20. How to Know if You Are Under Earning: Part 5

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Welcome to Episode 20 of How to Make More Money, a podcast that helps you get seriously good at the game of making serious money. I’m your host Kelly Hollingsworth, and I’m thrilled you’re here, because today we’re continuing our deep dive into underearning. We’ve discussed the math. You’re underearning if you’re making less than the market is willing to pay.

We’ve also discussed four different ways to know if you have this going on. The first way is the mark-up test. We talked about this in episode 16. You are underearning if someone is marking up your services. You’re doing all of the work but making a fraction of the money.

Why would anyone tolerate an expensive situation such as this? Because we are groomed to underearn, and a big way this grooming takes place is with the pervasive message that it’s difficult to get clients.

But in truth, if you’re selling something that people actually want to buy, the only reason it’s difficult to get clients is because you are warning them away from you. We discussed this in episode 17. Or because you aren’t saying anything at all. You are silent about your business. We discussed that in episode 18.

Why, when we’re in business and want to make money would we remain silent or warn people away? The reason is because we’re internally conflicted. We discussed this in episode 19. We believe that having clients and making money will harm the people we care about, and will harm our relationships with them.

So these are additional ways to know if you’re underearning. The mark-up test is test #1. Test #2 is that you’re warning people away from you. You’re out there, telling people about what you do, but they’re not buying. Test #3 is you’re silent. You’re not saying anything about what you do.  Test #4 is internal conflict. If you are internally conflicted about making money, you’re underearning because that internal conflict shows up in your marketing message, whether you realize it or not.

Today we’re talking about Test #5, external conflict. External conflict comes up when people oppose what you’re doing, and they take it upon themselves to tell you about it, or otherwise communicate their opposition.

It’s not always a big deal. Confrontation comes up in our daily lives in too many ways to count. For example, I have been confronted about chopping onions incorrectly, and not just once. More than once.

I have been confronted about being a bad mother to children I don’t even have. Once at a party on St. Thomas, one of my pretty good friends took it upon himself to announce, to everyone in the room, that I should never have children because I’m so selfish I would be a terrible mother. At the time, I didn’t have children. I had no plans to have children. And I still don’t have children. Yet for some reason, I was being confronted about my inability to correctly mother children I did not have, and never would have. Confrontation is so frequent and common that we often are confronted about things that haven’t even happened yet, because if they did happen, the person who opposes us just knows that we would screw it up.

We can be confronted about anything. Things that are happening now. Things that happened in the past. Things that are never going to happen. Confrontation arises in all manner of contexts, but in this show, which is about you making so much more money, we’re going to focus on the confrontations that cost you cash.

As far as cash is concerned, confrontations abound. Here’s a recent example from my own life. After ten days of self-imposed quarantine to make sure none of us were contagious with COVID, some of my family members and I got together at my house for a holiday meal. One of my family members was asking me how things were going with me. I shared how my business was going, and my revenue targets for next year, and I was so excited about all of it. As you know, revenue generation is my hobby. My life’s work. My favorite pastime. I love everything about it. And my relative said, “Well, when you get there next year, are you finally going to be happy? I mean, how much money do you need? Don’t you have enough?”

On the surface, this may not feel confrontational. These are questions I am routinely asked about my favorite pastime of making money—when is it going to be enough? How much money do you need? Do you think at some point you’re going to be happy? If we heard one person asking another person these kinds of questions at a party, few of us would think, “Wow. That guy is out of line. He’s really confrontational.”

But think about this. At that same family dinner, I heard that same relative and his wife talking about a billing error on their credit card. Someone had charged them $16 for something, and they pursued getting a refund because the $16 charge was an error. Initially they got three dollars back, and they were furious about only getting $3 back, and they were going through some process to get the remaining $13 back. To this, I could have easily asked the same questions they posed to me. When they were talking about their pastime of pursuing credit card refunds, I could have easily asked, “When you get the remaining $13 back, are you finally going to be happy? I mean, how much money do you need? Don’t you have enough?”

