Why You're STUCK At Your Income Level (and what to do about it)

[Dien Rice]

Once upon a time, Don Alm posted a VERY interesting post...

Let me repost it here...

Years ago when I had a salesforce of 7 people it was always amazing how each salesperson would reach a certain income level then STOP!

If the most a salesperson had made in his or her career was $25,000/yr ($500/wk)...that person had a "Mental Governor" in the psyche.

They'd go out a make $500 on their first 2 sales on Monday then goof off or do "paperwork" the rest of the week....almost as if they were AFRAID to make more money....which would take them "out of their comfort zone".

Thus...I tried an experiment;
I ran an ad for salespeople but, my ad said, "No Sales Experience Preferred!"

I started getting people who had hardly any "sales" experience BUT...they had experience doing something else and had made good money.

For example; One guy had made $80,000 as a Plant Foreman overseeing 30 employees. His "comfort level" was $1500 a week.

So...when this guy went out and made $500 his first day of the week....he kept going until he had $1500 or $2000 before he "slowed up".

So...whenever I interviewed salespeople I don't care if they had made $80,000/yr digging ditches, THEIR MIND WAS SET IN PLACE TO EARN $80,000.

Thus...I had one of the most successful businesses in my field because I was aware of the "Mind-Governor".

This is not to say that someone making $25,000/yr could not make $80,000/yr....a few did but...as a general rule if the most they had made prior to seeing me was $25,000/yr...chances were great that that's the most they'd make with me.

STrange.

Don Alm

Here's the link to the original post... http://www.sowpub.com/forum/showthread.php?p=11433

I just read about a psychological phenomenon called "anchoring". Here is the article - "In a Sea of Uncertainty, We All Have an Anchor" by Shankar Vedantam

In short, the article suggests that if you don't know the answer to a question (which has a number as the answer), if there's some suggestion of the number from somewhere, people will guess near that number.

For example, in a social experiment, some people were asked whether the number of African countries in the U.N. was less than or greater than 10%. In the end, on average those people guessed that 25% of countries in the U.N. were in Africa.

However, other people were asked whether the number of African countries in the U.N. was less than or greater than 65%. In the end, on average those people guessed that 45% of countries in the U.N. were in Africa.

The point is, the only thing that changed was the question - but that question affected their final guess!

This has a financial part too...

For example, the article says...

Although anchoring is often innocuous, it can sometimes come at a cost. Psychologist Nicholas Epley at the University of Chicago said that people who move from a city with expensive housing to one with cheaper housing are likely to overpay for housing because their minds are still anchored in the more expensive market.

I think this helps to explain Don Alm's observation. People who are used to earning a certain salary, are "anchored" at that number. Because they are "fixed" around that number, it becomes "harder" for them to earn a higher amount, even when they can.

Here's another interesting part of the article...

Epley said he conducted one experiment in which asking people how much money they had in their wallets vs. how much they had in their bank accounts influenced how much they spent. When the experiment was conducted outside a store before shoppers went in, those who were reminded of the larger amount that was in their bank balances spent more than those who were reminded about the smaller amount in their wallets.

Anyway, what do you think about this kind of mental "anchor" and how much people earn? Any ideas on how to overcome this "achoring" bias our minds have?

Are you truly "stuck" at your income level? Or can you mentally change your own "anchor" of how much you earn?

- Dien

[Ankesh]

Excellent post Dien!

>Any ideas on how to overcome this "achoring" bias our minds have?

>Are you truly "stuck" at your income level? Or can you mentally change your
>own "anchor" of how much you earn?

Actually you kind of gave a hint yourself.

People who were made AWARE of the higher amount of money in their banks spent more. Those who were made aware of a smaller amoung in their wallets spent less.

Improve people's awareness of the possibilities and they'll do better. Stories and case studies will break their invisible mind barriers. Show them how the best sales person of the co. generates his sales. Make them read biographies of people in the Forbes Richest list.

Backdoor trick: Make people save 10% of their earnings automatically. If you're an entrepreneur, open another bank a/c and setup a system where 10% of all your earnings before tax goes to this new bank a/c.

You'll keep on doing as well as where your comfort level lies. But after a year, you'll have 1 months extra salary. You can then invest that. And invest and grow rich.

(I think having the 10% savings rule is a MUST HAVE if you want to create a passive income portfolio.)

[Dien Rice]

Hi Ankesh!

Originally Posted by Ankesh

Excellent post Dien!

>Any ideas on how to overcome this "achoring" bias our minds have?

>Are you truly "stuck" at your income level? Or can you mentally change your
>own "anchor" of how much you earn?

Actually you kind of gave a hint yourself.

People who were made AWARE of the higher amount of money in their banks spent more. Those who were made aware of a smaller amoung in their wallets spent less.

Improve people's awareness of the possibilities and they'll do better. Stories and case studies will break their invisible mind barriers. Show them how the best sales person of the co. generates his sales. Make them read biographies of people in the Forbes Richest list.

Good idea! As you get to feel a high income is "normal" (by reading stories, case studies, and biographies), you'll more naturally "push" yourself to earn more as well...

The "friend effect" could also be a factor here. Ankesh has pointed out before that if you average the income of 5 of your closest friends, it will be close to your own income. Partly this is because you'll learn the same things your friends know - which will help you make profits. But another effect could be this "anchoring" effect...! You see your friends' incomes as the "normal" range...

Here's something Ankesh wrote about this effect... http://www.nethotsheet.com/making-friends.php

(By the way, be sure to check out Ankesh's new site too, Non-Toxin http://www.nontoxin.com ! Essentially, whenever Ankesh gives out wisdom, make sure you're there to soak it in... That's what I do! )

Backdoor trick: Make people save 10% of their earnings automatically. If you're an entrepreneur, open another bank a/c and setup a system where 10% of all your earnings before tax goes to this new bank a/c.

