Focusing on Margin
There are many metrics we can use as a scorecard for money. Income, bank account balances, and net worth are all tremendously popular statistics to monitor. They each have their merit, for sure. Today, I'd like to shine a light on one that gets overlooked, underappreciated, and dismissed: Margin. In short, margin is the gap between our take-home income and how much of it is committed to expenses. Here's a simple example. If you make $1,000 and have $700 of expenses, your margin is $300.
Margin provides us with flexibility, relief, cushion, and opportunities, It makes sense if you think about it. If all of your income is committed to expenses, it's a stressful place to be. There's no wiggle room. There's no margin for error. There's no room for unforeseen expenses.
Margin is a choice, but it takes intentionality. Without intentionality, any margin in our lives can quickly be absorbed by impulsive purchases, lifestyle creep, and misaligned spending. Also, I'd like to squash one myth. Most people believe income equals margin. More money, more margin. While this can be true, it has a much lower correlation than you would imagine. The more money a family makes, the higher potential for margin. On the flip side, our culture encourages us to fill our margin gap with any and every type of expense. I'll share a recent example from my coaching.
Here are two couples I've recently worked with. Both are similar in age, and each has one small child. They also happen to live within one mile of each other. Here's what each of their situations look like:
Couple 1: This couple has a monthly take-home income of $14,000 (one spouse is in finance, and the other stays home with their child). After accounting for all their monthly commitments, they only have about $700 of margin. They want to pay off debt, travel, invest in retirement, and save for their children's college, but there isn't a lot of margin to work with. Further, an unexpected expense always seems to pop up to claim that $700. Their marriage is strained, and money causes them a lot of fights.
Couple 2: This couple has a monthly take-home income of $6,500 (one spouse is a teacher, and the other is in ministry). After accounting for all their monthly commitments, they have about $2,500 of margin. Our coaching meetings typically include a visual mapping and prioritization of how this margin should be used. It's normally a combination of travel, giving, and investing. Money has become a fun conversation in their marriage, and they are thriving. They feel very little financial stress, which becomes progressively lessened as they use their margin to create a solid foundation.
On the surface, the first couple looks significantly better. Their jobs obviously provide a higher income, their lifestyle portrays an image of success, and they appear wealthy. Looks can be deceiving. Margin is a great measuring stick to see the real truth.