Updated on 07.15.11

Two Paths to Financial Success

Trent Hamm

One of my favorite statements about personal finance is that it all boils down to five simple words.

Spend less than you earn.

Often, I’ll break this down into two methods you can use to earn more money. You can either increase your earnings (through a better job, better investments, and so on) or you can decrease your spending (through frugality).

The other day, I was having a discussion with an old friend who reads The Simple Dollar. He mentioned that I often repeated that statement and he suggested that I was actually just talking about two different kinds of success and that what differentiated the two types of success was how accessible the action was.

He said something that really left me thinking. “Anyone can get rich,” he said, “but the ability of a lot of people to multiply their earnings is extremely limited. Simply saying ‘earn more’ doesn’t mean a whole lot to an awful lot of people. What you’re telling many of your readers is just to ‘spend less.’ That’s a success, of course, but that’s not very clear from your statement.”

In other words, personal finance success boils down to two main avenues.

Success in the Margins
Simply put, finding financial success in the margins means that you’re finding financial success through ordinary actions. Frugality is, of course, one of these, as are most methods of passive investing (putting money in savings accounts, putting money into 401(k)s, and so on).

These methods bring one to riches, but they require a continuous input of small successes. However, these small successes are available to everyone and aren’t that hard to achieve by themselves. The biggest components needed here are willpower and a good work ethic.

Frugality, as mentioned above, is a key component of this. Seeking out ways to reduce your spending is vital in this process, as it is that reduction in spending that provides the extra money that you’ll use to build your wealth.

Steady income, ideally with a steady increase over time, is another essential part of success in the margins. You have to have enough income coming in that you can cover your bills with a bit left over. Ideally, frugality will serve mostly to increase the size of that “bit left over.” A typical career falls into this category and getting steady raises over a period of time certainly falls into this category.

A savings plan That “bit left over” needs to be saved for the future. You have to have the willpower to save it and the willpower to leave it alone once you do start saving it.

Patience is a necessary component. Because the components here are so straightforward and available to everyone, they don’t magically work overnight.

Anyone can follow this path to financial success. The reason many people decry it as impossible is that they don’t have the patience to plan for the long term and they don’t have the willpower to overcome short-term temptations.

Success in the Mainstream
On the other hand, finding financial success in the mainstream means that you’re finding financial success through extraordinary actions. Think of Bill Gates or Mark Zuckerberg when you think of these things.

Success in the mainstream means that you’re able to build wealth through enormous leaps in income. Through some mechanism or another, you’re able to earn a significant amount of money quickly. Often, some components of success in the margins (like living frugally and continuing to earn a steady income) are essential at the early stages of success in the mainstream.

There are several methods and components for mainstream financial success.

Entrepreneurship is certainly one path to this type of success. Controlling the entirety of a business so that the profits from that business flow to you is a path many people have followed to wealth, but the vast majority of businesses fail within the first few years of existence. It’s risky and it’s incredibly challenging.

Exceptional talent, usually built through a lot of uncompensated or lightly-compensated practice and sometimes mixed in with natural physical or mental gifts, can also earn a person exceptional wealth. Whenever you think of a top athlete in a mainstream professional sport, you’re usually looking at this category. They usually have some physical gifts that they’ve immaculately refined through a ton of work.

Blind luck also plays a role. People win lotteries (though this is a pretty poor strategy). People get windfalls and are included in estates. People find themselves in the right place at the right time. This is a completely unreliable path to financial success, almost completely devoid of planning or effort.

Anyone can try to follow this path to financial success. However, it is far from a guarantee, and the road is littered with people who fail along this path. It also often sacrifices success in the margin along the way.

What’s Your Success?
As mentioned above, anyone can find financial success in the margins. All it really takes is willpower and patience, traits that virtually everyone has or can cultivate within themselves.

At the same time, success in the mainstream is available for anyone to try, but is much more difficult to succeed in. Anyone can be an entrepreneur. It takes exceptional work, more than a bit of luck, and some skill to make it in an entrepreneurial path. Anyone can also be lucky, but there’s little you can do for that. Exceptional talent requires a lot of work to refine (work without compensation) and often also requires some physical gifts that not everyone has.

In other words, success in the mainstream is not a guarantee. However, many of the avenues in it provide a challenge and a pathway for those who wish to take it on.

Good luck, whichever route to success you choose to take.

Loading Disqus Comments ...
Loading Facebook Comments ...
  1. krantcents says:

    I had a modest amount of success in two areas, my career and entrepreneurship. I find that the most fulfilling success had nothing to do with money.