You'll keep on doing as well as where your comfort level lies. But after a year, you'll have 1 months extra salary. You can then invest that. And invest and grow rich.

(I think having the 10% savings rule is a MUST HAVE if you want to create a passive income portfolio.)

Thanks Ankesh, that's great advice too!

Cheers,

Dien

How so very true

I'm a licensed insurance agent 20 years now and I'm ashamed to say that I definitely fit this profile

As the saying goes...
"A goal once achieved no longer motivates"

The key is to always setting and achieving new bigger and better goals.

I like Anthony Robbins take...
"CANI"

which means "Constant And Neverending Improvement".

I think originally coined by the Japanese term "Kaizan"??

Either way. Great post.

One more thing is that I often see people set unattainable goals that are very difficult to achieve. And when they fail become discouraged.

It is important to set goals that you have a reasonable chance of reaching.

I have seen many companies that started with one guy and a bucket and reached multi-million dollar stage in a few years because the person set a series of achievable goals and kept at it.

Dien,

Thanks for mentioning Anchoring.

I'd seen this done with Distances. In the US and people were asked how Long the Mississippi River was - longer/shorter then 300 miles and how long was it; or longer/shorter then 1000 miles and how long was it.

In both cases, whether people said longer or shorter, the Length they suggested was Near the first number they'd been given. BTW, it's actually 2320 miles long!

As for this applying with income. I don't think it's the case per se.

Take a humble Laborer - labour is the basic thing we have to offer so I'll use it as an example. Some are earning $16.90 an hour flat rate (no overtime or weekend penalties or night penalties - $16.90 an hour no matter when they work or how long they work for. Some are earning $35 an hour with all the penalties and bonuses. The difference... Where the work is and What Type Of Laboring it is.

Cleaners, as employees making $14-$17 an hour, while others are making $29 an hour plus $30 a day travel-to-work allowance, plus overtime money plus $1.50-$4 an hour Productivity/Site Allowance. The big money cleaners are known as a Peggy (cleaner) usually at construction sites or mines - either sites in town, close to town or FIFO (fly in fly out) camps.

A sparky in town might be on $50k while a FIFO sparky could be on $140k.

But is the person Willing to do the work? THAT is the question.

Everyone Could take on a second job - either a few hours after Normal work or weekend. But Will they?

A lot of jobs offer Overtime. But not everyone does it when available. Preferring to work a 40 hour week and take home Base Pay instead of maybe doing a 55 hour week and taking home nearly double - or finding a higher paying job they will enjoy more.

If THEY feel their needs are being met with their present income level, they will not do too much more Work to make more money. If they NEED to make more money, then they pull their finger out and do so.

Of course, if you take away their responsibility and allow them to get by even if the NEED arises, then they will not pull their finger out.

E.g. When bankruptcy (BR) looms, why do people not get second jobs and the like to Work their way out of it? Because BR is the Easy Out. There is always welfare, handouts, etc. Someone to bail them out so they don't need to be responsible for themselves.

For most people - that's Most but not all - their income doesn't make a difference to their financial state. Someone on $50k can be doing well while someone on $100k is just about broke. Because as their income increases they buy more Stuff.

If you take actions of your own volition, then fine. But when you have no Choice then you need to look at what came before.

What I mean is, and by way of example...

Guy makes around $80k a year. He chooses to rent at $400 a week. He chooses to go out to dinner three/four times a week at $70 a head. He chooses to buy his morning break and lunch meals at work in expensive cafes. He chooses to buy $5 coffees throughout the day. He chooses to buy the 60 inch plasma screen TV and super hi-fi system. So when it comes to a car, all he is left able to afford is a second hand beat up pickup.

The difference between a guy on $50k doing well and a guy on $80k doing poorly, is their Money Management - and - what they are willing/unwilling to do when it comes to earning money.

Take this guy for example....

Makes $17 an hour as a process worker in a factory. BUT, he lives with a single mom who is on single mom welfare and thus gets cheap housing. When the welfare people come to check up on them, he quits his job as proof he is unemployed, so the rent stays cheap. Then he gets another job for six months until they check up again.

He spends a lot of effort to work the govt system but not to better himself in anyway.

People complain about not having enough money while buying booze and smokes. The usual thing.

What are you Willing to do? That's what it comes down to. Some people are willing to put in the Effort to earn money, others aren't.

If you (generic you) wish for more income, are you willing to work a second job? It's a yes/no question. If the answer is "no", then why not?

Michael Ross

P.S. I once had three jobs - main, after hours and a weekend job - to enable me to achieve what I wanted to achieve. And jettisoned the jobs as they weren't needed any more. I was Willing. Most people are not. They prefer to whine about their lack of money.

Here's a Simple solution to Unstucking your income and a Great way to Prosper long term...

Frugal can Do Magical things to your income levels...

I keep on suggesting The Millionaire Next Door...

Because it's an Easy way to Compound and Grow your income(s) & investments...

Definitely works if you're willing to make the necessary Lifestyle changes...

Manage things Smartly and you'll have all the excess “Toys” that you really need and want...

You'll find Lots of different opinions on this one...

But I'm looking forward to this one atleast Doubling long term...

Visa's Record IPO Should Generate Long-Term Profits
http://seekingalpha.com/article/6957...g-term-profits

Weakened Financials Strut Their Visa IPO Profits
http://www.moneymorning.com/2008/04/...a-ipo-profits/

The Millionaire Next Door...

Under $2. Bucks used... How can you go wrong...

There you Go... My take on...

Unstucking your income and a Great way to Prosper long term...

http://www.amazon.com/Millionaire-Ne.../dp/0671015206
http://www.amazon.com/gp/reader/0671...45#reader-link

Phil