Guess what? Profits are better than wages! Somebody told us all wrong. This article will bring to light three reasons why profits are better than wages and that entrepreneurship is the path to financial freedom.
Profits vs Wages
According to the definition of capitalism, America is a capitalistic country. Private owners and centrally economic planned government controls a mixed-market economy for trade and industry. The government writes laws to promote success and growth for businesses, not wage-earners.
Businesses sales products or services. As a result, the money from those sales produces revenue. Revenue is income. When I say revenue, think income. However, businesses operate to make a profit. But, exactly what is profit?
Profit is a financial benefit that is realized when the amount of revenue gained from a business activity exceeds the expenses, costs, and taxes needed to sustain the activity. Any profit that is gained goes to the business’s owners, who may or may not decide to spend it on the business.-Investopedia
Profits Benefit Businesses and Governments Continuously
Laws are in place to help businesses succeed and grow. Businesses that succeed and grow benefits the community around them. This is government’s motivation to help businesses succeed. To promote growth and success, the financial benefit given is profit. For example, I am a business owner. After I have created revenue or income from the sales of products and services, I can deduct the expenses and costs that it took to create the revenue or income. On top of that, I can subtract expenses and costs from my revenue and reduce tax obligations.
Its good to create revenue or income but profit is the goal. Why? Profit is pure! After expenses, costs, and taxes, is profit and the freedom to do what I want. Profit goes to the business owner who can decide if he or she wants to spend it on the business, plan a vacation, or invest it in stocks.
Business owners focus on creating more profit and reinvesting in the business is a direct correlation. Because of this governments see business as a partner in growing the economy.
Wages Benefits Consumers For A Fixed Period
Wages are also income. My parents said the most important reason to get an education was to get a good job to earn a good wage.
In most communities, people with jobs, get respect. A job meant you could take care of your family and have a decent place to live. A job also represented class. If you were in a two-parent household and both parents were working, you were middle-class. In my neighborhood back then, the middle class meant rich.
Unfortunately, wages don’t grow anything. Sure, consumer purchasing power helps to turn the wheels of the economy and it takes wages to do that. But, even when wages climb, they don’t eliminate inflation.
Inflation is a general increase in prices and fall in the purchasing value of money.-Dictionary.com
Fast forward to the present day and middle-class families are shrinking by the thousands. Inflation is at an all-time high!
Because of inflation, wages benefits consumers for a fixed period. Eventually, the value of the wages will fall. Jobs are plentiful in some states and scarce in others. Americans purchasing power has been stagnant for sixty years. I personally saw my Dad work for a company for 40 years, and retire with a pension worth around $57,000 dollars that lasted about five years.
“Wages will make you a living, which is fine, profits can make you a fortune, which is super-fine.”-Jim Rohn
Wages are based on a system where you trade time for money. In my early twenties, I was a strong advocate of I have more time than money so I might as well work as much as I can. The problem with that philosophy is if you spend all your time working, you’ll never have the time to enjoy living.
I have heard too many stories about people that have worked thirty or forty years, finally, retire, and not soon after, die. Trading time for money is not just about making money, it’s also about using the time for living.
Wisdom teaches you that time is valuable. Solomon, the wisest king to ever live said it best.
“There is a time for everything and a season for every activity under the heavens.”-King Solomon (Ecclesiastes 3:1, Holy Bible)
You can’t work every minute of every day and although you may have more time than money and work more looks like an option, time does run out. King Solomon also says, “There is a time to be born and a time to die.” What are you going to do with the time in between?
The wage system is not market-driven nor does it drives the economy. It is a cost to businesses for the production of products and services. It does not promote success and growth in business, it is a cost to do business. In a mixed market economy, businesses want to keep costs low, the government wants to do the same. Therefore, there are no incentives for businesses or governments to increase wages.
Profits Are Better Than Wages
Here are three reasons why profits are better than wages.
No Limitation on Time to Earn.
Its impossible to work 24 hours, 7 days each week for 365 days each year. Therefore, the number of hours you work limits your wages. You can only work for so long. At some point, you must sleep. Wage-earners trade time for money. Hours worked equal hours paid.
Business owners work but are able to hire others for the use of their time. And business owners write hiring expenses off as a tax deduction. Remember, what revenue exists after you deduct expenses, costs, and taxes, is profit. If you have more people to help you sell products, and build products or services, the higher the chance, you will have more sales and revenue.
Taxed on Revenue Minus Expenses.
Wage-earners pay taxes on all income earned. Business owners pay taxes on income earned after deducting the expenses and costs it took to earn the income.
Business owners have expenses like advertising or hiring others to sell their products or services. They can deduct these expenses from the income earned. When tax time rolls around, they only have to pay taxes on the income earned after deducting the expenses or costs to do business.
Imagine if you could deduct all the money you spent on all your expenses to live and then pay your taxes. You would have more money, right?
Systematic Income Generation.
The mission of the business is to build a system that generates revenue. This system supports utilizing other people, business services, and business tools. The system works to benefit the business and its effort to grow. Consequently, activities incurring costs to operate the business are business expenses. You deduct business expenses from your sales revenue to get your profit. When you sell more, you have more income and even if your expenses increase, you save on taxes.
Business owners have other ways to increase the opportunity to generate income. The internet creates a new income stream for businesses. The internet does not limit sales by time or location. Online shopping is like having a universal storefront open 24-7-365. Numerous social networking tools are available to connect with people to increase income-generating opportunities.
Profits Are Better Than Wages
Profits are better than wages!
Wage-earners trade time for money. The more wages you earn, the more taxes you pay. The more taxes you pay, the less money you have to spend, save or invest. In addition, wage earners absorb all the costs involved to earn wages (transportation, gas, clothing, special uniforms, etc).
As an entrepreneur, you have the ability to increase your success in earning more money without penalty. In other words, the cost to do business (shipping costs, advertising, utilities, salaries, etc) is free to the business owner. You do not absorb the costs to earn profit and you keep more of your money earned to spend, save or invest.