  2. kristine says:

    Trent- posting here in case you do not read previous comments. “Cashback” is copyrighted- still for sale on ITunes and Amazon.

    Daily Motion’s moderator took it down, probably due to the copyright violation. It is a very famous multi-award-winning short, owned by Ugly Duckling Films. I’d take it down.

  3. Kai says:

    How on earth is the normal and doable route considered in the margins, while the atypical route is considered the mainstream?
    And no, not everyone can be an entrepreneur. It takes a certain skillset that is not present in anyone – and that’s not a deficiency. Different people are simply wired for different types of work, and it won’t help people to constantly push the “work for yourself!” line. It just convinces a lot of people who do very well in the office world that they’d be better off on their own, when in fact their skills will not show best in that environment.

  4. lurker carl says:

    I agree with Kai, this is a peculiar explanation of margin and mainstream in regards to finances. I would assume what everyone can accomplish (living beneath your means) as the mainstream and what a few can accomplish (billion dollar business empire) as the margin. But Trent often applies his own meanings to words, holidays and concepts that often miss the mark.

  5. Mrs Everyday says:

    I agree with a lot of your points. But a lot of people have to just plod on slowly as a lot of us are not in a position to take risks to accumulate a substantial lot more

  6. dorothyshay2147 says:

    I’ve always heard two things “there are two ways to get rich, make more and want less” and “why do people spend money they don’t have to buy things they don’t need to impress people they don’t like?”

  7. Yeah I’ve been trying for years to follow those two simple steps, I get them they make total sense, but I don’t seem to be able to do it. Making even an extra $200 a month has been a goal for a couple years that I haven’t been able to reach. Seems like every job I have or get is low pay, and now I’ve been stuck in one that is low pay and lower hours because I can’t find another. Been sending out job apps for a year. And I have been good at cutting down my debt and spending is down to where I can stand it but we break even every month. I just keep hoping I figure something out. If you want it bad enough you’ll find a way.

  8. I don’t see any reason not to proceed on all fronts. Spending less than a person earns, while trying to increase their income and doing something entrpreneurial just tripples a person’s chance of success.

  9. slccom says:

    There is also the issue of “luck” in managing to stay healthy and not becoming disabled or ill with very expensive illnesses. And no magical thinking about diet and exercise will keep you from being hit by a drunk driver or getting cancer to developing an autoimmune disease.

  10. Brittany says:

    I /think/ margin v. mainstream was about the success’s place in your finances, not society. That is, frugal success is “at the margin” of your finances–you that a “little off the edge” of everything you earn and you create (small) passive income streams that grown your “margin.”

    This is compared to having success in the “mainstream” (weird word choice) of your own finances, by dramatically increasing the main determining factor of finances–how much money you’re taking in. Choices “at the margin” make a difference, but not as big of one as getting a multi-million dollar paycheck.

    I don’t think it’s the best terminology, but that’s my understanding of where Trent was going with it.

  11. Brian Carr says:

    They say you don’t get rich working for people, you get rich when people work for you. This definitely underscores the importance of entrepreneuralism, but, like everything, you have to weigh the risks and the rewards before jumping in.

  12. Ben says:

    In the book “The Millionaire Next Door” they discuss your earnings as playing good financial offense, but they said that playing good financial defense is the key to playing the financial game. But you are right it is all marginal/incremental and its a never ending goal to earn or save one more $$.

  13. Kevin Dan says:

    My understanding of the terms are: Success in the Margins of your income and Success in the Mainstream on the market. These do make sense to me.

  14. I think there’s a middle ground between small, sustained actions and extraordinary actions.

    For example, I started my own business part-time while working a day job, and–through small, sustained actions–grew it into a full-time endeavor which quadrupled my income.

    My experience isn’t unique, but it does illustrate what can be achieved with a different outlook–namely that instead of thinking that there are 2 choices (employee or exceptional entrepreneur), that there are lots of opportunities to boost income.

    Starting a business on the side is actually a lot easier that you might think. I did it while working full-time, married, with 2 kids. I didn’t work 80-hour weeks, but I did work 1, 2, or 3 extra hours each day, which essentially meant that I cut down on watching TV.

    If you want to start a business, don’t get overwhelmed, but just start taking actions, no matter how small.

    Financial success can be had, and there are many attainable paths to it. Since I’ve been running my own business, I see new opportunities every day–and that’s a paradigm I didn’t have when I was solely an employee.

Leave a Reply

Your email address will not be published. Required fields are marked *