“Annual income twenty pounds, annual expenditure nineteen six, result happiness. Annual income twenty pounds, annual expenditure twenty pound ought and six, result misery.” – Charles Dickens, David Copperfield
If you’re a home owner, how often do you find yourself poring over bank statements to see where you can reduce your household spending? And then ignore your largest expense. If you’re a business owner, you probably spend a lot of time trying to get the most bang for your buck out of every dollar spent. If you’re a CEO of a large institution, you probably have a committee overseeing the wasted expenditure of your organisation.
Often this results in many people losing their jobs. If I hear one more bank CEO citing their bank’s low cost to income ratio, I will scream. You’re pandering to equity analysts – you know, those people that have never actually run (or possibly worked for) a bank.
When does cutting expenditure start costing you revenue through reduced services? If you’re Government, your annual budget is ordinarily dominated by the areas that you cut expenditure to so that you can fund expenditure to support your ideological election promises.
Last week a few economists finally gave rise to an argument that I have been screaming for quite some time. There is now an issue with income growth in Australia. This is variously described as low wage growth, higher productivity, reduced tax take etc. Why? Oh, the economists will argue that the income hole left by the collapse of commodity prices and the end of the mining boom has not been replaced.
Governments will argue that the spending of their predecessors is the root cause. Small business owners will argue that payroll tax and other government charges are killing them, families will argue that their large mortgages are becoming unaffordable. There’s one argument none of them make because it’s too hard.
How about trying to increase revenue?
Let’s start with the obvious ones. If you’ve been getting CPI increases (or less) each year for the past six years and your expenses have increased two or three times as much, it’s time you looked at your salary. Often this means changing jobs and most people will only undergo a job search as a last resort. If you’re an employee with little in the way of pay rises, chances are you’ve been concerned about your job anyway, so why not take the initiative?
If you’re a small business owner and your sources of income haven’t changed since you set up your business, you have yourself to blame.
If you’re a CEO of a company and you don’t know how to diversify your sources of revenue any more, you should step down now. In fact, your shareholders should be screaming for your resignation. The good news for you is that GDP growth for 2015 was 3% and trending higher. This means you will ride this wave for as long as you can and fill your boots with options. You will, of course, resign to tend to family matters just before the next downturn in your organisations revenue.
If you’re a Government that is borrowing to pay pensions because increasing consolidated revenue by taxing people with a $20 million SMSF goes against your ideology…Really?
If we spent as much time trying to diversify or increase our sources of revenue as we do trying to cut expenditure we wouldn’t be in this ditch, wringing our hands and blaming everyone but ourselves.
Homeowners that complain about the cut in Family Tax Benefits or the increase in petrol/electricity/gas prices but still find $1,500 per month to lease a German convertible should really think before screaming…but I digress.
The following applies to families, individuals, business and government. Know where you’re heading with your revenue. Set targets that are achievable. If you don’t achieve those targets – change course. Just don’t bury your head in the sand and hopefully by this time next year you’ll be able to pay for that German convertible – which we will be ready to fund.