When approaching year end and talking to their CPA about tax planning, business owners often ask “if I buy XXX (insert whatever asset you’d like), can I pay less taxes?” While the tax answer would generally be “yes”, I would offer a further point of discussion. If the business does not need the new XXX (let’s say a truck when the old one is 3 years old and in fine shape), then why would you take hard-earned cash or incur further debt, to save a few dollars in taxes?
I thought of this scenario while preparing this blog on the 4th Law of Wealth and Abundance from Ron Willingham’s book-The Ten Laws of Wealth and Abundance. If you have read my earlier blogs, this fictional book is about a young person that Benjamin Franklin takes under his wing to mentor and help be successful. The 4th Law states:
SET ASIDE FOR YOURSELF A PART OF EVERYTHING YOU EARN.
Before you pay anyone else, first pay yourself. Do not allow your hard earned funds to flow to the pockets of other people. Understand there will never be a convenient time to start saving. Understand also that the major obstacle of saving is simply that of getting started. Set realistic aspirations for yourself, even if the amount is small. Allow nothing to block your future success by causing you to spend your savings dollars. Learn to spend your money on tangible things that last. Avoid expenditures that are eaten up, worn out or that are consumed quickly. Do not be deceived by the apparent slowness of your savings build up. In time you will see small beginnings grow into significant amounts. Remember, “Small amounts regularly saved is how the road to wealth is paved”.
This law works on a business as well as personal level. As the years go by in the book, Ben Franklin’s young apprentice becomes a successful entrepreneur and he looks back at this advice about savings as a critical step in his path to success. His self-realization is that when saving becomes a priority, you begin to discover previously unrecognized ways to do it and that the man who has a surplus in savings is a master of many situations. Later on, his bankers were so impressed with his ability and discipline to save that they did not hesitate to lend the funds he needed.
I think this last point is particularly pertinent in our current economic times. Tight credit availability, several years of low profits or losses and other factors make finding money to grow and expand a business almost impossible. A cushion and history of savings would be a huge help.
Try this exercise for one week on your personal expenditures: Each time you go to spend any money, ask yourself do I really need this or is it something I can do without? Realistically consider this question. How you decide will not be judged, but if you decide NOT to spend that money, put the money you did not spend into an envelope. At the end of the week, see how much you “saved”. When I did this, without even feeling it, I had over $60 in my envelope. $60 x 52 weeks would be over $3,000 in annual savings!!! Let me know how much you saved this week!
Dare you try this exercise with your business….?