Three things that happen with Profit

Profit

  • Reinvest – It gets reinvested in the business. That is the paradox in business, the more money it makes the more it reinvest. This is because the owners want to expand the business.
  • Repay – One of the things that business will do with Profit is to use it to repay the liabilities. Mainly it would be the current liabilities like payable and sometimes would include long-term liabilities.
  • Dividend – The owners and investors would take a part of Profit in form of Dividend.
  • In a previous chapter we have learnt that, When money goes out, it either becomes and Expense or creates an Asset.
  • We also know that, There are two kinds of Assets,
    • Performing Assets (PAs)
    • Non-performing Assets (NPAs)
  • It is suggested to use profit made by the business to spend on expenses if required. If a business needs a more comfortable and healthy working environment for the employees. If it decides to spend money on buying better chairs, latest gadgets, decorative items, better kitchen area; it is advisable to use the money from the profit of the business. The spending should not be from borrowings.
  • The borrowing (Liabilities) is the money business has borrowed from insiders and outsiders .It is suggested to use that money mainly on Performing assets than on non-performing assets.

I would suggest you to get in touch with your mentors, consultant or accountant or some advisors you may have in your business or use you common sense to ask this question.

Question:  The decision that I will make how will it impact the Bottom-Line of my organization?

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Tips for Building Your Own Retirement Plan

Retire Rich

Retirement does not mean you should stop spending. It is rather the time to enjoy the money you have earned and saved. Money is a commodity which needs to be used and spent to make the most of it. Retirement plans available in the market might not suit you as they are not personalized. The best way is to build your own retirement plan according to your own specific needs. Since you will be not working full-time when you retire, you have to make a plan to effectively replace 80 percent of your income. Here a few tips for building your own retirement plan.

  • Save for the future – The first step is to start saving for the days when you will not have regular income. The traditional way is to save 10 percent of your pay every cycle. However the better plan is to save 30 percent of your annual income. It will help you retire rich.
  • Invest in the right place – Money lying idle in your checking account will devalue due to inflation. Hence you need to make effective investment. Spread out the money in form of real estate, stocks and bonds. Build a portfolio to minimize the risk. Also keep some money in your checking account for emergencies. This should be around 20 percent of the total savings.
  • Plan and Pay off debts – You should have zero debts by the time you retire. This will help you be stress free and have more money to spend on enjoying your life. Make a plan to pay off all debts like mortgage, auto loans etc. a year before you retire.
  • Start working part-time 5 years earlier – Do not quit your current job early. Rather start working part-time on weekends to prepare for your retirement. You will have work to do and the money earned will add to your riches. When you are ready take the pending holidays and work in the new part-time affair.
  • Start your own business – There are many examples of people becoming entrepreneurs after retirement. The reason is they have enough money saved and can take risks easily. You can also explore this territory if you actually want to work full-time even after retirement.

Taking cue from these tips for building your retirement plan, you can actually be more productive in the later life. This is due to the corpus you will build which will take care of your needs and keep you in the punk of health.