How Profitable Is Your Lifestyle?: Determining Your Profit Margin
- Kendall Jones
- Oct 18, 2019
- 3 min read
There are three types of businesses- one’s that have a huge profit margin, one’s that have a small profit margin or breakeven and one’s that have no profit margin. There are also three type of people. There are people that have:
Very low expenses compared to their earnings, leaving a large amount of money remaining
Expenses that are high compared to what they earn, leaving a small amount of money remaining
Expenses often exceeding their earnings, leaving no money remaining
Believe it or not, there is little difference between you and a business. Businesses leverage their resources to earn more money. You can do the same.
Have you ever asked yourself, “What is my profit margin?” Most likely you haven’t. Many of us ask ourselves regularly, “How can I make more money?” But that isn’t the right question.
Life changes when you grow your profit margin. A large profit margin leaves more room for investing and savings, which in turn grows your net worth creating security. Additionally, large profit margins can often lead to spending on more luxuries now and in the future, without acquiring unnecessary debt.
Do your financial statements show you in the red, black or green?
Have you ever met or read a story about someone who lived below their means and became a millionaire? They don’t look like the millionaires on television. They are everyday people that understood the profit margin of their lives and made sure their financial books stayed in the green.
Businesses use green, red and black as an indicator of their financial health. Like I said above, you can look at your financial statements the same way a business would. What do your financial statements say about your profit margin?
Green means they are profitable. Their earnings were higher than their expenses.
Red means their expenses exceed their earnings leaving them no profit.
Black means their expenses match their earning. They are breaking even, leaving no profit.
Let’s keep it simple to start
To determine if you are in the green, red or black you need to write down all your expenses in a month. This would include all your bills and spending. Don’t leave anything out. Review your bank accounts, credit card statements, find receipts and additional items purchased. Think about cash purchases as well as credit and debit card.
Then add up all your take home pay. When determining your take home pay think about the amount that gets deposited into your account from your job or other resources. This includes any money you make on the side or additional funds you receive in the month.
Now subtract the expenses from your pay. This is your profit.
Do you have money left over at the end of the month? If yes, then you are in the green. If the answer is no you are in red. Most likely you are not breaking even, but if you are, your financial statements show you are in the black.
Growing your personal profit margin?
To grow your profit margin, you can take a couple of approaches.
Decrease your expenses- One of the best ways to grow your personal profit margin is to decrease your expenses. Look at the additional spending and start to cut back. Also review your bills and determine if they are needed or if they can be negotiated for a lower monthly rate.
Increase your income- Look for additionally ways to increase your income. This can be side jobs or a side business. (I would be careful with building a side business. Often this increases your expenses.) Find ways to increase your pay at your job. This can be done by asking for a raise, getting a promotion or working overtime.
To see a drastic change in your profit margin, implement both strategies.
One last tip
Just like businesses you should be reviewing your books regularly to understand your profit margin. Businesses don’t go years without adjusting their earnings and expenses, and neither should you. Treating your personal finances like a business can change your life. Leading you done a path of options and choices.
When was the last time you reviewed your personal profit margin? If you had more profit at the end of the month what would you do?
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