Page 7 - Trading #101 Course – Part THREE: SETTING UP YOUR BUSINESS – www.traderscoach.com

TRADING #101 COURSE – PART THREE: SETTING UP YOUR BUSINESS – WWW.TRADERSCOACH.COM

Trade, Invest, and Live within Your Means

As any competent accountant will tell you, a business (and a household) must have
enough revenue coming in to cover the expenses going out. Of course, at times
businesses and individuals take on debt, but what is the cost of that debt?

Does the end justify the means?

For example, if you buy a house you take on a mortgage and owe the bank money for
the house that you live in. For that service the bank collects interest, and there is a
monthly cost to you that goes toward paying the interest on that secured loan. The
interest you pay enables you to have a roof over your head, so in most cases this end
justifies the means.

If for some reason you stop paying the bank, it has the right to take back the house
since a mortgage is a secured loan. Taking on debt can offer you great value, if the end
justifies the means and as long as the probability is high that you can sustain the debt
for the duration of the loan.

For your business plan, you will need to look at your own circumstances to ensure that
the revenue coming in will cover the expenses going out. Remember, past performance
does not guarantee future results. So, if things change and what was once a balanced
budget becomes unbalanced, the quickest remedy is to cut expenses and increase
revenue. From a survival standpoint, that is rule number one.

Another issue to address is that most start up business don’t get into the black and
don’t’ become profitable right away. Keep this in mind when budgeting, so that you can
plan for a period of adjustment and reduced revenue.

Keep your budget balanced and you will stay the course for the long term.

What’s Your Net Worth?

To be successful, it is critical to know where you stand at any given moment, and in the
case of your finances, that means knowing what the dollar amount of your net worth is.

This fluid number may increase or decrease as years go by, and checking in on what
your current net worth status is should be at minimum an annual exercise. Your net
worth number will unlock the answers to a number of questions, including “How big
should my active trading account be?”

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