Understanding how to generate income online (through freelance work, content creation, and affiliate marketing) using The Psychology of Money by Morgan Housel shows how our actions affect the results we see in the online space. These five topics illustrate some examples of how we can not only apply many of Housel's principles, such as compounding, having a humble attitude toward luck, avoiding extremes, defining "enough" for ourselves, and having a savings habit, but also adapt them for the volatile nature of the digital marketplace.
Topic 1: Harness Compounding Through Consistent Small Wins
One of those principles is how compounding isn't just a way to reward additional investment into stocks; in reality, compounding is also the foundation of building an online income stream. A new freelancer might charge $50/week at start and be able to build up their business to $500/month after six months of developing multiple repeat clients through continued networking, much like $1 you save each day will grow over time, too.
According to Morgan Housel, wealth accumulation occurs over time and not through large jumps or milestones. Rather than chasing a viral outcome as an online earner, the smarter approach is to reinvest 20-30% of your earnings into either tools (you need better software) or skills (you're going to need to take courses) to grow your business long-term. You are also going to want to make sure to track your progress weekly, and if your outreach efforts have a 5% response rate, work to refine them until you achieve a 10% response rate so that you can grow cumulatively.
Lastly, we live in an instant-gratification society, and that mentality can have a negative impact on online income generation. When browsing through social media, you often see overnight success stories, but most content creators will put 3-8 years' worth of work into their business before they become successful. Start small; as an example, if you generate an average of $100/month from affiliate links in a blog, that success can multiply (via search optimization improvements) over time.
Topic 2: Embrace Humility to Luck and Risk
In terms of making money online, both luck and risk are two sides of the same coin. You have some control over both, but keeping a low profile helps you stay grounded. Morgan Housel points out that everyone has their own level of crazy (no one gets to choose). Therefore, someone might randomly go viral on YouTube simply because of pure dumb luck, while another content creator who created equally good content has no such luck after working just as hard as the previous person.
So, when you’ve worked hard on TikTok, for example, you have to understand that the app could change its algorithm at any point in time and thus jack your income up drastically overnight. Good things that happen to you can be thought of as tailwinds; you get lucky, and they give you a boost, but bad things that happen to you can be thought of as lessons; you learn from them so the next time you encounter a similar situation, you’ll be able to move forward with more clarity.
If you were to respond to a potential freelance job offer from someone (i.e., through LinkedIn) simply by saying, "Thank you; I really appreciate you and your willingness to help me out." And then you begin to build upon those connections on LinkedIn continuously. In addition, when it comes to managing your risk, you want to keep the time and energy spent towards any given project (or job) to around 20%. For example, you could test out dropshipping only on weekends if you already have an established freelance or service business.
Online comparison to other people will destroy your peace of mind. Many influencers only show you their wins and not their losses. Instead, you should quietly track your statistics. The goal should be to achieve little incremental growth every month; i.e., 1% more subscribers/clients the following month, etc. If a side hustle fails, and most do, change course immediately without taking it personally.
Topic 3: Avoid Extremes in Hustle and Spending
Going to extremes will leave you exhausted and derail your income journey in the online world. To achieve sustainable success, it's necessary to find a state of balance. Housel warns against either going all in on an extremely high-risk venture or pinching every penny so much that you're miserable.
When you're new to the online world, do not quit your job and start doing something like dropshipping, nor should you work 18 hours a day until you've completely burned out! Rather, start with 10-15 hours per week on your online income-generating activity, and once you earn about $1,000 per month, you'll be able to increase the time you spend by working additional hours. Quickly spending can derail your efforts. The 500-dollar course that promises to make you tons of money, buy that course after you've found your success through testing the free products first.
Smart reinvestment means you will upgrade equipment/tools, like getting a better microphone, only when you have, for example, 100 subscribers. Automatically save 50% of your earnings and only spend on living expenses from the remaining earnings.
Expect instability in making income from online work. Overnight, changes in the algorithm could wipe away all of your advertising dollars. For this reason, you should always save three months of savings prior to going full-time. Additionally, avoiding lifestyle creep will help you achieve long-term sustainability: if you make $500 per month in income, reward yourself for earning that amount of money by treating yourself to something small rather than expensive electronics. By following a balanced approach to creating income online, you'll develop a solid foundation that will allow you to persevere and maintain steady growth over the long run.
Topic 4: Prioritize Saving as Wealth's Foundation
According to Housel, saving is the distance between desires and real wants. It gives you the ability to maintain control when life is full of uncertainties. With an online income that comes in every month, establish a plan of 'paying yourself 1st'.
When you receive a $300 payment as a freelancer, deposit $150 into savings before you pay your bills to have the ability to protect yourself (by having savings) during dry spells (for example, a loss of a client or maybe your account has been banned from the platform for any reason, etc.). You can have complete ups and downs with an online income. One month, you can have $0, the next month you may have $2,000.
Saving at least 50% of your online earnings will help your savings and create growth in your savings account. Applications can be used to track your savings goal of 3-6 months of expenses; after you have reached that goal, you can take smart risks with your money. The earlier you save money, reduces stress you have, allows for freedom you have, and it can help provide you with financial independence sometime in the future.
