Changing Perspective – Income Thinking vs. Expense Thinking

The year was 2001, and in hindsight I see what an arrogant bastard I’d become.  I was 22, a few months post graduation, and enjoying my first professional job as an engineer. I was pulling in $50,000 a year, an unimaginable fortune for me.

A little history: I grew up lower-middle class.  My mom stayed at home, and my dad worked for the government were he’d slowly earned his way to a cushy $50,000 salary.  I went to a great private college, but only because most of it was paid for by FAFSA government grants. The rest was paid by student loans and a “work study” job on campus.  Because the school was an expensive nationally ranked engineering school, most of my college friends were relatively rich. Almost none of them had jobs, and almost all of them had cars.  I, on the other hand, travelled to my job on a $10 bike that I procured from a police auction.  I didn’t even bother to own a lock.  I lived a genuine frugal lifestyle, but not by choice. I was just me making sure I had food and beer money.  Perhaps I grew an inferiority complex during this time, I’m not sure.

Regardless, when I got that first job in 2001 I went from broke to rich in an instant.  Like a prospect signed to the NBA straight out of high school, I had no clue how to measure money.  All I knew is that for the first time in my entire life, I could buy pretty much anything I wanted.  I had $3500 coming in each month, and a $600 rent. Considering a box of Mac & Cheese was only $1 back then and my taste buds were still equipped for Bud Light, I was left with a lot of spare change.  This sudden financial change had significant effects on me, mostly for the worse.

Shortly after I started the job in Texas my Dad came to visit me and we began talking.  I’m not sure what tipped him off, but he obviously sensed my newfound arrogance, and brought up the discussion of money.  The conversation is fuzzy 13 years later, but I distinctly remember bragging about one thing very clearly:

“If I see a penny on the ground, it’s not even worth my time to pick it up. I make $50K a year.  That’s $25/hour, almost 50 cents a minute, which is practically a penny every second.  So if it takes 2 seconds to bend over and pick the penny up, I’ve wasted my time.”

His response, with a particularly smug look:

Someday you’ll understand, buddy.  Someday you’ll pick up the penny.”

I shrugged it off.  What did he know?  It took him a degree and 25 years of work experience to get where I got with just the 4 year degree.  As I said… I was an arrogant bastard.

Someday Came

My dad was wrong about a lot of things.  He told me someday I’ll wear a tie to work, that I’ll have to get into management and speak more eloquently to be successful, and I’ll have to get comfortable speaking in front of large audiences (all things he did).  He also said the Pirates would someday win the World Series again. Wrong, wrong, wrong. But he was right about one thing: eventually I realized that I should pick up the penny.

Income Thinking

Choosing not to pick up the penny is what I refer to as Income Thinking.  It’s the thought process that weighs the time spent doing a task vs. the time it would take to earn enough income at a traditional job to pay someone else to do the same task (or to pick up the penny).

Income thinking is calling the plumber if the garbage disposal breaks. The logic would go like this: Let’s say you make $50/hour and the plumber will charge $200 for parts and labor.  It would take only from morning until lunch time at your cushy job to pay for this plumber, and when you come home it’ll magically be fixed. Alternatively, it would take you more than 4 hours to diagnose the problem, do some Google research on the solution, find the parts at a local hardware store, go to the store to get the part, then finally come home and get you hands dirty fixing the disposal.  The Income Thinking choice is easy, you call the plumber.

The same is true for all kinds of similar choices – broken refrigerators, furnaces, and washing machines… You name it.  In almost all examples, taken on a case by case basis, a well-earning professional using Income Thinking will come up with the same decision… Outsource.

Income thinking also expands to more unskilled tasks such as grass mowing, car washing, house cleaning, window washing, food preparing, and, believe it or not, Christmas light hanging!  People pay $100 to hang up and pull down Christmas lights.  This is a real thing!

Expense Thinking

Expense Thinking is totally different. Expense Thinking is differentiated from Income thinking in that you consider your expenses when making the decision to do a task yourself.  For those living paycheck to paycheck, income and expenses are the same, therefore the decision would likely be the same. Ironically and unfortunately, many people have expenses matching their income as a result of their Income Thinking.

Let’s take the garbage disposal situation again, and this time let’s use my personal situation since I’m now a penny-fetching Expense Thinker:

The plumber will cost $200 to fix my garbage disposal.  My family of 4 budgets about $80/day.  Wait a second!?! This plumber wants to charge me 2.5 days of living expenses to fix my garbage disposal?!?  In this case, the logic for me is just as obvious as it was for the Income Thinker – but with opposite results, there’s no way I’m paying a plumber 2.5 days of living expenses to do something that I can do myself. I can use Google to diagnose the problem, then bike down to the hardware store and pick up the $5 part myself.  Even if it takes me a day to diagnose, and half a day to do the dirty work, I’ve still come out well ahead.  I’ve also learned a valuable skill, so that if the disposal breaks again I’ll already be familiar with it’s anatomy.

