How Much Money Should You Reinvest in Your Business?
Reinvesting in your business isn’t just about the stock market – it’s about hiring writers for your blog, going to conferences to better learn your trade, and getting help with coding for your website. And of course, there’s always marketing. But how much of your money should you reinvest? While it’s tempting to keep (and spend) every dollar you earn, that’s simply no way to expand your business and take it where you want it to go. Here are some simple ways to determine how much to reinvest.
Reinvest Everything You Wouldn’t Pay the CEO
Craig Ballentyne of the finance blog Early to Rise puts it this way: “Every dollar you pay yourself is a dollar you can’t be reinvesting in the growth of your business.” He goes on to explain that you need to determine how much you think a CEO running your business deserves to be paid. If you wouldn’t pay someone else the same base pay and incentives that you’re paying yourself, then you’re paying yourself too much. Of course, this doesn’t include paying employees – obviously you have to do that too. But don’t be tempted to give yourself huge bonuses and a fat paycheck if you want your company to really take off.
Reinvest Half of Your Profits
Kyle Taylor, founder of The Penny Hoarder blog, believes that you should reinvest a full HALF of what you make into your business. He should know – in only four years he went from making $55,000 (in 2011) to $10 million (in 2015). He credits his success to dedicating a full half of the Penny Hoarder’s profits right back into the business in the form of sponsored ads, Adsense, redesigning his site, and contests for the blog’s readers. Taylor is quick to point out that not all of the money he spent on his business went so well – once, he scrapped a $20,000 redesign when it wasn’t what he wanted – but in the end, every failure was a lesson. In his own words, “Each of those experiences helped me figure out how to run the successful site that continues to grow today. They helped me learn how to better target audiences through Facebook advertising, how to write more effective copy, and how to hire the right people to help me. Those mistakes were vital in identifying a formula for success.”
Reinvest as Much as You Can Right Now
Maybe you’d be willing to pay a CEO far more than the total profits you’ve made in three months, and perhaps half of what you made this month is a measly $50. Whatever amount you choose to reinvest, it’s never too soon to start. Warren Buffet’s reinvestment strategies began when he was a teenager; he and a friend installed a used pinball machine they bought for $25 in a barbershop, and when it proved to be a popular item, they reinvested their proceeds and ended up with eight more. By the time he was 26, he was worth $1.6 million in today’s dollars – and if that’s not inspiration to stop procrastinating, I don’t know what is.