The Profit Is In Your Expenses
In keeping with January’s momentum theme, today’s post relates to your long-term momentum.
Meaning your ability to stay in business and adjust to market changes. We’ve had a phenomenal few years in real estate. It might not change any time soon, but it will change eventually. It always does.
The market doesn’t have to turn, though, for this topic to be relevant. In fact it’s more relevant in a good market. That is where you make the mistakes, the results just don’t show up until after the market shifts.
It’s also a fitting topic for January regardless of the market. Did you look at your income statement from last year and then look at your investment accounts and think, “For all that money, I should have more to show for it”?
That is usually followed by, “I better figure out how to make more money this year.”
While I’m all in favor of making more money, it’s the wrong place to start.
You need to start with your expenses.
One thing that often happens when income goes up is that we get lazy with how we spend our money.
In business you stop paying attention to return on investment and let yourself get caught up in the latest (expensive) marketing craze.
Personally, you eat out all of the time because it’s easy and your busy, even though it costs 4 times more. You stop paying attention to the value you are getting for the money you spend. Said the person who just paid a $350 cable bill.
Creating wealth actually comes from managing your expenses first.
Consider the opportunity costs. In the case of the cable bill, we can go down to Netflix, Hulu, and basic cable and save enough in one year to buy 4 plane tickets to Maui! Or we could invest the money, but baby steps here.
This doesn’t mean that you have to turn into Mr. Scrooge, but you do need to be more thoughtful about where you are spending your money and what you are getting for it.
In business this means, is the money helping you generate new business, or improve service that will help you retain clients and increase referrals?
In your personal life, does it make you happy, or add value either tangible or intangible. There is nothing so important on TV that I need to pay $350 a month for it. I can watch Netflix for $8 and be just as happy.
Commit to a 90 day profit plan. Each month review your bank and credit card statements and ask yourself for each charge;
- Was this necessary?
- Did it add value to my life?
- Did it make me money?
- Is there another way to do this that would cost less?
- What if I didn’t have this expense?
It’s pretty eye-opening. You will also likely find subscriptions and other charges you didn’t even know where there.
It’s a process, just like thinning out your closet. You don’t have to do it all at one time, but each month look for ways to reduce expenses and increase your profit.
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