Money in a box or under the bed is not good money management.
There are many things you can do to become financially savvy
So you don’t have a million dollars, well, try rubbing two coins together and working harder and smarter. Failing that learn all you can about money. How to make, how to spend it and how to keep some of it for the future.
The best place to start is to set some financial goals or objectives. Write them down and be specific. People with written goals are far more likely to accomplish their aspirations than those without.
Setting your financial goals puts you in charge of your money and your life. Your goals can be a mix of short and long term and to be achievable. Now you are already in a better position to take the action necessary to become financially savvy.
- Create a budget
Learn how to track your progress towards these goals and revise them as needed. Just because the numbers are small is no excuse for not budgeting. It is easy to learn while numbers are small and it doesn’t take long before numbers in your head become out of touch with reality. Use your budget to identify cash shortfalls well in advance, it will be easier to fix the shortfall. Without a profit and loss budget, how will you know if you are making a profit or a loss?
- Pay yourself first
If you don’t pay yourself first you will most certainly run short on ready cash to make everything else happen. You need to be able to pay the basic things to keep you family happy. It doesn’t have to be a big pay cheque when you are getting started, the big cheques come when you are established. It’s hard to become financially savvy without some running money in your pocket.
- Know how you are spending your money
Your money can quickly dissipate each month. Use an accounting system and record everything. Too many people ignore proper accounting when the figures are small. These are the people who are looking to receive some unpleasant surprises.
- Don’t buy expensive cars and other things
Many businesses get into financial trouble because as soon as the money starts to flow their egos become out of control. They buy expensive vehicles, new furniture, unnecessary technology and a host of other things. Things that are not necessary until the business is well established and there is some surplus money to play with.
- Always save some portion
Putting aside a little of the profit each month will soon add up. A good saving plan helps you to accumulate good assets. Set some goals as to how you might eventually spend, or invest the money. Don’t fritter your profits away.
“When starting a business, focus on making sales first, raising capital second”. Peter Sergeant
- Start a personal investment account
Save a portion of your profits divided between superannuation, property, shares and cash. The best advice is always to get rich slowly. Get rich schemes are a thing of the past, most of the scammers have been caught.
- Invest now for your retirement
Even though your funds are limited, it is amazing how a little each week mounts up with compound interest and government incentives.
- Establish a cash reserve for emergencies
Emergencies can be upon you without notice, be prepared. Reserves not only allow for negative things but also to take advantage of attractive deals or situations which require some cash to be there.
- Invest in loss of profits, key-man and disability insurance
You never know when you can fall on hard times. While most small businesses are always optimistic and think bad things only happen to others. Think again. If you are uninsured don’t expect anyone to bail you out.
- Don’t take any unnecessary risks
Keep insurance premiums paid up. Fire, burglary, delinquent accounts, public liability, car insurance and so on. Engage a reliable and practical insurance broker to ensure you are properly covered. Never leave insurance to chance. People who are financially savvy don’t take unnecessary risks
- Establish a good credit rating
While borrowing money can be bad in some situations, in others, it can accelerate profits by leveraging other people’s money. A good credit rating will attract a lower rate of interest and make finance easier to obtain, even at short notice.
- Avoid building up debt
Particularly on credit cards. Limit the number of credit cards you have. Keep you debt level within safe limits. How easy it is to accumulate debt, how hard it is to pay back.
- Avoid opening up charge accounts
Pay as you go whenever possible and practical. Charge accounts can be another form of capital if properly utilised. It’s always easy to do some impulse buying on credit cards.
- Be aware of taxation liabilities
We all have to pay taxes. Don’t make it any worse by having to pay penalties for late lodgements. If you have a problem talk to the tax people.
- Engage a financial advisor
An independent financial advisor can be a great asset in helping you understand and negotiate your way through the financial industry maze.
- Choose a good accountant
Someone who you relate to and is practical, reliable and delivers your financial reports on time every time. Give them good instructions and manage what you expect.
- Look for a lawyer who is financially savvy
It is important to choose a lawyer who is financially savvy in order to give you the right measured advice. Make sure your lawyer is an investment, not a cost
- Set up a good banking package
Look for a suite of useful banking products that could save you hours in administration and bank fees. As a startup having difficulty here, you can look at running your business finance using your credit cards. It might be more expensive, but it’s a lot less stressful.
- Have two bank accounts
If one bank denies you access to an overdraft or loan, you can still operate. Despite their marketing hype, banks have their own interests at heart, not yours.
- Set up a merchant account with your bank or a company like PayPal
PayPal’s services for merchants make it easier for you to get paid. Online, on mobile, in person or by email, anywhere you do business. Manage all your receipts and payments with a single PayPal account. https://www.paypal.com
- Keep an up-to-date Will
You never know when your number is up. Therefore a will ensures your estate is distributed as you would have wished. Without a Will, your hard earned estate could finish up anywhere.
Teach your kids to set goals and save for them. Teach them to make smart choices, not sacrifices. Let your kids hear you talk about saving, paying off the car, putting money aside to celebrate a birthday, saving for their education and paying bills on time. Their future success will be your reward.
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The most interesting things I observe in businesses and non-profit organisations under financial stress are:
- Their accounting system is totally inadequate.
- Their money handling processes are inadequate.
- They freeze up and need immediate support for the actions that need to be taken.
- They tend to carry on as if there are no financial problems.
- They consume too much alcohol as is the answers are in the bottom of a bottle.
- They avoid their creditors and by doing so cut off an important lifeline.
- They tend to overcompensate by discounting which can compound the problems.
- They are certainly embarrassed and avoid any social contact.
- They avoid having conversations with the people who can help them most.
- Very few smaller business have their financial situation audited,