Recently, my wife and I set a goal to hike the Grand Canyon, rim to rim. Our friends think it’s a great idea while our family is convinced we are crazy. Before you get too concerned about our safety, know that we are going with a group that has done the hike dozens of times and has strict guidelines we have to follow to ensure we are “ready”.
Planning for this hike has been unlike anything we have ever done before. This one goal has completely transformed how we approach almost everything related to our health and fitness. To begin, our weekend hikes have gotten much more serious. Some of these trails we have been on before, however, in the past, after about a mile of hiking we would turn-around because we knew we had a mile to get back home. Knowing that we need to be ready to go 7.5 miles/4,714 feet down into the canyon and then turn around and do 9.9 miles/ 4,314 feet back up, we have suddenly started getting more serious about our exercise, our eating and especially how far we go on hikes. We went for a 5 mile hike and it turned into 7 miles due to taking some wrong turns on the trail. In the past this might have been a huge frustration that we went further than we planned. Now we were happy about it because we know it is preparing us for the Grand Canyon. It is amazing how quick your perspective can change based on setting a goal!
It is interesting that the only thing that has changed was now we had a challenge to overcome. This alone has triggered all kinds of actions and changes that we never would have even attempted without it. You can have the same amazing transformation to your finances simply by setting a goal. The key is it needs to be something challenging. Saving up for a vacation is a good goal and can give you something to work towards, but probably won't "transform" your financial habits. Some big goals to consider could be paying off your mortgage in half the time, buying an investment property, choosing an amount you want to give to your kids for college, saving for adoption, starting a business etc. The key to this working is it needs to be big and at the same time it needs to be something you really want to accomplish.
Once you come up with the what, you need to then determine the how and how much. This is where you need to know where your money is going and start making a plan on what you could change. You might determine that you need to find other streams of income to get where you want to go. Again, this is something you might never consider otherwise, but now that you have a challenge in front of you, you will be surprised at what you come up with.
If you don’t challenge yourself, you will most likely stay where you are at. There may be nothing wrong with staying, but if you are not satisfied with your current situation, a goal may be the motivation you need to change it.
To better understand why this works, let's take a look at the research that has been done on goal setting theory. The following are extracts from an article I found on goal setting theory from www.positivepsychology.com.
“The following findings summarize the last 90 years of goal-setting:
In summary, when you set a goal for yourself, make sure it is positive, let others know about it, write it down, set a timeframe, be ready to make some sacrifices to achieve it, have a growth mindset, view setbacks as learning opportunities and don’t be afraid to make the goal big, but achievable.
I look forward to letting you know how our hike across the Grand Canyon goes. In the meantime, get started today with your own goal and watch it transform your life.
What would you do with your life if money was not an obstacle?
After you bought your dream house, car and upgraded everything you own, what would you do with your time?
Would your go on an endless vacation? If so, where would you go? To the beach or to the mountains? Who would you take with you? Would you be on the water, in hotels, or VRBO? Which countries would you visit? How long would you stay? What restaurants would you eat at? What would you do for fun? If you stayed in one place for an extended time would you get involved with local activities? If so, what types of groups would you join? What would you do for entertainment?
If endless travel doesn't work for you, maybe you would start a new company? If so, what would it be? A technology company? A car company? A service or hospitality business? Would you want to run it day to day? Would you just want to be the owner/investor?
What would you do? Would you become lazy? Would you get in shape? Would you read? Get involved with politics? Church? Philosophy? Social media?
Would you do none of the above?
So many times we perceive that we are held back by financial resources. The reality is, if you have an interest, you can pursue it. You can find a way through the obstacles that are holding you back. If you don't know what interests you, take a look at how you answered the above questions. What you would do when there are no obstacles gives you some ideas of what to focus on in your free-time.
If you knew it was impossible to fail, what would you do? Once you have your answer, picture yourself in that role, successful and busy. Now think about your new life, what things do you do each day? What types of ideas and solutions do you need to figure out each day? Now consider what actions you need to take now to get there.
