Curated by Brad Hoffer w/ ChatGPT - www.xlyourfinances.com
Tips and tricks to make the most out of every dollar you earn.
Create a Budget: Start by tracking your income and expenses to create a realistic budget. Allocate specific amounts for different categories, such as groceries, transportation, housing, and entertainment. Stick to your budget and review it regularly to make adjustments as needed.
Cut Unnecessary Expenses: Analyze your expenses and identify areas where you can cut back. Consider canceling unused subscriptions, reducing dining out or entertainment expenses, and finding cheaper alternatives for everyday items.
Shop with a List: Before heading to the grocery store or mall, make a list of what you need and stick to it. Impulse purchases can quickly eat away at your budget. Plan your meals and shop for groceries accordingly to avoid wastage and overspending.
Comparison Shop: When making larger purchases, take the time to research and compare prices from different stores or online retailers. Look for sales, discounts, or promotional offers to maximize your savings.
Use Cashback and Rewards Programs: Take advantage of cashback apps, credit card rewards, and loyalty programs to earn extra money or discounts on your purchases. Pay attention to special offers and promotions to make the most out of these programs.
Embrace DIY: Learn to do simple tasks yourself instead of hiring professionals. DIY projects like home repairs, basic car maintenance, or even simple sewing can save you a significant amount of money over time.
Save on Utilities: Reduce your utility bills by practicing energy-efficient habits. Turn off lights when not in use, unplug electronics, adjust your thermostat, and use energy-saving appliances. Consider insulating your home and using natural light to reduce electricity costs.
Prioritize Saving: Make saving a priority in your budget. Set aside a specific amount each month and automate the process if possible. Consider opening a separate savings account or investment account to help your money grow over time.
Buy Secondhand: Opt for buying secondhand items when possible, especially for things like furniture, clothing, books, and electronics. Thrift stores, online marketplaces, and consignment shops are great places to find good deals on quality items.
Negotiate and Ask for Discounts: Don't be afraid to negotiate prices or ask for discounts, especially when making significant purchases or signing up for services. Many vendors are willing to provide discounts or incentives to secure your business.
Plan Ahead for Large Expenses: If you know you'll have a big expense coming up, such as a vacation or major home repair, start planning and saving for it in advance. By spreading the cost over several months, you can avoid going into debt or depleting your savings.
Automate Bill Payments: Late fees and penalties can eat into your budget. Set up automatic bill payments to ensure that you never miss a payment deadline and avoid unnecessary charges.
Practice Mindful Spending: Before making any purchase, ask yourself if it aligns with your values and priorities. Avoid impulsive buying and give yourself a cooling-off period before making non-essential purchases.
Increase Your Income: Look for opportunities to earn additional income through side hustles, freelance work, or part-time jobs. Increasing your earning potential can provide more flexibility in your budget and help you reach your financial goals faster.
Take Advantage of Free or Low-Cost Entertainment: Explore free or low-cost entertainment options in your community, such as parks, libraries, community events, or local attractions. Take advantage of streaming services or borrow movies and books from the library instead of paying for expensive entertainment options.
Remember, maximizing every dollar is not just about cutting back on expenses; it's also about making intentional choices that align with your financial goals and priorities.
According to ChatGPT - www.xlyourfinances.com
Budgeting and money management are essential skills that can help you gain control over your finances, achieve financial goals, and pave the way for a secure future. Whether you want to pay off debt, save for a down payment, or enjoy a worry-free retirement, implementing effective budgeting and money management techniques is crucial. In this blog post, we'll explore various strategies and techniques to help you master the art of budgeting and take charge of your financial well-being.
Assess Your Financial Situation:
Before diving into budgeting, take a comprehensive look at your financial situation. Evaluate your income, expenses, debts, assets, and financial goals. This self-assessment will serve as the foundation for creating an effective budget.
Create a Realistic Budget:
A budget acts as a roadmap for your financial journey. Start by tracking your income and categorizing your expenses. Allocate funds for essentials like housing, utilities, transportation, groceries, and healthcare. Assign a portion of your income to savings and investments. Be realistic and prioritize your spending based on your financial goals and values.
Embrace the 50/30/20 Rule:
Consider the 50/30/20 rule as a guideline for allocating your income. Aim to spend 50% on essential expenses, such as housing and utilities. Allocate 30% for discretionary spending, including entertainment and dining out. Lastly, save and invest 20% for your future financial security.
Cut Back on Discretionary Spending:
Identify areas where you can reduce discretionary spending. Analyze your lifestyle choices and find alternatives that align with your goals. Opt for homemade meals, explore free entertainment options, and negotiate better deals on subscriptions and services. Small changes can make a significant impact on your budget.
Prioritize Debt Repayment:
If you have outstanding debts, prioritize paying them off. Consider the debt snowball or debt avalanche method. The debt snowball focuses on paying off smaller debts first, while the debt avalanche method tackles high-interest debts first. Choose the approach that suits your psychological and financial needs best.