I didn’t ask these questions—because they’re clearly confrontational and also, it’s up to them how they spend their time—but this brings me to my point in relaying this exchange. It’s fairly routine for our brains to favor saving money over making money. If you’re into budgeting and sticking to a budget, and chasing down small but improper charges on your credit card, you’re widely regarded as a disciplined person who does the right things. Not in every circle. But in most of our families, few people would question that kind of thing as a good thing to do. If you’re into making money and you’re super excited about hitting big revenue targets, well, that often has a different connotation to it, doesn’t it? In most of our families, that idea would bring up some strong opinions, and generally they would be against the idea of what you’re talking about.

There’s just something that feels a little different when we’re thinking pursuing a $16 refund—that feels fine—vs. say, $16 million in revenue. That feels sort of not fine to many people, and when they hear about it, they’re going to tell you about it.

In the hedge fund industry, we have a name for this. We call it tripping over dollars to pick up pennies. And when you start to look for it, you will see it everywhere. If you’re game, try this out for a fun exercise in confrontation at your next family gathering. Go to a family event and announce that you’re going to get serious about budgeting so you can finally pay off debt and get your retirement contributions going, so you can finally get your employer’s 6% match into your 401k. I’m going to bet, if you do this, that you’ll get pats on the back all around. Now imagine going to the same gathering and telling everyone, “Listen. I’m going to quit my job and quadruple my income by cutting out the middleman—my employer—and then I’m going to make bank in my own business, and retire in style.” Try that out with your family and see how well that goes down. Unless you’re in a family of entrepreneurs, and they all have the rare and valuable skill of high-profit thinking, you are going to hear about this idea, my friend. You are definitely going to hear about it. They will oppose what you’re doing. People will confront you, and this is especially true if you’re a woman.  

I asked my husband today, “Has anyone ever confronted you about making money?” And he looked at me like, “What?” and he said, “Why would they do that? It’s none of their business.”

Whereas in my own life, notice that I am a woman, people routinely take my business of making money, and make it their business. The most biting criticism I’ve ever received came from my mother, when she was mad at me one day and she said, “Ever since you started making all that money, you’ve lost the best part of yourself.”

Now, does she really believe this about me? I don’t think so, but again, that’s not the point. The point is that as far as collecting serious cash goes, confrontation comes with the territory. People have thoughts about it, and when they do, they are going to tell you what they think.

This has never bothered me. When my mom or another relative says something about me making money, it’s like water off a duck’s back. I listen to what they have to say, and I think, “Hmmm. These low-profit thoughts of yours are the reason you’ve never made serious money. Thank God I don’t think this way.”

But this, I’ve come to realize, is an unusual response. I have absolutely no fear of confrontation. You have a problem with me? Bring. It. On. I didn’t even realize fear of confrontation was a thing until I was coaching women on doing things that would create so much more money, and they looked at me like I was crazy. They’d say, “I can’t do that.” When I would ask why, they would say, “Someone might confront me.”

If you dread conflict because you lack the skill to disregard it, I can promise that it’s costing you a fortune, and the biggest sign that you have this going on is that you are following all the “rules” around money, and you’re very upset at the idea of not following the rules. To see if this is you, let’s walk through a story and as we do, notice if you start to feel antsy or upset. I’m going to tell you about some times in my life where I defied convention and it paid off in serious cash, and at every step of the way, I was confronted about it.

Consider, for example, when I graduated from law school. At the height of the financial crisis, my husband was laid off from his job as a pilot at a major airline. I had closed my hedge fund just prior to the crisis for reasons we can discuss in another episode. So between the two of us, my husband and me, we had no income to speak of. We had savings, but we also had over a million dollars in mortgage payment. At that point, we were at a fork in the road. At a time when lots of people were staring bankruptcy in the face, we made a decision that we were not going to lose our assets because of the crisis. We weren’t going to backslide financially by burning through savings or losing our home or anything like that.

You can make money in any circumstance, but some circumstances are more challenging than others, and that was definitely one of them.