Honestly, my answers to these questions have changed over the years. In some ways I am glad that some of my thoughts never came to fruition. You can think you want something but later realize it would have been more of a curse than a blessing. There is wisdom in accepting your current situation completely and trusting it is what's best at this time. At the same time, use your interests and talents to guide where you spend your free time. You never know what may come of it.
It is encouraging to know that it is never too late! Actually, it can be better to start later in life.
"In fact, the average age of business founders hovers around 40, according to research conducted by MIT professor Pierre Azoulay, who analyzed 2.7 million people who founded companies between 2007 and 2014. Azoulay found a founder at age 50 is approximately twice as likely to experience a "successful exit," meaning they get acquired or go public, compared to a founder at age 30, the research found.
Sam Walton had a fairly successful retail-management career in his 20s and 30s, but his path to astronomical success began at age 44, when he founded the first Wal-Mart in Rogers, Arkansas, in 1962.
Henry Ford was 45 when he created the revolutionary Model T car in 1908.
Jack Weil was 45 when he founded what became the most popular cowboy-wear brand, Rockmount Ranch Wear. He remained its CEO until he died at the ripe old age of 107 in 2008.
Rodney Dangerfield is remembered as a legendary comedian, but he didn't catch a break until he made a hit appearance on "The Ed Sullivan Show" at age 46.
Momofuku Ando cemented his spot in junk-food history when he invented instant ramen at age 48 in 1958.
Julia Child worked in advertising and media before writing her first cookbook when she was 50, launching her career as a celebrity chef in 1961.
Jack Cover worked as a scientist for institutions including NASA and IBM before he became a successful entrepreneur at 50 for inventing the Taser stun gun in 1970.
Betty White is one of the most award-winning comedic actresses in history, but she didn't become an icon until she joined the cast of "The Mary Tyler Moore Show" in 1973 at age 51.
Tim and Nina Zagat were both 51-year-old lawyers when they published their first collection of restaurant reviews under the Zagat name in 1979. It eventually became a mark of culinary authority.
Taikichiro Mori was an academic who became a real-estate investor at age 51 when he founded Mori Building Company. His brilliant investments made him the richest man in the world in 1992, when he had a net worth of $13 billion.
Ray Kroc spent his career as a milkshake-device salesman before buying McDonald's at age 52 in 1954. He grew it into the world's biggest fast-food franchise.
Wally Blume had a long career in the dairy business before starting his own ice cream company, Denali Flavors, at age 57 in 1995. The company reported revenue of $80 million in 2009.
Laura Ingalls Wilder spent her later years writing semi-autobiographical stories using her educated daughter, Rose, as an editor. She published the first in the "Little House" books at age 65 in 1932. They soon became children's literary classics and the basis for the TV show "Little House on the Prairie."
Harland Sanders, better known as Colonel Sanders, was 62 when he franchised Kentucky Fried Chicken in 1952. He sold the franchise business for $2 million 12 years later.
Anna Mary Robertson Moses, better known as Grandma Moses, began her prolific painting career at 78. In 2006, one of her paintings sold for $1.2 million.
Harry Bernstein spent a long life writing in obscurity but finally achieved fame at age 96 for his 2007 memoir, "The Invisible Wall: A Love Story That Broke Barriers." https://www.google.com/amp/s/www.businessinsider.com/24-people-who-became-highly-successful-after-age-40-2015-6%3famp
At the end of the day, this is your life. You are writing your story. Don't let fear, money, other people or yourself keep you from pursuing your dreams. You never know what you might accomplish, go for it!
As an entrepreneur you know every decision has a risk-reward analysis. Some of these decisions are simple and can be made within seconds while others are very complex and require much more analysis. As the owner, you have the weight of each of these decisions on your shoulders. You make a decision and there are limitless potential outcomes, some good and some bad. When it comes to making good money decisions for your business there are some guardrails you can structure around your business that can keep you on the right path. Guardrails are not guaranteed to keep you on track, but they definitely increase your chances.
