Maximize Income. Minimize Spending. Pay Down Debt.
How much revenue you generate often has little bearing on whether or not you can and will build wealth. Think about that. We often spend our income growth before its even realized. And debt detracts from that bottom line. Learn and practice intelligent use of money to minimize spending, maximize income resulting in greater fulfillment, integrity and alignment to your purpose.
The value of cash decreases with time due to inflation so invest. Invest first otherwise you’re stuck paying bills with nothing leftover to grow. Taxes are our contribution to society and they can also work to our benefit like with retirement, philanthropy. Your business practices should work to maximize your income.
How to Maximize Income • Set aside money to invest first (10%) • Pay less taxes (deductions, credits, incentives etc.) • Keep account receivables low • Get paid upfront or collect deposits that cover costs • Don’t allow long payment due dates (30+) • Have late payment terms • Build passive income • Have multiple revenue streams • Make money in unexpected ways
Conscious spending habits take the worry out of budgeting because you’re spending on essentials that meet given criteria. The percentage of revenue going to each spending category can vary on industry, sector, and company specific spending patterns.
General Spending Categories • 10% Investments • 5-10% Savings for Big Purchase • 50% Fixed Cost e.g. Rent, utilities, debt, payroll, taxes • 20-25% Flex spending e.g. cash flow, biz reinvestment
While you’re building investment income, you need an emergency fund of 3-6 months of operating expenses. Your reserve can be a portion of your flex spending (but you can’t spend it) and savings for big purchases.
Pay Down Debt
In paying down debt, you want the lowest possible interest rate. This means you’ll need to talk to your creditors and ask for lower rates. Consolidating debt to the lowest rate, wherever possible, reduces the number of minimum payments you need to make each month. But know the terms. Some creditors will offer no interest debt transfers for the first 6 months, but on month 7 the rate soars. Make extra payments on the largest debt. Make minimum payments on all other debt. Create a payment plan Know when you’ll be debt free. Of the 10% of revenue that you’d normally invest use 5% for debt repayment. You can also use investment income, but consider any early cash out penalties and taxes.
Thank you for reading, Beyond Business: Musing from a socially conscious international small business.