Personal income of a million dollars or more

Entrepreneurs and CEOs who have experience in economizing are facing the problem that they are accustomed to a salary that is much higher than their company can afford to pay. They could lower their expenses, of course, as so many employees have been forced to do for the last 40 years, but they’re afraid that they would then go bankrupt themselves.

That fear is not without reason. Billionaires do go bankrupt regularly. When you search the Internet for “billionaires that went bankrupt” you’ll encounter entire lists of them. Millionaires and billionaires are going bankrupt because of the same problems that cause companies to go bankrupt. They encounter losses, and start cutting back.

When a billionaire appoints a domestic assistant, they become in essence a small company with one employee and one customer. That one employee makes mistakes that cause losses. The more household assistants there are, the bigger the losses. At the end of the year, the domestic assistance budget appears to have less money than the billionaire thought. He’s a few thousand dollars short.

He has the option to supplement those few thousand dollars from personal funds, or to cut back. It turns out to be just as tempting for billionaires to cut back to cover losses as it is for companies. And it leads to the same mistakes. In particular, the proceeds from the cut-backs are never used to supplement the deficit. Fatal economizing mistakes lead to the deficit increasing by a factor of 10 to 100 per year.

As the deficits rise, millionaires and billionaires will try to supplement those shortages with wild investments and speculations. In their haste, they make lots of mistakes and the problems just keep getting bigger. Cutting back on taxes often proves to have fatal consequences for their financial life.

The solution to this problem is the same for them as it is for companies. People with a private income or a private equity of a million dollars or more must include a general ledger account for profit and loss and a reserve account in their private accounting, to keep their deficits under control.

Smart savings ensure companies become healthy

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