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Share articleThank you Bridget, this article was helpful to me. Mary McDaniel
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Profit Parasites: Not Managing What You Earn
3 Simple Tips for Managing your Money—whether you want to be a millionaire or just stay on top during tough times.
Written Apr 04, 2008, read 271 times since then.
* Intuit is providing a series of articles for the Biznik community during the month of April. Laura and I will be pulling together the best articles we can find from across the company, ones we think might help you. *
By Anita Campbell
A decade ago a book came out called the Millionaire Next Door. The book profiled America’s millionaires. It turns out that they are not flashy big spenders. On the contrary, most millionaires are accumulators. They accumulate assets and make them work for them.
A few years later another book came out, by Robert Kiyosaki called Rich Dad, Poor Dad. This book is very different from the Millionaire Next Door, but it reached one similar conclusion: Millionaires accumulate assets. They focus on preserving and growing their hard-earned dollars, not on spending them.
Which brings me around to the point of this article: take a step toward financial independence by carefully managing your hard-earned money and making it work for you.
If I had to give three tips to all you millionaires-in-the-making, they would be:
(1) Stay close to your finances. Since I’m on a book theme, let me mention another: A Woman of Substance. Barbara Taylor Bradford’s book is about a housemaid turned tycoon who used to review her ledger books each evening. I’m not suggesting that you have to spend every evening poring over your QuickBooks – that’s a little too obsessive. But still, consider the role model of a character who was in touch with the money coming from the fruits of her labor. You can’t manage your business if you don’t intimately know your books. And you can’t know your books unless you dig into them regularly.
(2) Keep good tax records. Good tax records are the only way to have a shot at getting every legitimate tax break you are entitled to. No one wants to be in a situation where you have to pass up tax deductions or credits because its tax time and your receipts are stuffed into shoe boxes, you can’t find your bank statements, and you have to try to catch up on a year’s worth of recordkeeping in one weekend.
(3) Establish business savings. I know this is hard to think about when you are just starting out. You think you can’t worry about setting something aside for a rainy day, because every day is a rainy day when starting out. But having some of your money working for you as early as possible gets you a feeling of security. You can sleep easier if you have a cushion set aside to smooth out the rough patches (and there will be rough patches, trust me).
Most importantly that money can be working for you, earning interest and growing. It becomes your own private working line of credit.
I know one entrepreneur whose hobby was the stock market. He made $100,000 in the stock market during the heady boom days of 1998 - 2000, and was able to expand his business with the money he made. He recently sold that business for a high seven-figure number. We don’t all have a golden thumb for the stock market, but we can choose a certificate of deposit, mutual fund, even that old standby, the savings account. Pick what you feel comfortable with.
Article from www.jump.com: JumpUp is a free website and community from Intuit that helps new businesses get up and running successfully.
Learn more about the author, Bridget OBrien.
Comment on this article
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Posted by Mary McDaniel, Arlington, Washington | Apr 04, 2008 -
Posted by Mark Silver, Portland, Oregon | Apr 04, 2008This is right on, Bridget. We've learned from bad mistakes in the past.
One small thing we do is that for every dollar that comes into the business, 25% goes into a tax holding account, and another 20% goes into other accounts, like savings accounts.
And then we spend out of what's left.
The 20% for other accounts didn't used to be so high- I started with 5% when we were still struggling badly. But it's so nice to see that money add up month by month.
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Posted by Bridget OBrien, Menlo Park, California | Apr 04, 2008Mary: I'm glad you found it helpful. Funny, how the simplest advice can sometimes be the hardest to follow. Good luck.
Mark: If only we were all so disciplined (me included)! That's a great twist and a really smart idea...can't tell you how often I hear from new businesses that they didn't plan for tax time. Thanks for sharing one of your best practices.
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Posted by Mark Silver, Portland, Oregon | Apr 04, 2008
Believe me, it didn't come easy, especially when money was tight. But, as I started doing it, I gave myself permission to take money out.
So, 25% went into a tax account, 5% went into savings, and then a week later, when bills were due, the savings account got raided, and we 'stole' some from the tax account.
But not as much as we put in.
And so the tax account grew. And the same thing with the savings account. It came to where we were taking out, but not as much as we were putting in...
But, until I started, we were always spending down to zero (and past it) on credit cards.
One thing that has made an ENORMOUS difference in all of this, is online banking. I can go online, and in five minutes see what money has arrived in our account (nearly every dollar we earn comes through our merchant account through credit card charges), and just move it around to the proper accounts.
I hope everyone here takes up a practice similar to this. This one practice will make a huge difference on your cash flow.
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Posted by Molly Gordon, Suquamish, Washington | Apr 10, 2008Online banking is second only to the online catalog for my local library in how much it has contributed to my life and biz. ;-)
Like Mark, I regularly transfer money into reserves and savings, though, come to think of it, I was much more systematic about this in the early days. I used to set aside 10% of every thing that came in (I didn't need more than that for taxes at the time). It felt great.
I also like the illustration of the heroine who sat with her books each night. Being on top of the numbers beats being surprised every time.
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Posted by Paul Spafford, Ottawa, Ontario Canada | Apr 11, 2008I do the same type of thing as Mark. I created a very simple Excel spreadsheet that I use for balancing my bank account, and always knowing how much disposable cash I have available after taxes, savings etc.
I have uploaded a simplified copy of this spreadsheet -- with some sample data -- to my Web space, in case anyone is interested. I don't have time to include instructions, but maybe some day I'll take the time to write something up if anyone is interested.
You can download the file here: bank account spreadsheet (http://www.paulspafford.com/sample/bankAccount.xls)
Article tags
- managing money
- financial management
- millionaire
- intuit
- financial independence
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