Take A Good Hard Look At Your Expense
We continue with Colin’s situation where he wants to be financially independent in 5 years with his own home and investment property and a new car. let’s follow him on how he can achieve this.
Income less expenses is your current performance
Income minus expenses give you a clear idea of the decisions that are creating your personal financial position.
If this is where you want to be no problem.If you desire more in your life, then the first thing to do is take a good hard look at where the money comes from and where it is going.
Every cent you spend can be recorded on your performance statement (Commonly called a profit and loss statement)
However for this exercise we will call it your performance statement. You Income minus your Expenses = Increase (Profit) or decrease (Loss).
Look at every dollar that is coming into your house earned by you and or your partner.
This is the total income before tax.
A total of all the money coming into your pocket (Accountant calls this Income or Revenue)
Colin has chosen to get a job in the evening where he wasn’t doing much with his time and turned this time into income
This has enabled him to reach his goal within the 5 years
Now list all the events that take money from your pocket (Accountant calls Expenses)
The more detail you can add to your list the more you can explore the options to reduce the things you can or are prepared to go without.
The critical question to ask yourself is “Do I really need to do this, spend the money or am I willing to forego the pleasure now for a more secure future”?
It may seem tough but everyone who has created wealth at some point had to make the decision to change their behaviour now and create a brighter future for
Once you know where you are going it takes personal discipline to know when you are heading in the wrong direction, taking corrective action to get back on track.
It’s not rocket science just plain old planning and discipline.
Creating a personal storehouse account where you save a percentage of your income 5-10-15 or 20% on a regular basis is paramount to achieving financial independence in the future.
In the movie Colin has cut some of the things he didn’t see as necessary giving him the means to achieve his goal.
I would like to share with you a strategy I implemented in a business I had.
At the time I had a contracting business employing 50 staff in their respective areas. I introduced a total quality management program where we looked at every expense in the company.
Everyone was involved . We gave a value to everything from a man hour to a phone call and a vehicle kilometre, plus all materials.
Everyone came up with various suggestions which where discussed and finally implemented. The result was a yearly saving of approximately $250,000
The savings going directly to the bottom line this was shared with all the staff.
Over the next 5 years the savings became the culture of the business and the suggestions where put into our system as the correct operating procedure.
As a company we developed a reputation of being the most efficient in our area of expertise, giving our customers a superior product and service.
We are all in business selling the same product from the President to the Janitor.
We sell our time our intelligence and our energy to the highest bidder. The question is what do we do with the cash flow of our personal business?.
Spend it all or as the accountant would say put some retain earnings to grow the business (simple language is save some for the future)
The choice is ours and ours alone.
Spend now and be a consumer or save for the future and become an investor?
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