Personal Economic Engine - the modern way of thinking about money

Whether you want it or not (except if you live somewhere outside the scope of capitalism), you’ve interacted with the concept of money already. As a species, we’ve been finding different forms of exchanging value through a medium for millennia. What we currently know as money is the same concept like the one used by farmers long long ago, who exchanged cattle, resources, services and recorded it one way or another.

Even if Bitcoin manages to replace normal currency, even if we get to unify all money types into one currency, the principles moving the world of economics remain more or less the same. And that is - we exchange our time (in the form of dedicated work) and effort for money, which we later use to get some product/service (again, somebody else’s time and effort). So fundamentally speaking, especially in the case when your money comes directly from your work, money is a medium of exchange for your time, energy, skills, expertise, education.

Since the concept of money originates much before we reached the economical point of oversaturation, when the people living below the line of poverty became much less, it’s normal that some mindsets we carry around the topic of money are outdated. We currently live in a world full of many more well-educated people, an abundance of resources, the Internet and all of its wonders. Yet still, most of us carry the same philosophy around money as our parents, or grandparents, for whom the salary was the only source of income, and life was much more affordable.

Well, things have definitely changed.

Currently, worldwide, prices for goods and services are on the rise, while the median income is not rising at the same rate, causing a huge gap between what we earn and what we can afford. Rent has been one of the main drains on our budget for quite a while, and there isn’t a positive outlook that this will change anytime soon.

Yet, even if finances remain one of the main stressors for most people, they don’t have to be, or at least not to the extent to which it’s actively harming your mental health. Some stress is inevitable, but you can minimize that with the right mindset and the right tools.

The value of money

If you think about our origin as a species, it almost seems like humanity has evolved to live a comfortable life. If you told a random caveman that there would have been a time like today, where resources like food and water are almost unlimited, and there were no predators in our direct vicinity, that we lived in warm and safe places, you can bet they’d be happy. Yet, still, we arguably live in a more stressful and anxiety-inducing time than ever before. It almost seems irrational that this is the case.

As I once heard in a YouTube video, we are still being chased by sabretooth tigers, they’re just very slow and abstract-looking tigers.

We’re mainly stressed about things that can’t really be touched or seen, such as work to do, money troubles, family drama, etc. And yes, money is one of those conceptual entities that manage to stress us out the most.

So our whole industrial complex, the way we’ve been working 9 to 5 or similar formats for centuries, is a product of this concept. We need to give our time to the community in the form of work, and then receive money to compensate us for this time, and to allow us to survive by buying goods and services. The problem comes when the income is endangered in some way, or, as it happens more often - when it’s simply not enough for us to live the life we want.

This is where the concept of the Personal Economic Engine comes in.

Personal Economic Engine

This is a concept mentioned by Ramit Sethi in his book "I Will Teach You to Be Rich", a really inspiring read that provides a 6-week programme that will get your finances in check. In order to escape the day-to-day money anxiety, you can follow a number of steps to bring balance to your finances, but it all starts by realizing the power and importance of the Economic Engine. As I explain in my article about Maslow's Hierarchy of Needs, there is an order to the priorities in life, and money is a crucial factor to most of the basic needs.

'Having money is not everything, not having it is.'

Many people think that the problem with their finances is the expense side of it, and in some cases it is. You may have a shopping addiction or some expenses that you can't control, like debt, mortgage, medical bills. But in most cases, even if you get your expenses to an absolute minimum, which is virtually impossible unless you go full frugal and lower your quality of life somehow. This is a really modern problem if you think about it, because of the rising prices of almost everything.

But there is a powerful side to this. If there is a limit to how much you can minimize your expenses, there is absolutely no limit to how much you can increase your income. Not only in your main gig (your job), even though seeking a higher payment for the work you're doing is definitely possible. There is a number of side incomes you can generate, which all start up slowly and take time to be set up, but once they're running, the machinery of your economic engine is increased tremendously.

Multiple sources of income still sound like an exotic idea to many, but it's getting more and more crucial to find a way to monetize some of your hobbies, automate your finances, to make money without linking it directly to your time. Once you're no longer reliant on just one source of money, you'll find it easier to be flexible, you'll for sure be able to change your job if you want to, with no financial repercussions. Yes, it takes a bit of an entrepreneurial approach to handle this transition from a single-source income to a multiple-source one, and this is exactly the topic of this article. The mindset shift of starting to think of your income as your Personal Economic Engine will help you feel more in control of your financial situation.

How to manage your income and avoid chaos

A general summary of the importance of essentialism - why what gets managed gets done (and the result of the opposite)

When it comes to personal finances, every situation is a bit different. This is not financial advice, and the tips and ideas here are purely in the form of personal thoughts on the topic.

