Are You Profitable or Nah? Or, How to Get Your Finances in Order, Step One

Asking whether you, a person, are profitable may seem like a strange question, but give me a chance to explain. Whether you realize it or not, you, as an adult person, are a walking, talking business, whether you’ve actually formed a company or not. If you work a job, your take-home pay is your revenue. If you’re an independent contractor – e.g., maybe you’re a graphic artist, writer, actor, or Uber driver – you earn income. That income – after deducting your business expenses – is your revenue. Next up are your personal expenses: How much does it cost each month to pay your mortgage or rent, pay your light and gas bill, pay for heat and water, buy food and clothing, and pay for your transportation costs, entertainment, etc.? Add up your personal expenses then deduct them from your revenue. (Note:  if you have a job and are an independent contractor, you have two sources of revenue, so add them together). If your expenses are lower than your revenue, congratulations! you’re profitable. You’re doing something right.

If your expenses are higher than your revenue, you’re not profitable, i.e., you get a negative number. So what do you do if you’re not profitable? Well, you have three options: 1. Increase your revenue. 2. Decrease your personal expenses, or 3. Do both. To increase your revenue, you will need to either get another job or get work as an independent contractor. It’s really that simple. You’d be surprised at how quickly you can increase your revenue and become profitable. You just need to find the extra time and energy, which I know can be harder for the older folks.  But if you’re willing to grind it out, you may be able to put almost $9,000 in your bank just by working an additional 16 hours per week for 48 weeks out of the year. Here’s how: Find a job or an independent contractor gig that will pay you $15 an hour, the new minimum wage in many areas. (Note: An IC gig will have to pay $16.25 an hour to equal the $15 an hour you would make as an employee because as an independent contractor, you have to pay both sides of the payroll tax, i.e., 15.3% instead of 7.65% as an employee). OK, so, $15 an hour for 16 hours a week is $240, multiplied by 48 weeks, that’s $11,520. Then deduct 20% for payroll and income taxes and you get $9,216! (Note: your actual taxes may vary; twenty percent is just an estimate). That’s quite a nice sum for some extra grind. If you do this for five years, you’ll have $46,080 plus interest. After 10 years you’ll have more than $90,000! Now  that’s some real dough for just working an entry level  job for a few extra hours per week and SAVING YOUR MONEY. The trick is you have to do it, which is where many of us fall short.

The other thing you can do if you’re not profitable is pare your expenses. Start keeping track of what you spend your money on apart from the things you must pay for, like rent, LOL. You will probably find that you’re spending too much money on little things, like buying lunch every day at work. So start bringing leftovers to nosh on instead. That will not only save you money but probably make you healthier as well. Other things that could be putting a hole in your budget are your cell phone and cable bills. I cut the cable cord awhile back and now pay only for Internet service. I’m not completely happy with getting only broadcast channels through an antenna, but I was also tired of paying almost $200 a month for my bundled service. That $200 a month adds up to $2,400 a year, $12,000 after  five years and $24,000 after ten years.  That’s money I could have been and should have been putting toward my retirement.

And this point leads me to another way to start thinking about expenses. Don’t just look at how much they cost you each time or per month. Think about how much they cost in a year, then five years or longer. E.g., that $30 mani-pedi  you get every week is  costing you over $1,500 a year,  almost $8,000 in five years! But wait, that’s not even the true cost of those mani-pedis. If you make $15 an hour, you know you don’t bring home all of that money. If your payroll and income taxes are 20% of your pay, you need to make $37.50 to pay for and work two and a half hours for that mani-pedi. On a yearly basis, that’s almost $2,000, almost $10,000 over five years!  Who knew toenails and fingernails could be so expensive, LOL. But what’s a girl to do, right? After all she still has to look good even if her finances are a little wobbly. Well, a couple of things. First, you’ve probably noticed that your pedicure lasts much longer than your manicure. So, instead of getting another manicure, just take off the polish and put on a coat of clear, high gloss polish. The other thing you could do — and this is my go-to – is get yourself a few pairs of dress gloves to wear when your manicure isn’t as fresh as you want it to be (during the summer, you can wear the lacy ones). That’s right, start channeling some Jackie O. Folks won’t know what hit ‘em.  J That example is just one of many in how to shave your expenses.

For many of us, the real obstacle to being profitable is credit card debt. If you’re in this situation, then you’ll just have to use your grind money to pay it off. It’s really that simple. It’ll take time, but you’ll get there. Be careful with consolidation loans though become some of us take out the loans to consolidate our credit card debts, then get another credit card anyway and go into debt all over again. That move won’t help you. So if you think you might be tempted, just pay off each card one at a time. You could focus on the one that has the lowest balance because it will be take the least time to pay. Or, you can focus on the one that has the highest interest rate because doing so will mean you will spend less money on interest expense over time. Either option is good.  Just make sure you are still making at the least the minimum payments on your other cards, OK? Otherwise, you will ruin your credit as you’re making the right moves to improve it. Your ultimate goal is to pay off then close your  credit card accounts – maybe keeping  just one with a low credit limit for emergencies (because  ish does happen) — never to reopen them again. After you’ve paid off each account, ask the card company to send you a letter acknowledging that the account is paid-in-full and that the account was closed at your request. And, keep each and every letter just in case you need it to straighten out your credit report. The third option for becoming profitable — increasing your revenue AND decreasing  your expenses – will have you in the black in no time. You can do it. The next article in this series will explain why you HAVE to be profitable. ‘til then!

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Donna Marie

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