So what did we do? Everything we had to do, and in the most efficient way possible. I got a job offer to go work at one of the largest hedge funds in the world, but it would’ve required me to go live in New York and travel extensively. I didn’t want to do that, because at that time in my life, I didn’t want to be away from my family anymore. At that point, I had been all over the world. I had lived in Atlanta, Chicago, New York, the Virgin Islands, traveled everywhere, and I was finally back at home with my family, and I had finally found the love of my life, and I really didn’t want to leave Idaho and be away from them again.

So even though that job would have paid a great deal of money, it just wasn’t something I was willing to do. Instead, I decided that I would use the financial crisis as a means to an end. That one job aside, the entire financial services industry, hedge funds included, had pretty much ground to a screeching halt. There just wasn’t much happening. So I decided that I was going to use that relatively slow period in commerce to finally finish my law degree.

I started law school many years before, when I was in my 20s. At that time, I was going to law school at night and working full-time during the day. It was a four-year program and I was probably about three semesters away from finishing, but I got a job offer at a fairly large hedge fund. It was the kind of offer that you go to law school to get, so I thought, law school will wait. Within six months of accepting that job, I had an apartment in Atlanta, an apartment in New York that the company provided for my use, and I was also living about a week a month in Westport Connecticut because we had an office there, too. Living in these three different cities made it impossible for me to finish law school because there is a mandatory attendance requirement. You can’t phone it in for law school. You have to show up for roll call in class each day, or they won’t give you your credits and you can’t take the bar exam.

So, when I got the amazing job offer to work in those three cities, I quit law school. You can go to law school any time. The point of going to law school wasn’t to be a lawyer. The point of going to law school was to build my skills so that I could get the ultimate result that I wanted, which was to make a ton of money. And when that result presented itself, earlier than I anticipated, it was time to quit law school and capitalize on the reason why I had gone in the first place.

But then what happened? In a word, confrontation happened.  

“Quitting law school” is not something that people take lightly. But remaining in law school at that time was going to cost me a fortune. So I quit, and believe me, this is something I heard about. I was confronted about quitting law school. Everywhere I looked, people were telling me that I was screwing it up. They confronted me about the fact that I had quit law school, to tell me I was doing it wrong.

But I knew law school would wait. So I quit law school. I made hay while the sun shone. And when the financial crisis hit and financial services was basically frozen up like of an iceberg, I thought to myself, this is a good time to go back and finish that law degree. It’s not like I didn’t intend to finish it. It just wasn’t a good time, when there was money to be made. So in my thirties, I took the LSATs again, and I got a scholarship. A half ride at Gonzaga law school, which was about 45 minutes from my house. I got a full ride at University of Idaho, but that was three hours away from my house, and I didn’t want to move to Moscow and live in what is mostly a college town. So I went to Gonzaga instead, and there I was again confronted with a number of other instances where people thought I was doing things wrong, as far as money was concerned.

For example, I remember being at a lunch with my securities law professor and several other students who were in my securities law class. We were all there at lunch together, and they were talking about their student loans and the interest rates and on and on and on. And I said, “I don’t think law students should take out student loans in the traditional way. Student loans just don’t make any sense.”

And my fellow students were asking me, “Why? What are you talking about? How else do you borrow money for law school?”

And I basically shared my thought that no one should take out student loans for law school–if you can get a low interest rate, you should borrow the money on credit cards instead. And I know this sounds insane, but here’s my reasoning. Credit card debt is dischargeable in bankruptcy, and student loans are not. And you never know what’s going to happen. Sometimes people go bankrupt through no fault of their own. For example, if you have a catastrophic medical issue, you could find yourself needing to get out from under all of your debts—medical and otherwise– and if you have those student loans from law school, I think they remain with you even after bankruptcy. And if you’re a lawyer who can’t work because you have a serious medical problem, those student loans that you can get rid of could wind up being a problem. A giant problem.  

