“Wealth is defined as the ability to generate profit, and that such profit is achieved by the duality of maximizing revenue and minimizing cost or loss.” – Mr. Aristides S. Merida, Jr. In the book – Dare to Journey: The Path to Meaningful Wealth
What is Profit? Profit is defined by Investopedia as:
A financial benefit that is realized when the amount of revenue gained from a business activity exceeds the expenses, costs and taxes needed to sustain the activity. Any profit that is gained goes to the business’s owners, who may or may not decide to spend it on the business.
It is calculated as:
Profit = Total Revenue – Total Expenses
This system is usually used in any business. Be it in a sari-sari store, a restaurant business or businesses of the rich Tycoons in the country like Henry Sy or the Ayalas.
It simply means, total earnings less total expenses equals profit. Often, entrepreneurs tried so hard to lessen the operational cost to be able to earn more.
How can we apply this in our family financial life?
Simple, it is knowing HOW MUCH YOU EARN and and HOW MUCH YOU SPEND. If you are spending more than you are earning, you don’t have a profit.
The first key to wealth is Profit. Without Profit, you cannot move to where you are now to where you want to be in the future.
How would you know how much profit do you have?
List your income, and also list down all your expenses in a month.
Total Income – Total Expenses = PROFIT
If this comes out POSITIVE, you have something to be proud about. The amount you get is the amount that you can still use in:
- Building up your emergency fund
- Saving for Retirement
- Saving for Future Education Funding for your child
- Saving for your Dream House or Dream Car
- Saving for your Dream Vacation
- Other financial objectives
If this comes out NEGATIVE, you have a problem.
- It means you are living beyond your means. You cannot move up or move forward.
- It means you are not in a position where you can do something to fulfill your dreams
- It means you don’t have what it takes to become RICH since you do not have the FIRST Key.
You need to make this positive as soon as possible and you can do that in two (2) ways:
- Cut-down Expenses – also called minimizing the operational cost of your day to day living
- Evaluate your expenses. Are there expenses that can be cut back or taken out totally? Ask yourself questions while deciding on cutting back expenses
- Do I really need this?
- If I will stop spending for this one, what is the worst thing that can happen?
- Do you have a lot of debts? Can you try to lessen debts to a manageable amount?
- Increase Your Revenue/Income – if you can’t think of anything that you want to cutback on, this might be the best time to start increasing the revenue by expanding your means
- Start a business/side line
- Get another higher paying job if possible
We live in a society where the common conception of being RICH is having a high Salary.
How many times have you heard,
“Mayaman yan si doc, doctor yan eh!”
“Seaman Yan, Mayaman yan”
“Mayaman yan, OFW ang tatay nyan”
Etc..
Truth is, it is not the high salary or income that defines Wealth. You could be earning 200,000 a month, but if you are spending 210,000 a month, that is not being rich. That is still, living from paycheck to paycheck.
I have seen people just earning 20,000 per month, but since they only spend 15,000. They can ask me, where can I invest the 5,000 per month? I believe, these are the kind of people that are on their way to financial freedom.
The earliest you can make a profit, the soonest you can start and act on building your dreams. The first step to your success in creating a profit?
- Have a target monthly budget and stick to it no matter what. If you are married, budget together as a family.
- List all your expenses and income on a day to day basis. In order to know if your target budget is applicable as your actual budget. Make necessary adjustments if needed.
- Prioritize your needs.
- Start building your Emergency fund. This will come in handy if you have something to buffer your expenses in case of events that are not part of the budget but needs immediate attention.
Yes I am talking about Budgeting. I know it’s hard, but often, the hard things to do are the right things to do. So no excuses, list down everything. When you make it a habit, it will become automatic and it wouldn’t be that hard then.
A budget is telling your money where to go instead of wondering where it went. – Dave Ramsey
Revealing you the keys to a meaningful wealth,
Watch out on the next post of this series. The Second key to a Meaningful Wealth, subscribe here! You want me as a mentor? Contact me here.
Download free budgeting tools here:
Free Monthly Budget Planner and Expense Tracker for 2015
More good reads:
How Financially Smart are You? What is Your Financial I.Q. Take the test and Find Out!
Human for sale! How much will be your worth if you put yourself on sale?
Source/s:
DARE TO JOURNEY: The Path to Meaningful Wealth by: Atty. Angelo M. Cabrera, Ricky G. So and Aristides S. Merida, Jr.
Investopedia
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Hi Doc, The quote “A budget is telling your money where to go instead of wondering where it went. ” is originally from John Maxwell. Dave Ramsey, just quoted it in his book The Total Money Makeover. Love your blog btw. More power!
Thanks KS, I thought Dave ramsey is the original.
thanks Ms. Pinky for this wonderfull share
thank you Ana for reading. dont forget to share
for me it is not wealth management since i’m not yet wealthy – and therefore it is appropriate to say it is financial management but to the best description – “diskarte sa buhay!..”
Yes, and to have a better diskarte sa buhay, we all need to have “working knowledge” on finance. As I always say: “The MORE you KNOW, the LESS you Pay.”
Thank you for your overflowing knowledge I am one of your benificiaries…lolz, I read every blog you posted all are informative, as a matter of fact I started to make my own snowball sheet…2017 will be a challenging year for me…
Thanks a lot Doc
Thanks joy. 🙂