As with Income Thinking, Expense Thinking also expands to other more unskilled tasks: lawn mowing, car washing, house cleaning, window washing, food preparation, and even our good friend Christmas Light hanging.

Expense Thinking supports self-reliance, and self-reliance decouples one’s needs from money. And freedom from the need of money leads to emancipation from wage slavery.

Other Costs

Expense Thinking also applies to other expenses.  Monthly cable bills, expensive cell phone charges, car payments, laptop upgrades, and daily lattes and lagers – just to get started.  When you’re making $80,000 a year, these expenses look like chump change.  But when viewed against your monthly budget of $2,500, this perspective changes.

Income vs. Expenses

On a related note, the challenge I laid out in a previous post starts at the end of January.  I’m challenging you to sign up for the new forum (this link has also been added to the top of the blog), and use it to track your income and expenses.  I also hope you’ll support/encourage/advise others on the forum who share their own financial reporting so we can build a positive community that achieves real positive results.  I can say from experience that this can be life changing.

For those interested, here’s a Google Spreadsheet to track your cash-flow, month by month (courtesy of my buddy at  It includes nifty little graphs that you can embed into your reports on the forum. So go register now, introduce yourself, and watch out for my own January update the first week in February.  I hope you’ll join me there with your own updates!


Note: The spreadsheet is a read-only template.  So once you open it, click on “File->Make a Copy” and save that. This will be your own private writable copy.  The first tab is the master tab where you can fill in your monthly budget and expected incomes.  You can add/remove/change the categories to match your personal budget categories.  

On the individual month tabs, you can itemize each expense on the left.  Personally, I use Quicken to track all this for me, so I don’t itemize in the spreadsheet. Instead, I’ll just fill in the category totals farther to the right. 

For income, I’ll only be including my passive and “fun” income so that I can see if/when my passive income exceeds my expenses.  You can choose to include your normal 9-5 wages or not, however you prefer.  I suggest that if you’re early into the savings process, you include your wages and focus on your savings percentage (last tab), but if you’re nearing retirement it might be more useful to exclude your 9-5 wages.

The last two tabs will graph your results over time.  

Note #2: The forum is live, and over the next few weeks I’ll be cleaning it up to look nicer.  In other words, please ignore how amateur the page looks right now.  I just wanted to get it out ASAP so that it’s ready for the challenge, and so you guys can sign up in advance and hopefully say hello.

29 Responses to Changing Perspective – Income Thinking vs. Expense Thinking

  1. Hi BNL. Thanks for sharing your story about Income Thinking. Interesting that you posted a February 1st challenge start, because my husband and I were telling each other that we’ll crack down at the start of February. My fear is that this we’ll get lax about it and fall off the wagon like we do most months, but I like the accountability in your forum. I’m looking forward to seeing what you and other readers are recording!

  2. I’d never thought of it in those terms before. There are still plenty of things I choose to outsource (e.g. – growing or/butchering my food, changing my car’s oil, entertainment like subscription television), but this is a new way to re-evaluate the decisions.

    • Yeah, we live in a world where if you don’t go completely off-grid (and option becoming increasingly more difficult), some things ultimately have to be outsourced. Growing/butchering food is one of the reasons I still strive to go vegetarian and am considering moving to an area more conducive to gardening – Colorado’s growing season is just too short.

      Expense thinking is also the logic we used to get rid of cable starting this month. We were paying almost $80/month, which is just under what I make in an hour at work. However, it’s also the equivalent of one day’s expenses, which is way too much to be spending on such a useless activity. Full disclosure, we had Netflix already, and we now added Hulu Plus. This was my consolation to my wife, who still enjoys her TV.

      • Ken says:

        You can pickup a digital antenna from radio Shack for $10 and get all the local channels. We still pay $70 for Comcast’s unreliable monopoly internet since I work from home, but we don’t watch much TV anyways.

      • Ken –

        I should have mentioned that. I do have a digital antenna ($50, because I needed an outdoor one because of sketchy reception here in the foothills). It gets a great digital feed and has 80% of the shows we watch or can watch on Hulu/Netflix. The only reason we decided to keep the paid services was because my wife is still into some long running shows that she wants to finish up. Once they are over, I’m hoping to ween off the paid services and use only our computer and free over the air reception of ABC/CBS/Fox/PBS.

