Sunday, February 12, 2017

Retained earnings

When you read the annual report of a company, you can learn a great lesson about personal finance too.

When a company makes a million dollars, pay 20% of it in tax, it will have eight hundred thousand dollars left.

It is not likely to pay all the money to the shareholders.

It will retain a large portion of the money as retained earnings.

You will see this amount in the annual report.

Since all good companies will do that, it follows that we have to retain a part of our earnings too.

Most of us never think about it in this way. 

Most of us know how to exercise good judgment when we are managing the business of our boss, yet we cannot use the same concept in our lives.  That is very sad.

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