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Exploring the dollar/dollar, price vs. value, and legacy

Welcome to the Intentional Dollar weekly newsletter — great work taking this small step to move your money forward. I’m Logan, a Certified Financial Planner™, and I’m excited you’re here!

What’s inside?

• One tool to experiment with

• Two quotes from others

• Three questions to dig deeper

• Four lines of poetry for the point

Disclaimer: This is not investment advice. These weekly posts represent my simple thoughts, a few quotes, and some questions — for educational purposes only.

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_{One tool to experiment with:}

The Dollar/Dollar:

For a second, think of yourself as a corporation. Corporations earn income, pay fixed and variable costs, and hopefully have a healthy profit at the end.

Profit is what’s left after paying for expenses — it’s the bottom line.

Revenue - Costs = Profit.

Our financial situations are similar.

Corporations, and us too, like to focus on growing the revenue. It’s the flashy headline number that pulls the kind of coveted attention that the crowd seems to be after. This attention can be misplaced.

Big revenue signals importance. Big salary is no different.

A dollar of revenue or salary doesn’t equal a dollar in your pocket. This is true for corporations and it’s true for us, as we pay tax and certain cost to earn our income. So $1 on top, the gross amount, might only translate to $0.70 - $0.80 in your pocket.

Every dollar you earn is trimmed.

This brings us to the hidden gem of cost reduction. And it’s why a dollar of cost savings might be better than an extra dollar of income. There’s no tax imposed on your cost savings, so a dollar equals a dollar, or a little more if you think about the amount of top line money you need to build it.

Take a thought walk with me. Assume you have a 20% tax rate. Your $1 of revenue is taxed, now you’re left with $0.80. That’s what ends up in your pocket. Flipping this over — it takes $1.25 to produce $1 of net income, after your 20% tax ($1/(1-.20)). So $1 of cost saving would require $1.25 of income to create an equal dollar. Not all dollars weigh the same.

I say this, but warn that cost cutting shouldn’t be your sole mission. There is a clear limit to cost cutting, however adept at eliminating you become. You can only cut your costs so much until theres nothing left to trim.

With income there is no cap. The idea with this tool is to strike the balance and remove the fluff that inevitably hides in your personal cost structure. To test the necessary against the excess.

Cost reduction isn’t about eliminating the things you love, but about finding the efficiency. As any corporate running a cost reduction project, you must start by identifying each cost center.

Cost centers like utilities, or mortgages are consistent across the months, so we assume they can’t be changed. Challenge these assumptions. Paying a certain price for years, doesn’t mean you’ve been paying the right price.

Start by labeling out your cost centers and then take a deep plunge into them. The dangerous status quo bias can lock us in our patterns, often to our disadvantage.

It’s worth noting that cost trimming has an additional advantage. When you reduce your costs, you expand your margin. Margin is the difference between what you make and what you take.

The additional advantage in margin building is that you reduce the money obstacle you have to hurdle over each year — your cost of life. With a high cost of life, you have pressure to produce the requisite revenue to sustain that life.

Not all dollars are the same.

_{Two quotes on price vs. value:}

Value is a relative term and price is absolute. A high price doesn’t mean something is expensive and a low price doesn’t mean something is cheap — it’s about the value.

_{Three questions on legacy:}

1. What legacy do I want to leave?

2. How might I position myself and my dollars closer to that ideal — today?

3. When I think of someone that’s passed — what two things come to mind? What can I pull into my life from this?

Which question stuck with you? Questions like these are spotlights for the mind. Reply to this email and let me know which one shined light on a previously dark cave.

_{Four lines of poetry for the point:}

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Content ideas, questions? Reply to this email or reach out to me at [email protected]

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Disclaimer: This is not investment advice. These weekly posts represent my simple thoughts, a few quotes, and some questions — for educational purposes only.