Benchmarks for Wealth Development
As an entrepreneur, you know the importance of generating income and having good margins in the process, so that you are generating income for you and your family. Once you have this nailed, the next question is, “What do I do with these profits to make sure I am keeping the money I make and it’s going to work for me?”
The answer, of course, is different for each of us. Depending on where we are on our financial path, and where we want to go, will determine the best steps for us.
Having said that, there are some bench marks for each of us to have in place:
- Pay yourself first – you want to be able to take an actual pay check out of your business. The structure depends on where you are – for example, when you are first getting started (net profits under $50,000) you may take a draw, rather than actual payroll. After that, for tax reasons, we will have different strategies.
- Contributions – to keep the flow of abundance in your life, give from your over flow. Where and how you give is up to you, so choose a place that speaks to your heart. The importance is to do it consistently.
- Reserves – I always like to see 30 days’ minimum (depending on your industry) in your checking accounts (both business and personal) and another 30 – 90 days’ worth in savings. Now, savings are created in many ways. The key is to have it liquid and protected.
- Investing – recently I heard a speaker tell us to “put your money in places that are a part of your life”. For example, if you use Apple products, you may want to invest in Apple. If you are new to investing, this may be a good avenue. I personally like to begin with Real Estate. Either way, both of us teach direct investing rather than mutual funds (why is a different conversation). The important thing here is that it is something that is not your business, which for most entrepreneurs is their biggest investment. Why? So you begin to develop a secondary stream of income that is not “earned” like in your business. This is your money working for you instead of you working for it. This is the key to growing your balance sheet, the most important report in your financial picture and the least understood.
- Operations – Operate on the rest – this is a good rule of thumb, both personally and corporately. This is where you want to be watching your margins and make sure you are “structured” well for tax purposes.
Now, this doesn’t happen overnight for any of us. It is something that is built over time and comes from a good connection with your numbers that informs our habits when it comes to money management. Each of us has different strengths and filters when it comes to putting this to work in our life.
If you are ready to better connect with your numbers, reach out to us and let us help you. This is the least taught subject anywhere, and where you are today is the perfect place to start.