.1% higher than those with a high school diploma.
The unemployment rates also drop as the education levels increase.
This would indicate that being educated also helps mitigate unemployment risks that can set you back in reaching your financial goals.
Income tends to further increase as one continues to seek even more advanced levels of educational attainment like master’s degrees or PhDs.
Get Educated in STEM
STEM is an acronym for science, technology, engineering, and math. According to census.gov, people who majored in a STEM field averaged salaries of $101,100 versus $87,600 for those who did not in 2019.
The kicker is, this is undergraduate work only. Typically, the cost per credit hour at a state institution is the same regardless of your chosen major.
By choosing a STEM major, you’re improving the potential return on each dollar you invest in educating yourself.
Obtain Professional Designations
Professional designations do not usually lead to automatically increased wages, but they can.
Typically, these credentials can be a distinguishing mark or add credibility to your resume because the accrediting organization is basically giving their endorsement of your capabilities.
Another feature of these designations is that they can usually be obtained in the course of your normal work schedule.
While some education and study may be required, they are typically accommodating to a traditional 4-hour work week.
Ask for a Raise
According to payscale.com, 70% of people who ask for a raise get one. Granted, you should be prepared to make your case and do so with some tactful timing, but it can’t really hurt to ask.
Even if you’re turned down it gives you an opportunity to get valuable feedback and direction on how to make yourself more valuable.
Hunt for Another Job
You can only catch fish if you have a line in the water. If you’re not committed to your current employer, it doesn’t hurt to keep your resume and LinkedIn profile up to date.
Get a Second Job
If you have available time, this is a simple and direct way to increase your income.
Become a Landlord
There are many people who obtain rental properties as a sort of side gig or secondary investment. Some hate it, some successfully make a little extra income, and for some, it becomes a completely new career path.
Personally, we’ve not elected to pursue rental property income, but if you think you would be well-suited for it the potential is excellent.
Be sure to do your homework before making any commitments though. Biggerpockets.com is an excellent resource if you’re new to this idea.
Other Ideas
- Teach or tutor others
- Start a side business
- Look for tax deductions
- Drive for a rideshare or takeout delivery service
- Sell your stuff online
Offense vs Defense: Championship Level Defense
While offense may provide the greater upside to improving wealth, defense can play a vital role in ensuring your hard-earned income produces the maximum benefit.
Not only that, but defense tends to be much easier to control.
Failing to play solid defense will result in the frustrating tendency to constantly wonder where all your money went.
What follows are several options for fine-tuning your methods for reduced spending.
Get On a Budget
While I’m sure you’re not surprised to see us start here, we’d be remiss if we ignore this basic level step. After all, it is Milestone 1 on the Next Dollar Roadmap.
One of the more compelling stats about budgeting comes from Chris Hogan in his book, Everyday Millionaires. In the book, Hogan says that 93% of millionaires stick to their budgets.
I get that this is another chicken and egg stat. Which came first, the millions or the budget? Either way, budgeting is clearly a practice that it doesn’t hurt one to imitate.
Look for Places to Reduce Spending
While reviewing your budget, look for opportunities to spend less in certain categories.
Here’s a short list of where we’ve found some of the lower hanging fruit in years past: eating out, internet/TV options, cell phone plans, clothing, gym membership, and home furnishings.
Don’t Take on Debt
This is a warning to those of you who are just getting started in life.
One quick way to put yourself at a defensive disadvantage is to go commit most of your income to a mortgage and car payment.
For cars, we recommend paying cash. We know that isn’t always a popular point of view, but the results for us have been undeniably beneficial over the years.
If you feel like you have no choice but to borrow money for a car, get the cheapest thing you can afford, and pay off the debt fast.
For homes, try to keep your mortgage payment below 25% of your monthly income. This is becoming a more and more challenging standard to meet, but again, it will pay dividends in the long run.
Pay Off Debts
I promise I’m not just rolling down the Roadmap. Obviously, if you have less debt to service, you have more income you get to keep.
See Milestone 3 for more about paying off debt.
Do It Yourself
Generally, I’ve found any repairs, maintenance, or other work I can do myself leads to a savings of 50% or more compared to paying someone to do the job for me.
I recently had my truck serviced because it was idling poorly while I sat waiting at traffic lights. Among other repairs, the mechanic offered to replace my spark plugs and wires for a little over $800.
Having changed plugs and wires before, I was confident I could do this much cheaper myself. So I did.
$120 in parts and an hour of work later, I saved about $700.
If you’re nervous about DIY work, there’s a YouTube video for nearly every project under the sun.
Take a look for a video explaining how to repair/replace whatever you have that needs attention and you might find that handling it on your own isn’t that difficult.
Cheaper Travel
Travel is expensive and it’s not getting any cheaper. This is a category I’m a bit torn over because I feel like the money spent on experiences yields the greatest utility or level of satisfaction for me and the family.
However, the rising cost of travel makes this category a fruitful savings opportunity. Any trip you can take that avoids hotels, car rentals, air travel, or any of the three is bound to save you quite a bit.
One strategy Lisa and I used was to make a long list of destinations we want to travel to. Early in our marriage, we traveled to locations we could drive to and gradually extended our radius as we became more secure financially.
Another recommendation is to book earlier. Typically, the further in advance we could plan and reserve travel the less expensive it was.
Insurance
We’re listing insurance, but not really because we think there’s a huge savings opportunity on your premiums (though it’s wise to shop every now and then).
Instead, we want you to be sure you have risks appropriately covered from loss. Consider the assets in your life that need coverage and make sure your coverage amounts meet or exceed their value.
Be sure you have adequate coverage for your health, home, and car, as well as life and long-term disability if you have dependents.
Exercise
I once wrote a post about the monetary benefits of regular exercise. It remains one of my favorites.
Being healthy can obviously lead to direct healthcare savings, but it also leads to a higher general quality of life.
Other Defensive Strategies:
- Have an emergency fund
- Brown bag it
- Stop smoking or drinking
- Alter your energy consumption at home or in your car
- Focus on quality clothing, not cheap stuff
- Use your local library