This is my take on a generally good approach to finances, which doesn't steer towards frugality, but rather moves in the direction of essentialism. Essentialism could bring you different results, depending on what is essential to you. And for many people, money itself is not the point. Yes, for some people making money by investing, starting businesses, searching for opportunities is a way of having fun and honestly brings them an adrenaline boost.

But many people, me included, aren't too interested in money by itself. It's what money brings you (in many cases it's peace of mind), that makes it so enticing.

So there is definitely a way to control your finances if you don't enjoy thinking about finances. That is, you just need to set up your system once, initially, and then let it take care of your income itself. Once this is set up, you can go back on track and create additional income streams, knowing that your main income is taken care of.

The systems I use to control my income (even as a freelancer) are the following:

• Getting my multiple streams of income in one checking account

• Investing the same amount automatically every month

• Knowing my fixed costs like rent, food, gym, subscriptions to services

• Making ‘vaults’ in which I save the remaining money (such as a Holiday Vault, Birthday Gifts Vault, etc.)

Income funnels and automation

This is another great concept that I credit Ramit Sethi for. The main point is very simple - once your salary arrives in your bank account (or as a freelancer, whenever you get the money off a project), it should automatically go and cover your needs. This can mean different things for different people, but here are some ideas.

Maybe you want to invest, so your money is actually making you more money. Then once your salary checks in, 10% of it automatically goes to your investing account. You can set this automatic payment in most bank accounts.

Then pay your utilities, like the water bill, electric bill, etc. These could also be automatic payments. Then maybe save another 10-20% of your salary for future uses.

The money that is left for you to spend will remain in your bank account. And now you can … spend! After all, you save money and generate it for a reason, and this is not only to survive. So if after you’ve covered everything and paid all bills, you still got some cash, then you’re doing the money thing right.

The point, as you see, is to give control to your system and take it off yourself. People are irrational, and if you allow yourself to control the whole deal, it would be much more prone to mistakes and mishandlings. So my tip here is to just set it and forget it, delegate your budget to your bank system and move freely ahead with the remainder of your money.

The opposite is honestly what most people do. You get your salary, immediately go and buy something expensive because you have this chunk of money to spend now, and then wonder till the end of the month how to cover all the bills (which you knew had to be paid, let’s be real.)

Once your ‘Excel spreadsheet is taken care of, you can lift your head up from the documents and pondering and actually live life, instead of worrying day to day what’s going on.

Active vs Passive income

Now, this is a fun and interesting concept, especially once you get it started up in your life. Basically:

• Active Income: income that is actively tied to your time, the money you need to work at a specific time for (mainly your salary, or any gig you have going on that doesn’t take care of itself)

• Passive Income: income that is generated passively, a system that earns your money without you actively observing it. It usually takes a lot of effort to set up initially, but once it’s going, it only takes some routinely taking care of

My own version of passive income, for now, is Patreon, where I get a few bucks monthly from people following me on there. You can read more on how to gain money as a digital artist over here.

The importance of inertia (start early)

Yes, all the strategies listed above are important and will improve your life at any point in it. But there is one overlaying strategy, and that is that starting early will get you the furthest. Time is a very crucial factor, especially in fields like business and investing (and metaphorically, we’re all investing in ourselves, our main business). Any effort you put in today will be insignificant in the long run, if it is only this day that you do it. Money, energy, dedication, are all great but become even grander when you multiply them over time.

So put some pressure on yourself to start your financial education journey early, maybe even today. Here are some books I recommend, along with Amazon links to them. I advise you to read at least one book of this sort a year, and even more in the beginning, so you can choose any of those listed below to be your first one.

• #1 ‘Rich Dad, Poor Dad’ by Robert Kiyosaki

• #2 ‘I Will Teach You To Be Rich’ by Ramit Sethi

• #3 ‘The Total Money Makeover’ by Dave Ramsey

• #4 ‘The Automatic Millionaire’ by David Bach

• #5 ‘The Psychology of Money’ by Morgan Housel

One money idea for people not interested in finances

And if all of this sounds too boring or generally not up your street, I get it. I never think of myself as a person too interested in finances, so I want to think minimally about all that.

So set it up once, put in the effort in the beginning, and enjoy the fruit of your work later on. Pre-planning and strategy are some of the main themes of this blog series, and money is just one of the many things you can plan about. So go for it, and keep being awesome (outside the Excel tables).

If you enjoyed this article, here are some follow-ups for you to read, including this article on how to start your creative hobby, and this one on how to prioritize your tasks.

Peace! 🏵