Expense Tracking

There are two components of net profit cash flow: income and expense. Increasing income is half the equation and reducing expenses is the other. Income expansion is where most people concentrate their efforts but let’s look at expense reduction as an equally important part of the equation and how to start expense tracking.

Most people have a good idea of what their income is, especially if from wages or salary. From gross income you can see the deductions for taxes, IRA contributions, and maybe some other deductions itemized by the employer. Many people have the net remainder deposited to a bank account from which many automated payments are made such as for mortgage, insurance, and utilities. All these amounts are fairly predictable. What is left over is then often lost in discretionary spending.

If you are self-employed, income is received in odd amounts and at various times as clients pay your invoices. From your gross income your own business expenses are paid, sales taxes and estimated taxes accrue and are periodically paid. Anything left over is your profit and paid to yourself or accumulated for business reinvestment.

If you are already a business owner you probably have a fairly good idea of your typical revenue from sales and a good sense of where your expenses are. You might already be using expense tracking software or have a bookkeeping service do it for you.

Many wage earners have little idea of what expenses their net income goes to. Perhaps a glance at the check register, if it is up to date, a look at the balance due on the credit card or bank statements, or a call to the bank, or an ATM balance request, is all they do to see if they are in the black or getting low on funds. Each pay period is an unconscious game of guesswork, juggling bills, and often accumulating debt when credit card charges can’t be met.

The first step to increasing your net worth is knowing where the expenses are going. Very few people keep any track of their daily expenses and consequently have no idea where their money ‘disappears’. Continue reading “Expense Tracking” »

How many streams of income do you have? How many are passive streams and how many are trade for time? If one stream dries up do you have others that can keep you going?

The typical person’s income situation is a work-for-hours job and an interest bearing bank account. Many people live paycheck to paycheck paying bills and living expenses as wages or salary comes in. If there is any surplus it might be put towards a recreational treat or an emergency fund. Many people spend more than they bring in and accumulate credit card debt. Depending on how much of their income they spend, the result might be gradually increasing savings, static net worth, or increasing debt.

A job provides one source of income that is often predictable with various perks such as some paid vacation time and sick leave. If you stop turning up for work the income also stops. If the employer so decides the job can be eliminated and income stops. This is trading time for money.

Money in the bank can earn interest on the principal whether the account holder works or not, whether it is a work day or a weekend or a holiday. Similarly investment accounts can build up value by reinvestment of interest or dividends and also increase in share price. These are passive incomes.

Everyone has the same number of hours in the day and days in the week. Even the most highly paid individuals can charge only so much and work for so many hours. Most wealthy people have achieved their prosperity by adding passive incomes that keep working for them without regard to time passing. In order to increase passive income from investments one needs to increase the amount invested and/or have rising capital value. A piece of land or shares in a growing company can gradually become more valuable even without providing dividends. Continue reading “Income From Multiple Streams” »

Asset protection is risk management planning that is designed to discourage a potential lawsuit, or seizure by government agencies, creditors, or ex-spouses. Asset protection now can prevent undesirable outcomes later when it is too late to protect what you have and control where it goes.

Many people might think that their assets are safe and secure in regular institutions or with standard title. Some have never thought about their net worth asset value or that it is vulnerable to confiscation. Asset protection is something that many put off and  realize often too late that their possessions and wealth could be destroyed instantly.

Have you simply put management of your assets on the back burner, or in the hands of your accountant, lawyer, or brokerage salesman? What situations could arise that might jeopardize your savings, investments, property, income, businesses and partnerships?

Only one in five people get around to writing out even a simple will. Many people die each year intestate, leaving government to divvy up their estates, charging fees and taxes, and leaving family with next to nothing. State laws may automatically pass proceeds to a prescribed list of relatives, and in many cases they may not be who you would choose.

Separation, divorce, de facto relationships and dependents can complicate estate disbursements. Judgments by government agencies and lawsuits by individuals, which are increasing 25% per year and expected to go higher, can decimate or eradicate people’s wealth.

By first establishing an assets protection structure you can control the risk of its loss. Then you can determine how the assets might be disbursed at a later date, or on your death to your chosen beneficiaries. Legal asset-protection structures lower your visibility to frivolous lawsuits, reduce the risk of being targeted by unscrupulous creditors and zealous bureaucrats and remove much of the threat of being sued and having to settle. Continue reading “Asset Protection” »