Business Owners should raise prices when demand increases

Dear Dave,
My husband has his own one-man painting business, and I help him with the books. We were wondering how you know when it’s time to implement a price increase. Also, what should the increase be?
— Lauren

Dear Lauren,

I grew up in the real estate business, so I’ll use the apartment-complex model as my example. If your building is completely full, then it’s time to raise prices a little bit until you have a vacancy. In this type of scenario, you want a healthy level of vacancy, meaning you’re always going to be losing some customers as you go up in prices.

In your husband’s case, if he’s booked through the end of the month, he’s way underpriced. Just keep on turning in your bids, and don’t make a big deal about things. It isn’t like a tenant, in your case, where you’re going back time and time again except in rare cases. You might start with a 10 percent increase, and see what happens for a while. If that goes well, wait a bit and raise them another 10 percent.

There are only so many hours in a day this guy can work, so the only other option is to take on staff. But before I start staffing, I’m going to raise prices and cut the number of customers that way. In most cases with the construction business, if you show up when you say you will, complete the job when you say you will, and you do high quality work, there’s almost no ceiling on what you can make!

If you want to retire on $40,000 annual you need a $500,000 nest egg

Dear Dave,

I make $80,000 a year, and I was wondering if there’s an easy way to determine how much money a person would need to live comfortably after retirement.

– John

Dear John,

A commonsense rule of thumb if you’ve got your money invested in good growth stock mutual funds, is to pull from those funds at a rate that is lower than which they are growing. Otherwise, you’ll destroy them, right?

I tell folks if they want to pull off 6 to 8 percent – I’m comfortable doing 8 percent – then you’ve got to decide exactly how much you want to live on and what that means for your nest egg.

If you want to live on $80,000 a year, it means you have to have a $1 million nest egg. If you want to live on $40,000 a year, then you need a half-million dollar nest egg for what we’re talking about here.

– Dave

Larger families usually means you need a budget

Dear Dave,

My husband and I have seven kids. What parts of your program work best for large families?

– Karen


Dear Karen,

My entire plan works for a large family. Larger families just have more expenses. What does change – and you already knew this – is that it can be a larger financial burden. This isn’t criticism; it’s just a mathematical fact.

When you kick things into overdrive like you folks have done, two things have happened. One, you’ve extended the time that you’re going to be supporting the kids financially. Two, you’ve got a lot of baby birds to feed and clothe. Unless you have an astronomical income, it slows down the process of hitting financial goals, such as getting out of debt, because you’ve got a drain on the math side of things. It’s a wonderful drain; it’s a glorious drain; but mathematically speaking where the money is concerned, it’s still a drain.

You really don’t have any choice but to do a budget. Having seven kids doesn’t give you an excuse to live out of control or mean that living out of control without a plan is the definition of success. You’ve got to set more emergency categories aside in your budget. You’ve got to budget heavier for food, medical, transportation and things like that, because you’ve got more things pulling at you – and your money.

– Dave