        One thing a lot of people don’t realize is that a lot of shows are available on the network website the day after airing. I’ve found this to be the case for almost everything that isn’t on a premium channel like HBO/Showtime.

  3. Insourcelife says:

    Outsourcing makes you poor(er) and dependent no matter how you rationalize it or how much you make. Learn how to do a few things yourself every year and soon you will be saving a ton of money AND time. Usually it’s not only cheaper but faster to do commonly outsourced jobs yourself. I can do an oil change in 30 minutes in my garage with a beer in my hand vs. having to bring it to a shop and worry about waiting or being without a car. Same goes for fixing stuff around the house, cooking food at home etc. Insource :) Great article!

  4. Good article, BNL. Like you, over the past year or so I’ve gradually altered my perspective to think about expenses by default rather than income. In my case, my take-home W2 salary is a little over $100 a day, every day. Now when I want to buy something potentially frivolous, I have to ask myself, “Is possessing this item worth a whole day’s worth of income?” (or two days, or half a day, or whatever). More often than not, the answer is no.

    In other words, I pick up pennies now, too. :-)

    Oh, and thanks for sharing my Finance Tracker spreadsheet. I hope it’s of value to your readers. It has definitely helped me take control of my spending.

  5. Joe says:

    Luckily, I’ve always had the expense thinking perspective and I always picked up pennies. We had some financial struggles when I was young and the habit is ingrained. No matter how much money I made, I always save first. I spent a bit more freely when I made a lot of money, but never excessively.

  6. Bonnie says:

    I agree with your thoughts here except I wonder how it will play out as you get older. I see older relatives and myself getting to the point where they are no longer physically able to do some things themselves and therefore hire others to do them; things from housecleaning and yard work to bathing and dressing. Yes, they can move in older age to a new home and not have the house and yard. I wonder what your plans are for very old age and potentially long term care.

    • My grandparents-in-law are 98 and 97. I’ve known them for nearly 20 years now, and watched their capabilities diminish to the point now that they are highly dependent on other people despite still living independently.

      They have a two-fold approach that works well. First, they only do things that are necessary. This includes things like cooking (they cook one big bowl of something each Sunday and pretty much eat that all week), basic cleaning, and doctor visits. In other words, they limit what they do to the things they can mostly do on their own.

      Second, they use their community for help. For example, they use their church to help them get to the grocery, and neighbors help with lawn service. The guy who does their lawn is glad to help, since they gave their old 1060’s pickup truck to him as a gift.

      I like the idea of being able to use community in old age (paying it forward now, of course). Whether that works out or not, time will tell. But that’s going to be a challenge for anyone, independent of how they save money now.

  7. The other fallacy with income thinking, with regards to the whole “I make $50/hour and it only costs $25/hour to hire someone else to do it for me” thinking is that you can’t do your job 24/7. And if you could you wouldn’t want to anyway, unless you were insane.

    Cooking yourself a nice meal, mowing the lawn, and doing a bit of DIY can actually be very enjoyable activities and give your life a bit of variety, which as they say is supposedly the spice, right?

    The alternative of Work -> Eat lunch out -> Work some more -> Dinner out or takeaway -> Go home and watch TV sounds incredibly boring to me.

    • Cooking yourself a nice meal, mowing the lawn, and doing a bit of DIY can actually be very enjoyable activities and give your life a bit of variety, which as they say is supposedly the spice, right?

      This is actually a new experience for me. Up until a year ago or so, I saw all of those tasks as burdens, even stressful at times. But since then, I’ve been studying mindfulness and mediation, and learned to enjoy these experiences. Even going so far as to consider them sacred, and it’s changed my entire perspective on these tasks I used to consider mundane. If you’re interested, check out the many books by Thich Nhat Hanh.

      • Yes it takes a certain mindset but as you and I have both found it’s not an impossible task to change that. I still find DIY stressful but enjoy the satisfaction of having done the job myself so overall it’s still a winner for me. I actually really enjoy gardening and can’t wait to have my own vegetable patch when we move out of our flat. And I love cooking meals from scratch as I think I am quite the chef… Hah!

        I think it’s possibly like any other task or skill, the better you get at it the more you tend to enjoy it? So I’ll keep on at the DIY for sure.

        Thanks for the recommendation, any particular title to start with as I see he has quite a large back library?

      • Yeah, this guys like the Stephen King of mindfulness/Buddhist writing…

        He’s written a lot of great books expanding across a lot of different topics, but regarding mindfulness and finding joy in the moment regardless of the task, I’d recommend these in the order given (the first two mostly cover everything and have quite a bit of overlap):

        You Are Here
        Peace Is Everywhere
        The Art Of Mindfulness
        Work: How to Find Joy and Meaning in Each Hour of the Day

      • Great! Thank you so much!

