The BIGG Successs Show
Don't Make This Costly Mistake
Which is better - a $100 decrease in costs or $100 increase in income? Listen to the show and read the summary here.
Welcome to The Big Success Show. Today, we'll talk about a costly mistake that you should avoid. The Big Success Show with George and Mary Lynn. So Mary Lynn, today we're going to ask a question. Which is better? A $100 decrease in costs or a $100 increase in income? Well, I'll take both. Well, obviously that's the best choice, right? Right. But the thing is, you know, obviously we want to increase our income. But it always pays to watch our costs as well. And more people get into trouble on the cost side, I think, than on the income side. All right, give us an example. Well, let's start with a business. And let's just say that you want to increase your sales by $100. And to make this real simple, we're going to make some assumptions. It's a retail store, you buy products, you sell them. Every product in your store sells for exactly $100 and costs you exactly $40. So whenever you sell any product, you're going to get to keep $60. Now, let's say that you're able to somehow, someway, cut your expenses by $100. You get to keep $100. So you sell one more product, you get to keep $60. But if you cut your expenses by $100, you get to keep $100. That's right. So you ask the question, which is better. Obviously, it looks like it's better to cut expenses by $100. Absolutely. Your money ahead, right? But what are you going to do, George? You're going to lay people off. You're going to cut advertising expenses. I mean, where do the money cuts come from? Well, the key thing is, keep in mind, every dollar we spend is to get more sales, right? If it's not getting more sales, we don't need to spend it. You got to know the specifics of your situation. But in my experience, here's something I'll tell you. Over time, day to day, you're so busy. You're making decisions just on the fly. And what happens is you end up getting costs into your system that they're not necessarily impacting sales like you thought. Those are the costs you want to get rid of. So the key thing to understand is that you get more bang from your buck if you decrease costs rather than increasing sales. Yeah. And I think a lot of business people, particularly new entrepreneurs, they don't really think about that. Matter of fact, one of bankers' biggest complaints is that business people are too focused on the top line, their sales, and they don't spend enough time thinking about the bottom line, their profits. What do we have left after all of our expenses? All right, George. But ultimately, I don't know any business that can succeed by simply cutting costs. I mean, you have to increase sales. Very astute, Mary Lynn. You know, in the long run, that's absolutely right. In fact, in the long run, your income can only grow as fast as you're able to increase sales. But that's in the long run. How about the near term? Well, in the near term, you can increase your bottom line much faster by keeping a close eye on your costs. All right. So we've just taken a look at this through the business person's point of view. What about personal finances? Well, with our personal finances, it's the same story, but for a different reason. You know, there's this little thing called taxes. Yeah, we all heard of it. We all know them well. Well, the thing is, if you make $100 more, you get to keep, say you're in a 30% tax bracket, you get to keep 70, right? But if you spend $100 less, you're $100 ahead because you've already paid the taxes on that money. Coming up, we're going to illustrate why a lot of people get into trouble with a big pay raise. Today, we're talking about why a $100 decrease in costs is better than a $100 increase in income. We want to look at an actual example. So let's just take someone who gets a $5,000 pay raise. Hey, that's worth a celebratory there. Well, so what do they do? They think, well, we've got $5,000 a year. Let's get a bigger house. So they go out, they buy a house, it's costing $400 a month more in mortgage payments. That's not a big deal, right? We've got $5,000 more of income, $400 more in mortgage payments. So that's $4,800 or $200 ahead. Fantastic. But we haven't thought about taxes because on that $5,000 pay raise, let's just say once again, we're in the 30% tax bracket, we're going to pay about $1,500 in taxes. So we think we're $200 ahead when in reality, we're about $1,300 behind. That blasted government. Well, on the worst part is yet to come. This new house, which is probably bigger, probably more expensive, probably nicer, has higher property taxes, probably costs more to ensure. We're going to have higher repair and maintenance bills. By the time all is said and done, we've got a $5,000 pay raise and we're probably $5,000 in the whole. Oh my gosh. What should you do with this $5,000 raise? It's just not in human nature to do nothing. Well, we have to know the specifics and you know, you should reward, I mean, you should have a little treat for it, no doubt about that. But you know, if they have any debt, particularly credit card debt, first thing they should focus on is paying that debt off because the return they're going to get for paying that off is going to exceed any other investment they can possibly make. And so what are they doing? They're cutting their expenses. That's right. And you know, we did a show not too long ago about getting aggressively passive. So you're paying off these bills, getting rid of any kind of huge interest rates and things like that that you're paying. And now this money becomes your own. Now you can invest that in things that can help jumpstart your passive income. Absolutely. And you know, the bottom line is this, you have complete control over your expenses. You have to convince someone to say yes in order to increase your sales or to get a raise. Where have you cut costs in your business or personal life? Share your tips with us on our blog today at big success.com. That's also where we have a written summary of today's show and a link to the show that we mentioned earlier, getting aggressively passive. And let's get our big quote for the day, George. You know, our quote today is one that I'm sure we've all heard, but it just fits so well. It's by Ben Franklin who said, "A penny saved is a penny earned." Ah, but George, I bet that if old Ben Franklin was around today, he'd think about the taxes he was paying and modify his quote to, "A penny saved is better than a penny earned." Yeah, he just might do that. You know, next time we're going to continue on this money talk with a twist. We have comedic writer Jake Novak joining us and he's going to share his top five signs you're managing your money like Wall Street. I can't wait for this, lessons you can learn from Wall Street's mistakes. And until then, here's to your big success. The Big Success Show at B-I-G-G Success.com. [Music] [Music] [BLANK_AUDIO]