Investing Vs spending

[AndyC_123]

Hi (thought this would be the most relevant forum)

I run quite a profitable business, which brings in about £200-300k gross a year. I take very low salary and a bit of a dividend (leave that up to the accountant). The profit is normally put back into the business or kept as cash in the bank accounts. I love what I do and see myself doing it for a long time yet, but after the recent passing of a close friend on Monday I wonder whether I should enjoy the cash more and be a bit more frivolous.

This is my question as I’m sure plenty of people here have been in a similar situation - how do you balance growing your business whilst still enjoying the proceeds?

Cheers

Edited by AndyC_123 on Thursday 16th January 13:12

[trickywoo]

If you think the money is going to keep rolling in the best thing from a tax and sense point of view is to max your pension.

You can then blow the rest on whatever takes your fancy in the knowledge that your future is safe.

With that kind of money unless you go off the rails for some reason it would be hard to just waste it.

[LooneyTunes]

AndyC_123 said:

This is my question as I’m sure plenty of people here have been in a similar situation - how do you balance growing your business whilst still enjoying the proceeds?

The problem (if you can really call it that) with running a business is that the financial part is only one element of the "proceeds". There are so many other elements to consider when you think about the satisfaction you can derive and the broader benefit you provide to others (employees and clients).

You need to think about:
- is it about wanting to enjoy the cash?
- do you want more work / life balance?
- how much / how long do you want to keep doing what you do?
- what the realistic options are for growing / backing off / exiting your business are

There's a huge difference between being a specialist contractor on £4-500k (they do exist) vs something that could have mid-management / others running it day-to-day vs running a business employing junior staff that still relies on the owner. Each of these has a different set of options associated with it.

Likewise there are different thought processes you'll go through:
- in the early days of the business
- when you're drawing enough to have a good lifestyle
- when you're financially secure
- when you're thinking about what to do next
- when you've exited (with or without a plan)

Spend a lot / a bit, save a lot / a bit, invest a lot / a bit. Whatever works for you. But if you get on a growth path that involves hiring others then the social obligations change and you really do need to think about the longer term than if you're one person operating independently.

I also lost a couple of friends too soon. Makes you realise that you're a long time dead and sometimes the Grim Reaper can be closer than you think. Sure, plan for tax but don't let paranoia about it creep in and stop you taking out what you can afford. I'd prefer to pay some tax now and have some fun than have it all get taxed when I'm in a box.

[Wilmslowboy]

An excerise to encourage some ideas.

If you were given only a year to live, what are the things you would do, how would you spend that time, what would you go and see ?

How about spending a week a month (a day a week) doing these very things ?

For some it might be to see if they can take their business to the next level, or reach the next financial milestone, for others to travel, spend time with the family, become a racing driver.


I'm not quite fortunate enough to be in your position, however I have stated to become more of a spender than 'investor', and one conclusion I'm slowly coming to, it is perhaps better to collect experiences than trinkets (toys,asserts, stuff).

Edited by Wilmslowboy on Thursday 16th January 07:20

[AndyC_123]

Interesting thoughts, thank you.

I know this probably doesn't make much sense but hopefully it helps writing it down rather than have the thoughts rattling round in my head.

[anonymous-user]

Wilmslowboy said:

An excerise to encourage some ideas.

If you were given only a year to live, what are the things you would do, how would you spend that time, what would you go and see ?

How about spending a week a month (a day a week) doing these very things ?

For some it might be to see if they can take their business to the next level, or reach the next financial milestone, for others to travel, spend time with the family, become a racing driver.

That's a nice way of focusing thoughts on what matters.

[Wilmslowboy]

AndyC_123 said:

Hi (thought this would be the most relevant forum)

I run quite a profitable business, which brings in about £200-300k gross a year. I take very low salary and a bit of a dividend (leave that up to the accountant). The profit is normally put back into the business or kept as cash in the bank accounts. I love what I do and see myself doing it for a long time yet, but after the recent passing of a close friend on Monday I wonder whether I should enjoy the cash more and be a bit more frivolous.

This is my question as I’m sure plenty of people here have been in a similar situation - how do you balance growing your business whilst still enjoying the proceeds?

Cheers

I found this a good book, challenges the assumption that you need to keep growing, amongst many other things.

You don’t have to grow your business or change your product to fit customer demands

[jonamv8]

What is the numerical version of very low salary and bit of dividend? I always find it hard to hit that sweet spot between what I save and spend. I could spend more but I seem motivated by saving at the same time too

[JulianPH]

trickywoo said:

If you think the money is going to keep rolling in the best thing from a tax and sense point of view is to max your pension.

You can then blow the rest on whatever takes your fancy in the knowledge that your future is safe.

With that kind of money unless you go off the rails for some reason it would be hard to just waste it.

^^^ This.

You will save a fortune in income tax and Corporation Tax (pension contributions are deductible for CT purposes) over the years and you accountant really should have advised you on doing this.

As trickywoo says, this way you have the best of both worlds.

[mart 63]

Have i gone the wrong way by buying property. I live in a village in North Wales, part of a busy town. So for the last 4 or 5 years ive maxed my dividens and bought flats in the area. We have 4 now and put £40k down as deposits. Flats were bought for between £85k and £95k, with between £550 and £500 rental income. We dont
touch the rent as we put it on the mortgages. Ground rent and insurance £110 per year on each. Management fees 8%. Mortgages will be payed off in the next 7 to 9 years.

Would the £40k returned more invested in a pension?