Common sense: Profit is good!

What is the most fundamental goal of every business?  To make a profit (even “not-for-profits” want to make profit)! What about personal finances?  The goal here is to earn more than you spend.  To be perfectly clear, a profit is the positive monetary value remaining after total expenses are subtracted from total revenue.  Important to note, a business cannot be profitable without the creation of revenue.  So, if an individual owns a business (or has a job) which creates personal revenue then they are on their way to financial success, right?

Not quite.  Don’t forget about expenses.  Expenses need to be less than revenue to create profit.  Check that one off the board and THEN, you are on your way to financial success.  That is the very, very, very basic principle.  Sorry if that belittled anyone’s intelligence or brought back nightmares from Economics 101.

Last crucial point, profit is good.  Profit is why businesses stay open.  Profit can fund expansion, job creation, innovation, reinvestment and other good things for a business.  Sometimes, a business may mismanage profits which can ultimately lead to failure.  The recent history of our country is rampant with this type of mismanagement.  Unfortunately, our country has been neglecting, ignoring, and betraying basic business principles.  Now at the crisis point, we are realizing how much trouble we are in!  Yet, mismanagement is not the whole problem with our government’s finances.

The problem is more serious.  Our government, specifically Congress, spends and borrows more money than the government creates in revenue.  There is no denying our government can generate revenue!  We are actually pretty good at it.  We ruin the benefits of generating revenue by spending all our revenue plus billions and billions more (aka borrowing).  Thus, profit is impossible.  Zero common sense.

All this is compounded by plans to spend more money in order to rejuvenate the economy.  Wait, what?  That’s right.  The Obama administration has always been about spending more, more, and more!  They are not the first, either.  If more money is spent, there is no chance for profit.  Please remember, profit is good!

When a business has a year in the negative (no profit), they focus on one thing before anything else: CUT EXPENSES.  Or at least, they should.  Personal finances work the same way.  Yet, our government does not believe this to be so.  Why not?  Why would our government operate any differently than a business or a person?  What makes them so special?  These are all great questions.  I say that to affirm myself since I am asking them.  But, maybe they are questions you should ponder as well.

If you do your research you will find out there are many arguments as to why our government, as well as any other government, shouldn’t have to operate like a business.  In my opinion, their argument lack common sense!  Do research by talking to someone you know who owns a business.  They will have some good insight.  Also, watch or read current events on Greece.  Hmmm… get those wheels a turnin’!

Quick list on how a person and business operate finances versus our government:

Person

  • Wants to create revenue
  • Wants to save money (have more than forced to spend)
  • When in trouble, cuts expenses
  • For expensive necessities (like school, not like an HDTV), takes out loan
  • Pays taxes on all inflow of money (BEFORE spending aka revenue)

Business

  • Wants to create revenue
  • Wants to make profit
  • When in trouble, cuts expenses
  • For expensive start-up or expansion, takes out loan
  • Pays taxes on revenues

Government

  • Wants to create revenue
  • Wants to spend more
  • When in trouble, ADD MORE EXPENSES
  • For expensive programs/projects, takes out loan (from the FR or other countries)
  • Collects taxes from persons and businesses
Action:  Do not be scared to make more money!  Explore money making options so you can generate more revenue for your business and yourself!
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