The first guardrail is good record-keeping! You don’t know what you don’t know. It is going to be impossible to make good business decisions if you don’t know what is happening financially. Think of Accounting as a reflection of reality. You may feel like you are being successful, but the numbers should prove that out. When you are starting out it is easy to allow your personal and business records to overlap. Keep them separate and stay on top of reconciling your bank accounts to ensure accuracy. Depending on the complexity of your business, you should consider hiring an Accounting firm to assist you with your bookkeeping functions. As part of your record-keeping you should establish your goals for the year in the form of a budget. Each month you should be comparing your results to the budget and if you have more than one year of business you should also be comparing results to the prior year.
The second guardrail is cash flow. You can be making money and still have negative cash flow. The timing of payroll, debt payments, receivables and payables can create a cash crunch that can threaten your business survivability. Cash is king! You must invest the time necessary to evaluate your future cash flows. In addition to the timing of your monthly bills, you will need to consider your business' sales cycles including seasonality. There may be times of the year where sales are high but cash is tight and other times where it is the opposite. When you talk to your bank about your cash needs, the conversation will go a lot better if you have this work done. Your bank can provide you a line of credit to help navigate these fluctuations. Depending on your business the bank will have its own set of metrics that they will expect you to meet to ensure you aren’t getting over-extended. Your banker can be a valuable resource as they are in a unique position to see what works and what doesn’t across many industries and many businesses. They are vested in your success because they have skin in the game.
The third guardrail to consider is profitability. Sometimes I encounter business owners who have an unprofitable business model. They have a good product or service but they are not making money. They may have positive cash flow which allows them to keep operating but it is just a matter of time until it will catch up with them. Sometimes these owners are so busy running the business that they don't take the time to figure out how to turn a profit. They keep hustling for more sales but adding more business to a flawed business model just produces more of the same result. As stated by James C. Collins book "Good to Great" you must "confront the brutal facts". It is amazing the lengths we will go to avoid an uncomfortable conversation. The mantra I try to embrace is "fear no conversation". The truth of a situation will come to light if you stop avoiding it. No one wants to work for a failing business, but at the same time, there are a lot of people who are energized and motivated to turn a business around. The reality is you won’t ever turn around if you don’t know you’re lost. Take the time to honestly evaluate your business. What level of profitability are you satisfied with and what will it take to get there?
The fourth guardrail is leverage. How much debt are you carrying in comparison to your assets and income? If you carry too much debt, you greatly restrict your options. Do not take on too much debt until you have a proven revenue stream. This is difficult because so many times a business concept takes a lot of money to get off the ground. This is why you often see businesses who are successful venture into other areas because they have the security of their core business that enables them to attempt to do something new.
The fifth and final guardrail is to establish integrity as a core value. I have been fortunate in my career to not only work for businesses that had a strong business model but more importantly had the right values. You need to establish early on what kind of business you want to operate. Will it be one of integrity that your employees can be proud of or will it be one of poor rapport? Establish your core values, hang them on the wall and teach your employees to embrace them. It has amazed me the number of times decisions that were made because we were “honest” came back to benefit us in the long run. Your reputation and trustworthiness make other businesses and customers want to work with you. This doesn’t always have an immediate impact on your numbers but it definitely benefits you in the long run. Play the long game and choose long-term strength and sustainability over short-term gain. The reality is that those short-term gains that come out of compromised moral values really are losses that just haven’t been recognized yet. In Accounting we call that an accrued liability.
Whether you started, acquired or inherited your business you know the stresses of ownership. Sometimes this stress can lead to poor decision making. Follow these money guardrails to improve your chances of success. The risk-reward analysis will come out in your favor more often than not. Start with good record-keeping, manage your cash flow, analyze your profitability, minimize your leverage and run your business with integrity and you will be well on your way to running a successful business you can be proud of.
Some things in life are a complete mystery. For example, if you are trying to plan a vacation 3 months from now, you do not know if it will be good weather or bad...it's a complete mystery. At the same time, if someone asked you what the weather was like yesterday, you probably could answer the question fairly easily. But who cares about yesterday’s weather. Now here is the interesting thing, do you know that if you predict tomorrow’s weather (rain or no rain) by saying it is going to be the same as today’s, you will be correct more often than not, with somewhere around 75% accuracy. So knowing the past can help predict the future. Now it doesn’t necessarily help you predict 3 months from now, but it can at least help you with the near future.
