What do you do with your profits?

"Your wealth can only grow to the extent that you do!" - T. Harv Eker

What do you do with your profits?

That was a question that I recently discovered on a small business message board. Below was my response.

I don't use percentage for the most part other than 10% of what I earn is tithed or goes towards charity. 30% goes to Taxes. Then I live off of $5,000 a month $2,000 for personal expenses and $3,000 for business which includes, web hosting, advertising, and personal development/growth. Everything else goes to buying assests that will create a passive income i.e. stocks, real estate, other businesses. I currently live well below my means sometimes putting as much as $15,000 to $20,000 into investing on a monthly basis but I am dead serious to reaching a point in which I will be living 100% from passive investment income. I want to make sure that I am always able to do what I enjoy and can always provide for my family. Right now I enjoy working and thank God everyday for allowing me to work for myself. However, one day I may enjoy swimming in the Caribbean at that point that is what I will do. I say this because I see that many of my business clients build successful businesses but never learn what to do with the extra income. Most businesses owners don't ever consider how to generate income outside of their primary business; therefore they remain trapped in the JOB they own. Don't put yourself in a position to work your business because you HAVE to. Use your income to buy assests so that you will not always HAVE to work your business. Most of us entrepreneurs do this because we love to, let's be sure we keep it that away. If we want to take a break or hiatus or vacation let's make sure we put ourselves in a position where we are free to make that choice.

Just my opinion,
Jackie

* some of the language was changed to fit my blog

To expand on my specific plans for my income currently. I am working on saving 1 year's worth of expenses in a money market account. So that will be a total of $60,000 ($5,000 a month for 12 months ). Currently I am using Paypal's money market account primarily because the interest is extremely competitive (4.52% as of this writing) and they do not have any restrictions on accessing my funds. Many money market accounts have restrictions such as you can only write a check from your account 3 times a year and it has to be for more than $500. Paypal's money market account doesn't have any restrictions such as that. In fact with Paypal you can get a debit card and get access to your funds whenever you want.

After one year of expenses are saved at that point. I will let my money market account just continue to grow. I will then have the security of knowing that if for any reason I am taken away from my business and can't work or am unable to work that; I have at least one year's worth of expenses I can live on. I will then use all other income above and beyond my budgeted expense to invest in more lucrative assests such as common stocks and real estate. My brother, Stacy, is far more knowledgeable about real estate investing than I am while I know more about the stock market. He has no interest in the stock market and he has a laser focus on real estate investments.

As I invest in stocks I will have a specific focus on the types of stocks I am looking for. I will not make trades often, I will have a set criteria for the investments I will be looking for. I will look for small cap. Companies with minimal debt, large amount of positive cash flow, positive earnings that are increasing at a higher rate of return than long term treasury notes, solid management track record, companies that are growing to become industry leaders, and with a stock priced at 15 percent discount to it's intrinsic value. All of my stock purchases will be made with expectation of holding on to my investments for several years to come. If that was a bit difficult for you to follow, just subscribe to my blog and you will learn more as you follow my actions.

I have a weakness when it comes to understanding real estate investing, I have a lot more to learn about real estate. I am hoping my brother guides me to the right places so I can learn as much as possible in the shortest amount of time, this will help cut down my learning curve. Real Estate, offers some of the best investing opportunities when trying to invest for income. That is what I really like about the idea of investing in Real Estate especially when considering rental income. In my opinion rental income is superior to stock investing when investing for the purpose of income. However, the advantages to long term stock investing are huge. First, you are able to grow your income completely tax deferred until you sell your investment; after all you don't pay capital gains until you sell and realize a profit. Long term stock investing can be one of the very best ways to take advantage of compounding as long as your investments continue to grow at a rate that is beating long term treasury bonds.

If you have any questions about this post feel free to ask. If I don't know the answer I will definitely look it up, your questions will just help me learn.