Top Line and Bottom Line

Whenever a publicly traded company announces earnings, you will street Wall Street talking about top line and bottom line – if the news is positive, it will go something like this “XYZ company beat both top line and bottom line estimates this quarter.” And the stock price will spike right after the news due to pure emotion and excitement following the earnings announcement. Honestly, the worst time to buy a stock, but that is a story for another day.

What is top line?

Top line refers to the total revenue or gross sales for a company. In the case of personal finance, it applies to your gross income which includes income from all your sources – paycheck, wages earned through side gigs, capital gains, and interest income etc.

What is bottom line?

Bottom line refers to the net income (earnings) of the company after all expenses including taxes have been paid. In the case of personal finance, it is basically your savings per paycheck after all your bills have been paid.

Personal finance is very similar to corporate finance. If your expenses are greater than your income, then your bottom line is negative. That is a sign of major trouble. The first thing you need to do is to turn that around.

January 2016 is history now. 2016 is flying by. Here are a few things to pause, ponder, and take action on:

#1. What is the one thing you could be doing to increase your top line (aka gross income)?

This could be asking for a raise, asking for a promotion, looking for career growth within or outside the company you are currently working at, working a part-time job, monetizing your hobby etc. The goal must be to consistently push for top line growth of about 5-10% per year.

#2. What is the one thing you could be doing to increase your bottom line (aka savings)?

Look at your monthly bank and credit card statements. What are the areas where you could cut down your expense? If you can cut down anywhere between 1% to 5%, then pat your self in the back. That 1%-5% goes straight towards your bottom line (aka savings).

#3. What is the one thing you could be doing to make your savings work hard for you (aka investing)?

Do you have emergency funds saved away to cover six months worth of living expenses. If not, that is the first thing you should do. You could start out by opening savings account with something like Discover Online Savings Account (that offers 0.95% APY) or a bank of your choice and start building up your savings account.

If you are ready to invest, then you could start out by investing with Betterment or Wealthfront. You get to diversify your investments across stocks and bonds at a very low cost.

What question motivated you the most? What actions are you planning to take?