Sunday, January 17, 2016

Why You Should Run Your Life More Like a Business

When you have good money habits, you spend less than you make and then you save and invest the difference. Over time, your saving grows and compounds. Those who dutifully live below their means for much of their lives are able to accumulate significant amounts of wealth. Some are even able to accumulate millions. And as the saying goes, “Every million in retirement counts.”

One thing you may want to do is you may want to increase your income. By starting a business of your own, you can increase your income in a way that will allow you to save much more money in a shorter period of time and get you where you want to go much quicker. It also allows you pay off debt quicker. Let’s face it almost everybody has too much debt.

For example, let’s say you took 50% of the additional money that you make with your business, above and beyond what you are making at your job, and you use that money to pay down and eradicate your debt. Then you take the other 50% and use it to save and invest. Also, let’s say that you don’t start buying new cars and stuff with all of that additional income – which is what most people do – because that would be a poor money habit.

So, if you started a part-time business, you could start making an extra $1000 or $2000 a month or even more. So, with $2000 you can take $1000 and start paying down those credit cards, your car payments or whatever. And with that other $1000, you could start investing that money. And if you keep growing your income and growing your business, and you start paying down your debt, you are going to end up freeing up more money. So, those credit card bills or those car payment bills, if you start using that freed up money, you can either more aggressively pay down your debt or take that additional savings you freed by paying down your debt and - let’s say now you have an additional $200 a month - if you take $100 of that and put it towards debt, you could take the other $100 and put it towards your saving and investments. You keep doing that over a year or two or five or ten or fifteen and boy, you can’t even imagine how much better your situation is going to be.

It's important to know however that whether you have a job or have a business, the amount of money you actually make is the money that you’ve saved and invested - and that you still have - after paying your living expenses, your business expenses and your taxes. That money that is left over is actually what you made that year. So, if you are looking to invest in a company, you would look at what they show as their net profit after paying their employees, after paying all expenses, whatever expenses are related to that business. The money that they make after paying taxes and paying all of their expenses is actually what that company made that year. It’s not the gross. The gross means nothing. The gross of your income means zero. The only thing that matters is the net.

So, if you are spending everything that you are making, you are not saving and investing any money, and therefore, you are not making any money. What you shoud do is look at yourself like you are a business. And if you are not saving any money, it means you are not making any money. Think of it this way - let's say YOU are a business that people are going to invest their money in - if you weren't saving any money, nobody would invest in you. They would never do it because there is no income. The company’s not making any money. So, percentage-wise, what you want to do is get to the point where your business is highly profitable, which means your money that you save after taxes and expenses is significant. Just like a business, that’s what you really should focus on.

If you say, “I make $100,000 a year,” my question to you is, “How much did you save out of that money?” Let’s say you saved $10,000 a year, or 10%. That is actually what you made - $10,000 that year. You didn’t make $100,000 because that money is all gone. It’s gone to expenses, it’s gone to taxes. So, you didn’t make that money. It isn’t even yours. You gave it to somebody else. You either gave it to the government or you gave it to your debtors. So, you didn’t really make $100,000.

Even if you make $1 million a year, after you pay taxes. Taxes are going to be at least 30% after deductions,so that’s $300,000 gone. And when most people start making money they start buying a big house, a big car, they start spending money like crazy. Let’s say the overhead on your living expenses is another $30,000 a month or more. That’s another $300,000 gone. And then there are probably other expenses as well. So, really you might have, after everything is said and done, $200,000 or $300,000 – That’s what you made. You didn’t make $1 million.

So, even when you are making big money, you still have to think like a business person. What is the net? The only thing that matters is the net, not the gross. The gross means nothing. You need to start thinking like that in your personal life, even if you have a job, even if you don’t have a business, you need to think that way. It’s always about the net.

If you get in the habit of thinking more in terms of “net worth” instead of “yearly income” then you will be well on your way to running your life more like a business - hopefully a profitable business.

I'm so excited to share this information with you. If you have enjoyed the information or feel that it would benefit someone else, please share it. If you have any comments, please post them below, otherwise, feel free to contact me.
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