  8. Jacq says:

    I’m at the winding down phase of my career (contract work maybe 1/2 a year or less) nowadays where work is somewhat optional since I’m FI, so I still continue to think in an income-centric way. For basic living expenses which are all covered by dividends and other passive income, I think in an expense driven way but for the extras that I’ve chosen to continue to work for, I do consider “if I tip this waiter on the cruise $100, that’s only one hour of work for me and who knows how many for him. Is it worth my spending one hour of my life behind a desk to make his day?” The answer is usually yes.

    This year, my goal is to save enough to generate enough income to cover the super nice to have’s (mostly travel related). I’ve done this step by step approach throughout my journey to FI (ie. save enough to cover the mortgage, then the utilities, then the groceries…) and it’s worked very well for me to keep motivation up. Upside is I still mostly enjoy what I do, it pays extremely well and I’ve managed to find gigs that are pretty flexible with summers off. There will come a point though where it’s sort of silly tax-wise to continue to work and draw dividends etc. that are more than my lifestyle requires. First world problem… :-)

    • Excellent point. I meant to bring that up in my post, actually. Once I show that my passive income meets or exceeds my basic needs, my plan is to use excessive income through various nano-businesses and other projects that happen to pay, and use them on some things I’ve been wanting to experiment with: solar power, efficient year-round green house, aquaponics, etc. Those things mostly will save me money in the long run anyways, but they are things I actually look forward to DIY’ing and learning about. So, in a way, I’ll switch to a bit of Income Thinking, but only after I quit my day job.

  9. Klaas says:

    I, too, have long been bothered by the many fallacies that go into the “My time is worth [hypothetical pretax wage]/hour” method of evaluating spending.

    I think the question of what value to put on money is a complicated one, and that there’s not a single best way to approach it (though there are for sure better and worse ones!), but the one I like values money based on the time it takes you to increase your net worth by that amount.

    I think yours is good in some situations, like if you’re considering an ongoing expense and realize that it will increase your “cost of living” by 10% but contribute way less than 10% to increasing your quality of life. But I think my formula might work better for one-time expenses, since the mental analogy between “iPad that I covet” and “5 days of total expenses” is less direct than that between iPad and “8 days of work”. Because you’re actually trading those work days for that gadget. Though really, they’re pretty similar.

    The one other thing I like better about my formula is that it scales with surplus income rather than with current expenses, so that, like a typical utility function, it makes money seem less valuable as you have more of it. Your formula would have a simple-living millionaire who lives on $80/day feeling the same reluctance to outsource yard work as someone living on $80/day paycheck to paycheck.

    (I think this is going to add a link to my write-up of my idea to the bottom here.)

    • Dr. Doom says:

      Interesting post. I followed a very similar path to you financially. I’m also a recovering arrogant prick who sometimes falls off the wagon. Thanks for sharing.

      I read most of The Art Of Mindfulness and found it useful for combating general anxiety. On days when vigorous exercise isn’t enough to get you to a calm and peaceful state, adding stretching, light yoga, breathing exercises and mindfulness on top of it will do it every time.

      One of the most powerful points in the book for me is the guidance to look outward rather than inward as often as possible — to appreciate details in life, use all of your senses, and open yourself up. Some of it sounds corny, but still, I’ve found it to be surprisingly helpful.

  10. […] Changing Perspective – Income Thinking vs. Expense Thinking: I use expense thinking most of the time. Since we keep our expenses low, it’s easier to make those frugal decisions. […]

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  12. As a recovering income-thinker:

    The additional flaw with income thinking is the concept of hourly wage at the gross income level. It’s not enough to take your salary and divide it by your total hours worked. Or, if you get paid by the hour, to take your hourly wage at face value.

    Anyone thinking of their hourly wage needs to strip taxes, social program deductions and other employee deductions and look at their NET income.

    If you want to take it one step further, look at your work week and add up ALL the hours you spend on your job outside “working hours”. Getting ready in the morning (much different than putting on a t-shirt and a pair of jeans to go about your day, especially for women), commute to and from work, including extra time to drop off kids at daycare, the extra hassles of dry-cleaning and other office-related upkeep, plus other add on time costs we just don’t think of.

    When you use the following formula:


    …it really makes you think a lot harder about outsourcing.

    The question should maybe be whether to cut down on unpaid overtime in order to do more of my own off-work activities. You save on outsourcing, you bring home the same pay check and experience less stress. Win/win/win.

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  17. […] 1) Income Thinking vs Expense Thinking by BNL. […]

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