These 3 Factors Drive Your Need For More Money (And May Be The Key To Solving Budget Woes)

The first thing you’re probably thinking is, “Man, that title’s too long.” You might be right about that. But I checked it with my headline writing tool. The tool rated it “effective,” scoring an 85 out of 100. The tool may be right. After all, you made it this far into the column. Which in all likelihood has led you to…

The second thing you’re probably thinking is, “Oh, no. An article about boring financial stuff.” You might be right about that, too. But it’s not about interest rates and inflation. If that’s all you think it’s about, you might also be missing out on the opportunity to overcome some of the greatest challenges you (and everyone else) are facing right now.

Let’s see if you can guess what I’m talking about before I reveal it after a few more paragraphs.

I was pondering how to solve the impossible the other day. I won’t tell you what it is yet because I don’t want to tilt your reading of this in any way. Instead, I’ll give you the high-level concept to chew on.

Have you ever seen the movie The Money Pit (starring Tom Hanks and Shelley Long). This 1986 film tells the story of a young couple duped into buying a “distress sale” home only to find it needs never-ending repairs. It eats up all their money (hence, “the Money Pit”) and, well, as you might expect in a 1980s rom-com, they break-up under false pretenses only to reunite and live happily ever after.

Ah, but that’s make believe. In real life, actual money pits only grow bigger, devouring all in their paths.

That’s the impossible I sought to solve. Except I wasn’t using a home as my money pit. I was targeting not merely something big, but something much bigger than big. Talking heads across the pundit universe all agree the downward spiral has too much momentum to slow, let alone stop.

Wow! That’s a challenge worth considering.

How do you approach a solution to the impossible? First you must describe the environment. Then you need to isolate the precise problem. Next you have to determine the most relevant factors contributing to the problem. Only then can you begin to contemplate potential solution scenarios.

The Environment.

Unlike The Money Pit, the environment here isn’t physical, it’s structural. Rather than a sedentary house, the landscape consists of a dynamic organization. It could be any organization. It could be a business. It could be a church. It could be a government or municipality. Are you detecting why I said something “bigger than big”?

The Problem.

What’s the biggest problem many organizations face? It’s the same thing we all face at one time or another: money. It costs money to keep the lights on. It’s that simple. Money isn’t just the root of all evil, it’s the root of all problems. Specifically, the problem is either spending too much money or not generating enough money.

The Factors.

We know the environment (an organization). We know the problem (money). Now we’ve got to dissect that problem and discover what factors contribute most to the problem. What makes it hard to keep the lights on?

The answer lies in the metaphor of the lights. Consider the answers to these three questions:

What makes the lights go on? The answer is electricity.

Where are the lights located? The answer is on the property.

Who turns the lights on? The answer is people.

All three of those things – energy, real estate, and human resources – require a steady cash flow to keep the organization running. As the organization grows, the need for larger portions of those three elements only produces a greater need for more money.

Herein lies the key to uncovering methods to mitigate the problem of too much spending or too little revenue.

Potential Solution Scenarios.

OK, here’s the nitty-gritty, and the ultimate hint of what made me start thinking about this. I’ll start with that, then I’ll whittle it down to what it means for you. Allow me to warn you, though. You may not like where this ends up.

First let’s restate the problem as the definitive money pit – an ever-expanding deficit. In the worse case, revenue cannot cover the interest costs. This is like getting so far behind on your credit card payments you’ll never pay it off.

Remember, however, we’re talking about something bigger than big. It’s a deficit too big to imagine. It’s so big, they say it can’t be tackled.

So, how can you solve that problem?

Well, the easiest way to pay off your credit card is to make more money. But what if your deficit is so large there aren’t enough hours in the week to work enough to make a dent in it? That leaves you with no choice but the hardest choice: cutting spending.

No one likes to cut spending. Sometimes, though, that’s your only option. Here’s what that looks like for each of the three factors.

Energy. How do you cut energy costs? For you, it means driving less, keeping your lights off, and relying on fuel-efficient appliances. It’s the same for smaller organizations, too.

But what if you control the means of energy production? In a fossil-fuel driven economy, it means creating more supply. You create more supply by building more energy producing plants, digging up more energy producing resources, and streamlining all existing production facilities.

Of the three factors, energy is the most pleasant to address.

Real Estate. The costs of owning real estate grow every day. They grow faster during periods of high inflation. As an individual, you have no choice. Whether a renter or an owner, you need a roof over your head to survive. In short, you’re stuck.

Businesses, on the other hand, have greater flexibility. They can reduce their real estate footprint in several ways. They can allow (require) employees to work from home. They can better utilize their current properties to spread fixed costs over a bigger product base.

Human Resources. This represents the toughest nut to crack. It’s the core of all costs. For individuals, it means the costs of food, clothing, shelter, healthcare, education, etc… For organizations, it’s salaries, office space, benefits, etc… How do you solve this (without increasing revenues)? It seems there’s only one alternative for organizations, and that’s to cut personnel. At an individual level, you might think that means having fewer kids. In the short term, yes, but longer term? Think about family management two centuries ago. In an agricultural society, larger families (eventually) meant more farmhands (i.e., more kids). What’s to keep us from returning to a modernized version of this type of family management? This means, rather than having fewer kids, the better strategy would be to have more kids.

For organizations, however, unless you’re talking about a military force or a community organization (including a church), more is not better. Think of the costs associated with personnel. Not only do you need to pay them, but you need the physical plant to house them. That only exasperates the real estate problem (unless your organization can afford to have employees work from home).

Space limits require me to keep things abridged, but do you see how tweaking these three factors can help reduce the national deficit. Forget inflation. Forget interest rates. These are merely after effects of the three main factors. Producing more energy, generating more revenue for land holdings, and downsizing a bloated bureaucracy can all contribute in a positive way.

Yes, as with all cuts, there will be pain. The big trick is doing it in a way that makes the pain manageable. The bigger trick is doing it in a way that turns the pain into a tangible gain.

Like I said from the very beginning. Not just something big. Something bigger than big.