Financial hardship occurs when expenses exceed income. Remember, expenses exceed income.
If your monthly expenses are 20 units and your income is 15 units, you’ll face financial hardship. That’s because you’re 5 units short. If you stress out every month trying to make up for that 5-unit shortfall…
From time to time, I went through things like this, too. Every now and then, I looked for a solution. This time, instead of trying to solve it, I thought of reducing the stress load. Reducing the stress load!
I found the solution while thinking about the “phantom traffic jam” concept.
Let’s assume my monthly expenses are 20 units and my income is 15 units.
If we’d had an additional 20 units in our pocket, we’d have had 20 + 15 = 35 units that month. If I paid 20 of them, I’d have 15 units left in my pocket.
The following month, we had 15 units of income left over from the previous month. We also earned 15 units this month. Right now, we have 30 units in our pocket. But we don’t have a 5-unit shortfall.
15 + 15 = 30
30 – 20 = 10
We haven’t experienced any financial stress for two months.
The following month (that is, the third month), we had 10 units left over from the previous month.
15 + 10 = 25
25 – 20 = 5
We didn’t experience any financial stress in the third month either.
In the fourth month, we repeated the same process with the remaining amount from the third month.
15 + 5 = 20
We no longer have any extra money left. However, we didn’t experience any financial stress for four months. But life is full of entropy. So let’s calculate based on three months instead of four. Let’s count the additional month as an expense for emergencies.
If you generate side income equivalent to one month’s expenses over three months, you’ll face financial hardship once every three months instead of every month. The advantage of this is that instead of dealing with sales stress every month, you spread the stress of generating side income over three months.
What I’m really focusing on here isn’t the formula itself. It’s how I approach the formula.
That’s the solution I’ve developed. What do you think? Don’t hesitate to tell me.