Here I want to clarify… I’m not suggesting that people plan on going bankrupt just for fun so they can be irresponsible and then wipe the slate clean and start over again. But I am suggesting that bankruptcy is a legal avenue that we make available to our citizens here in the US because we don’t do debtors’ prison anymore. We don’t put people in jail when they can’t pay their debts. We recognize that sometimes things happen, and people have no way of paying back their debts, and so we offer a legal mechanism in this country—bankruptcy–for them to get their life back on track if they happen to suffer from something like that.

So borrowing on credit cards is a boon in that regard. If you do suffer from an Armageddon life event, bankruptcy is a mechanism that helps you wipe that debt clean. Plus, if you play the game right, the interest rate on credit cards are usually at least four or five hundred basis points less than what you would get in student loans.

And when I said this at that lunch, my fellow students were looking at me like Huh. I never thought about it that way. And here I have to say, I haven’t researched this extensively. I don’t know if I’m completely correct that student loans are never dischargeable in bankruptcy. There could be cases where they are. There could be situations in which what I was saying wasn’t exactly the way things work. This was just my general sense of things at the time. But I was sharing an idea about how law students could save money and interest and protect their future from an Armageddon-type life event that could make it impossible for them to pay back law school loans.

And then what happened? At that lunch, my securities law professor, visibly upset, jumped all over me. He told me that what I was telling my fellow law students was the equivalent of practicing law without a license. Never mind that we talked about that kind of thing all the time, because we were law students. It was our job to talk about applying what we knew about the law in novel ways. In fact, we were all at that lunch because we were talking about how to apply the law to a novel situation my securities law professor was working on. But when I started doing that with a topic I was interested in, he confronted me. He told me I’d better not talk about those things. He also told me that credit card debt is never appropriate. And that I was putting people at risk with my big ideas.

In front of all of my colleagues from law school who were at that lunch, he confronted me to tell me that I was wrong. Was I wrong? I don’t think so. Credit cards generally are dischargeable in bankruptcy, and student loans generally are not. At the time, you could borrow money on a credit card at 0% interest. I was doing that, because it was an efficient way for me to pay my law school tuition and not dip into my savings. Who wouldn’t take free money?

If you ask me, my strategy was brilliant. But when I shared my “big ideas” about money and how to use it more efficiently and effectively, and with less risk and more safety, I was told that I was doing it wrong. That I’d better be quiet. And that I was going to get in trouble if I didn’t.

This is confrontation, my friends. It’s open opposition, and if you dread it because you don’t have the skill to disregard it, you won’t make nearly as much money as if you do. This kind of confrontation comes up everywhere. For example, after that lunch some of my law school colleagues were asking me about my credit card strategy, and one of them said, “But there are payments with credit cards. You have to make payments on credit cards from the moment you borrow the money. So credit cards won’t work for law students because you can’t make the payments because you’re not allowed to work when you’re in law school.”

This is a rule. At most law schools, there are rules that you’re not allowed to work in the first year, and after that there are limits on the amount you can work. Why do they have these rules? I don’t know. Maybe they’re worried you’re going to flunk out. What happens if you break these rules? I don’t know that, either. In the entire history of law school, has anyone ever gotten into trouble for working? I don’t think so.

And here’s the important thing to notice about rules. If there are virtually no consequences to breaking them, and it’s going to cost you a lot of money not to break them, you’re a lot better off asking for forgiveness than permission. And guess what? When there’s virtually no consequence to breaking a rule, you never have to ask for forgiveness, because no one cares.

This is exactly what happened at law school for me. I wanted the law degree, but I also wanted to make money.  As I mentioned, we had no income to speak of at the start of the financial crisis, and over a million dollars in mortgage debt, and we didn’t want to backslide financially just because there was a financial crisis going on. So I used to sit in my law school classes and work. I was doing accounting for hedge funds, and I’d listen to what the professors were saying and do the homework and pass the tests, but I was also making money.

