In all financial planning, business planning, even the nation’s budget planning all follow the one concept. That is
- Revenue must always be more than Expenses
- The Surplus (after Expenses) will be placed in the Endowment pot to make sure it grows to provide some other needs perpetually
Revenue – Tax vs Salary
For a nation, the expenditure is huge, such as running the hospital, maintaining the road, providing school education etc. The government collects taxes (i.e. business tax, income tax etc) and make sure they do not spend more than the amount it collects. Otherwise the nation has to resort to debt funding the daily expenditure. If this continues, one day it will be forced into bankruptcies if the vicious cycle can’t be continued any longer.
As an individual, our salary is our Revenue. How much an individual makes depends on how much value add it can provide to the society and how much the skill is in demand. One must make sure he earns more than his expenditure to make sure the family’s needs are met. If one earns more, he can afford to spend more but doesn’t mean he can save more.
Expenditure
The only rule for planning for the expenditure for both nation and individual is to make sure we spend less than our Revenue.
Then, how do we plan for our expenditure? Make sure we identify the needs and wants. Juggle as hard as possible to eliminate the ‘wants’. Like what Warren Buffett said, if we buy things that we do not need, one day we have to sell things that we need.
Surplus is the Wealth
Here it comes what determines one is financially wealthy. For a nation it is called surplus; for individual, it is called saving, i.e amount left after expenses. A truly wealthy person is not about how much he earns but how much wealth he has saved and invested (accumulated) throughout the years.
One important concept for the Surplus/Saving is – it must be invested and grown. There are 2 reasons why they must be invested and grown.
- Making sure the value of Surplus/Saving is not eroded by inflation
- The dividend from the investment will be used to fund the future needs perpetually.
Conclusion
Very simple rule to be a financially wealthy person, earn as much as possible; spend as little as possible; save and invest as much as possible.
Keen to find out how you can include Stock into your Investment Portfolio? Feel free me to drop me an email [email protected] or call me at +65-91880356 for a non-obligatory discussion now.