Your money is much the same way. No one can know their distant financial future. They can hope and they can make educated guesses, but no one knows for sure. Your job may change for the better or for the worse. Your investments could grow exponentially or decrease suddenly. The good news is, you can have some idea about your near future by looking at how you earn and spend your money now. This knowledge can help you know what direction you are headed and what changes you need to make.
The problem is that even though this sounds like a simple concept, it isn’t. It is difficult to know exactly what is happening with your money, right now. So much of the money going out the door is based on decisions you made weeks, months or even years ago. Your past decisions on housing and the vehicle you drive are two major factors shaping the way your finances look like today. Your past decisions put the pressure, or lack of pressure, on yourself for today. This is why the journey to financial peace begins with knowing how you got here. At the same time, it is surprising how little thought is given to the future. When I first built the financial forecasting spreadsheet, I was surprised by the outcome. I was also surprised by the impact of decisions overlapping and creating 'tough' years. For example, I put an amount I planned on contributing to each of my kids, for each year that they would be in college. I also inputted 'big vacations' I was hoping we could do as a family. I then put in when I think our vehicles would need to be replaced (not to mention the extra vehicles needed when kids started driving) and suddenly I had a very interesting picture. The fact that college is spread over 4 or more years helped more than I realized and the timing of that big vacation became critical. How much we should spend on replacement vehicles became more obvious and which years I might need to tap into our Home Equity and possibly how much to cover expenses was clearer.
With this exercise of laying out a future plan, year-by-year, some of the decisions we would make, sometimes on a whim, became more significant in my mind. By at least having a picture of how the years would play out, I could better guide my family to maximize our experience. So many times we think that doing a financial analysis will mean we just have to spend less, but sometimes you will find, that you can actually spend more on the things you want to spend more on, if you are disciplined with some of the other major spending decisions. When you lay out a financial future, and see that it actually works out, you have more peace than if you just carry anxiety that you are spending too much, or there just isn't enough. This exercise can help break the bondage of illogical beliefs about money, and can actually increase your confidence about your future.
Consider the scenario where you actually do have enough money, but instead of enjoying it, you worry about money every day and refuse to spend or give any of it away? What kind of person are you becoming? At the same time, what if you are overspending and giving too much away? This isn’t responsible either. If you haven’t put together a future plan, you really don’t know what category you fall under. If someone said to you that you should take a vacation with your family because you only live once and those memories are priceless, you might brush them aside and say that is irresponsible. However, if you put a plan together and see that it is 'ok', that you will have enough money, then not taking that vacation might actually be the money mismanagement. Tracking your spending and planning your future are not just to restrict your spending, they are tools for you to maximize your money to your benefit.
The point of money is to direct it with intention and to maximize every cent that comes your way. If you over spend or over save, either option isn't desirable. The ideal is to spend and save the right amount. The amount that is appropriate to your particular situation, that accomplishes your dreams and helps you bless those in and around your life. You are less likely to give to others if you are living in a state of 'never enough' and fear for tomorrow. You don't have to live in fear, but in order to overcome that fear, you may need more knowledge. More knowledge on where your money is going and what your future will look like based on the decisions you have made and will make in the future.
Money, in many ways, is a mystery, but so is life. With money and in life, you can improve your situation by having self-awareness and living with intention. Money often reflects our approach to life... if you want to find peace with money, you need to increase your awareness with tracking and a budget and build out your plan (your intention) with a future forecast. Once you have done these activities, you will be in a much better position to enjoy your money (and life) with a little less mystery.
I have been an Auditor, Analyst, Accounting Manager, Business Systems Manager, Controller, School Board Vice President, Director of Finance, CFO and Senior VP of Operations over the past 2 decades of work experience. In my free time I developed the XLYourFinances spreadsheet and website I enjoy golf and spending time with my family. We attend church at LCBC.