Why You Should Worry About Your Topline More Than Your Bottom Line
My wife and I constantly discuss different ways to build our overall wealth. Our goal is to retire and be able to spend all of our time with our children. We’ve tried a lot of different things over the years, but our most miserable experience arose when we decided to drastically cut back on our bottom line expenses. I think we started doing this after I read the book “The Millionaire Next Door” which is a book about how most millionaires become wealthy by being extremely frugal and compounding their money over time.
So we tried being frugal, cutting back on going out to eat and pretty much eliminating all of our entertainment expenses. After trying to do this for about 4 weeks, I finally got fed up and decided to calculate whether this was worth all of the misery. At that time, we had a mortgage of about $2300 and fixed expenses totaling about $400 dollars a month. In addition to this, we were spending roughly $1500 in entertainment and eating out expenses a month. Factoring in shopping, that put us at about $4200 a month.
That month, we were able to effectively cut our entertainment expenses to only about $400 a month netting a savings of about $1100 for the month. So was this worth it? We saved $1100 bucks at the expense of enjoying life. If you think about it, the most we could have netted would have been capped at $1500 to begin with. Instead of wasting time cutting the bottom line and limiting ourselves to saving a max of only $1500 a month, we should have concentrated on increasing our topline. This is what we should have been doing.
Looking For Places To Invest Our Money
The time we spent huddling over Quicken could have been better spent researching stocks and mutual funds. With inflation, you have to constantly grow your existing pool of wealth. Otherwise, you’ll actually lose money over time even though you are not spending it.
You should set a goal of trying to grow your pool of wealth at least 8% a year. That way you’ll double your money in 9 years. In our case, making 8% on our money would’ve greatly exceeded the $1500 a month we could have saved.
Focusing on Ways To Make Life Better
If you sit down and think about the little things that annoy you in everyday life, you can usually come up with some good ideas with which to pursue a business. Focus on what you are good at and find something that you can actually create to improve your life and others. This can be something as simple as selling hard to find items in a store or inventing a useful gadget or gizmo.
Taking Action
Ideas are pretty much worthless if you don’t follow through. The key to success is taking action and being persistent about it. Don’t waste your time pinching pennies and sacrificing your livelihood. Try and come up with systems that will make consistent money for you in the long run. If you want to make and save more money, focus on your topline which has limitless potential. In our case, we were fairly confident that we could start a business that would make more than the $1500 we could painfully save in a month. If you factor in the fact that you can deduct a lot of expenses off of your taxes, its really a no brainer.
Set aside one day out of the week to brainstorm and work out your ideas. In the beginning, we spent every Sunday doing this. By creating a consistent schedule for your creativity, you’ll be able to motivate yourself and build on your ideas gradually over time.
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Curious what kind of mortgage you have at $2300/month. Seems low for Silicon valley area
Hehe… This was back when I was living in the townhouse. Our interest rate was 4.25%
[...] you can make more money or you can save more money. In a previous article, I already discussed why you should worry about your topline more than your bottom line. But just because you’re focusing on making money doesn’t mean you should neglect saving [...]
[...] be an easier solution. This point was discussed by Steve over at mywifequitherjob.com in his post Why You Should Worry About Your Topline More Than Your Bottom Line. He calculated that additional cuts to spending could save them at most $1,500 a month. Instead, he [...]
IMO, this is what is meant by being “too frugal”. Sometimes, people think that cutting on expenses is the way to save without realizing that it (saving) can be seen in two ways – cutting expenses or earning more.