Saving vs. Spending: Tips for Knowing When to Do Each
There’s a saying that goes: “You have to spend money to make money.” It’s true! (And it’s false.) The real trick is knowing when to spend and when to save.
A Time to Spend
- New technology is revolutionizing your industry. It’s time to upgrade your equipment. That’s definitely a good reason to spend.
- You just won a new contract that requires increased production. You will need more materials, either more or faster equipment, and perhaps more manpower. That’s a good reason to spend.
- Your business is growing enough that you can no longer do it all yourself. It’s time to hire employees. That’s a great reason to spend.
- Understand the risks.
- Have a plan for paying back any loans.
- Pace your growth so it is sustainable for the long term.
A Time to Save
- Understand the seasonality of your business. Review your revenues over the last few years to recognize patterns and anticipate how much you will need to save to cover the lean parts of your cycle.
- Don’t live month-to-month. Look three to five YEARS down the road instead of three to five months or three to five weeks. Your long-term perspective will help balance the artificial urgency of immediate business needs.
- Stick to your budget. It can be very tempting to dip into any extra money that comes in during a big month. Stay disciplined and stick to your budget so the money is there when you need it.
- An accountant can work with you on budget and forecasting.
- A wealth management professional can help develop a strategy for saving.
- Your community banker can offer experience and insight on ways to maximize your resources, as well as supplement cash flow when the time to invest doesn’t match with your seasonal cycle.