So when my friends from school were asking about the credit card strategy, and saying, “What about the payments?” I said, “I’m working. I’m making money and from that, I make the payments.” And they said, “You’re not supposed to work.” And to this, I said, “Is the law school that’s telling you that you can’t work helping you pay your bills? If you can make your grades and get your degree and pass the bar while you’re making bank, who are they to stand in your way?”

But most of them continued not to work because they feared a confrontation that was never going to happen. Because I didn’t fear confrontation—especially a confrontation that was never going to take place—I was making money and still finishing up that law degree.

And then what happened? I decided to finish the degree in 2 ½ years instead of three. This is where I was again confronted about what I was doing. Instead of working full-time during the summers between 1^st and 2^nd year, and 2^nd and 3^rd year, I went to classes full-time so I could finish my law degree in December instead of the following spring, as most of my classmates did.

Why did I do this? I wanted to hasten my receipt of the degree, because the money you make after you have your law degree is so much more than the money you make before you have the degree. So I just borrowed more money and kept piling on debt and plowing through the classes like a hot knife through butter.

When I did this, what did my colleagues from law school have to say? Again, they confronted me. They told me I shouldn’t do this because it would increase my debt during law school. Instead, they said, I should work full time in the summers to try to keep the debt lower before I got the degree. Here, the general rule in everyone’s mind is that debt is bad, and so it’s a good idea to do whatever it takes to keep your debt load as low as possible no matter what.

This sounds good, but in the situation we were in, this strategy made no sense at all, and the math reveals why.

Consider this. My colleagues who wanted to keep their debt as low as possible worked full-time for around $20 an hour during the summers. During their three years of law school, they spent six months working and they made about $14,400. By diving headlong into debt and graduating as quickly as possible, I spent those six months working AFTER I had my law degree, not before. During the same three-year period, I also spent six months working full time, and made a dramatic multiple of that money that they made.

By diving into debt, I dramatically increased my dollars. Now, is this always true? Does debt always work this way? No. All too often, you’ll hear someone say, “You have to spend money to make money,” as a misguided excuse to rack up debt in their business with no real prospect for profit. When you hear the idea that debt equates to dollars, it’s almost always a horrible idea. But sometimes, racking up more debt more quickly is the best idea ever. By the time my debt-fearing colleagues graduated from law school six months after I did, I was almost halfway to paying off over six figures in law school debt.

This kind of result is the direct effect of high-profit thinking. High profit thinking is how you defy conventional wisdom so you can achieve unconventional results. It makes you impervious to confrontation, and if you’re going to make serious money, this is a skill you need because confrontation is going to come up. Why? Because when you’re making serious money, you’re doing something different, and when you’re doing something different, most people will notice it and many will conclude that it’s wrong. And they will tell you that it’s wrong, even when it isn’t.

Confrontation Comes from Defying Conventional Wisdom

Why does this happen? Because our brains typically notice, and remark on, things that are different. So when you go against generally accepted theories or beliefs about what’s appropriate and what’s not appropriate, what’s against the rules, what you’re not supposed to do, what you must do-when you defy conventional wisdom and you do things more efficiently, effectively, and profitably–confrontation is going to come up, because you’re acting differently than everyone else. You’re going against the grain of what everyone else is doing. People in your life are going to have thoughts about that. They’re going to think that you’re doing it wrong. And they’re going to tell you that you’re doing it wrong. Anytime you’re doing things differently, this is going to happen.

So here’s something to think about. It’s our fifth test for how to know if you’re underearning. How do you feel about the confrontation that comes from defying conventional wisdom? Do you avoid it? Do you play by the rules because you dread it? Do you find yourself dragging your feet on making your big sweet dollars while you work to build consensus and convince everyone around you that it’s okay and even a good idea for you to get in the game and start winning the game of making serious money? If this is you—you’re delaying and dragging your feet and getting more and more frustrated about it–join me for the next episode. It’s our last episode in this series on underearning, and it’s where we’re going to take all of this nonsense and put it in the ground. We’re going to bury it. I hope you join me for that, and thanks so much for being here today.