“When the weathermen pack umbrellas, the forecast is for rain.”-Will Robbins, Equity Portfolio Manager at Capital Group
Fixed Costs, tech valuations, and the death of your future financial self.
We spend a lot of time talking about investing, and we do it even more. Our team, at any given time, is working with clients starting businesses, selling businesses, buying real estate, and/or building liquid portfolios needed. But I want to take a moment and talk about fixed costs, and why they should be the enemy of your financial lives.
First of all, what are fixed costs? Fixed costs are things that happen every month that limit your ability to transfer cash to your investment account. The main ones are debt, habits, and subscriptions. Probably never heard of them this way but that’s what they are. Debt is paid to someone else for something. Habits, good or bad, are paid experiences. And subscriptions aren’t debt per se, but they act like debt as they happen monthly and limit your ability to invest. Ok, so we understand what fixed costs are. Why are they the death of your future self and how does that tie into software valuations?
Let’s visit software. It is wildly known that software companies are the most valuable companies in the world. Why? Well aside from their utility, they typically have low operating costs. They have a few employees, an internet connection, a product and there you have it, you can make a million a year doing that. Low fixed costs. Not convinced? Look at META, they will have 25% fewer workers than they did a year ago and watch their revenue continue to grow. Software companies have low fixed costs and high margins, that equals value.
So now to why high fixed costs will be the death of your future financial self. When you have obligations to someone else, particularly when they can bankrupt you if you do not pay (banks), people pay them. And what happens when people spend decades paying for bad habits, bad debt, and too many subscriptions? They look in the mirror, realize they ran out of time and see the death of their future financial life.
Here's a simple solution for you. Pay off debt you know is stupid, cancel subscriptions that add value to your life, and fix your bad habits.
Treat your financial life like a tech company. Low fixed costs, lots of margin, which will lead to significantly better financial conditions.
Take the initiative today and save your future self.
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