Build an Emergency Fund:
Unforeseen expenses can disrupt your financial stability. Create an emergency fund to cover unexpected costs. Aim to save three to six months' worth of living expenses. Start by setting aside a small portion of your income regularly until you reach your target.
Automate Your Finances:
Simplify your money management by automating your finances. Set up automatic transfers for bill payments, savings contributions, and investments. This approach ensures consistency and eliminates the risk of forgetting important financial obligations.
Track Your Spending:
Regularly monitor your spending habits. Utilize budgeting apps or spreadsheets to keep a record of your expenses. Review your progress, identify areas for improvement, and adjust your budget accordingly. Awareness is key to maintaining financial discipline.
Seek Professional Help:
Consider seeking guidance from financial advisors or professionals. They can offer personalized advice tailored to your specific situation. Whether it's retirement planning, investment strategies, or tax optimization, their expertise can prove invaluable in achieving your financial goals.
Continuously Educate Yourself:
Lastly, commit to ongoing financial education. Stay updated on personal finance topics, read books and articles, listen to podcasts, and attend seminars. The more you understand about money management, the better equipped you'll be to make informed decisions.
Budgeting and money management are essential life skills that empower you to take control of your financial future. By assessing your situation, creating a realistic budget, reducing expenses, prioritizing debt repayment, building an emergency fund, automating your finances, tracking your spending, seeking professional help, and continuously educating yourself, you'll develop a strong foundation for achieving financial success.
Acronym provided by ChatGPT
P - "P" stands for "Plan". The first step in achieving your goals is to create a plan. Identify what you want to achieve and break it down into smaller, more manageable steps. This will help you stay focused and motivated along the way.
E - "E" stands for "Evaluate". Regularly evaluate your progress toward your goals. This will help you stay on track and make any necessary adjustments to your plan.
R - "R" stands for "Relevant". Ensure that your goals are relevant to your overall values, beliefs, and aspirations. This will help you stay committed and motivated over the long term.
S - "S" stands for "Specific". Make your goals as specific as possible. Instead of a vague goal like "save money," set a specific goal like "save $5,000 for a down payment on a house."
O - "O" stands for "Organize". Organize your time, resources, and priorities to achieve your goals. Use a planner, to-do list, or other organizational tools to help you stay focused and efficient.
N - "N" stands for "Nurture". Nurture your mindset and habits to support your goals. Stay positive, practice self-care, and build healthy habits that align with your goals.
A - "A" stands for "Accountability". Find someone to hold you accountable for your goals, such as a friend, family member, or coach. Share your progress with them and seek their support when needed.
L - "L" stands for "Learn". Continuously learn and grow as you work toward your goals. Seek out new information, skills, and experiences that will help you achieve your goals more effectively.
F - "F" stands for "Financial Goals". Setting financial goals is essential to achieving financial success. Create specific and measurable goals to help you stay motivated and on track.
I - "I" stands for "Investing". Investing is one of the best ways to grow your wealth over time. Learn about different investment options and find the one that suits your risk tolerance and investment objectives.
N - "N" stands for "Net Worth". Your net worth is a measure of your financial health. To calculate your net worth, subtract your liabilities from your assets. Track your net worth regularly to monitor your progress.
A - "A" stands for "Asset Allocation". Asset allocation refers to the way you divide your investment portfolio among different asset classes, such as stocks, bonds, and cash. A well-diversified portfolio can help reduce risk and maximize returns.
N - "N" stands for "Needs vs. Wants". It's important to distinguish between your needs and wants when managing your finances. Prioritize your needs, such as housing, food, and healthcare, before spending money on wants, such as entertainment and luxury items.
C - "C" stands for "Credit Score". Your credit score is a measure of your creditworthiness. A good credit score can help you qualify for loans and credit cards with favorable terms. Monitor your credit score regularly and take steps to improve it if necessary.
E - "E" stands for "Emergency Fund". An emergency fund is a savings account that you set aside for unexpected expenses, such as medical bills or car repairs. Aim to save at least three to six months' worth of living expenses in your emergency fund.
J - "J" stands for "Joy". Focus on finding joy in the process of pursuing your goals, rather than just the end result.
O - "O" stands for "Openness". Be open to new experiences, ideas, and perspectives along the way. This will help you learn and grow as a person.
U - "U" stands for "Ups and Downs". Acknowledge that the journey will have ups and downs. Embrace the challenges and setbacks as opportunities for growth.
R - "R" stands for "Resilience". Build your resilience and perseverance to keep going, even when the journey gets tough.
N - "N" stands for "Nourishment". Take care of yourself physically, emotionally, and mentally throughout the journey. This will help you stay energized and focused.
E - "E" stands for "Exploration". View the journey as an opportunity for exploration and discovery. Embrace the unknown and discover new possibilities.
Y - "Y" stands for "Yourself". Stay true to yourself and your values throughout the journey. This will help you stay motivated and fulfilled, even if the destination changes.
I hope these insights help you enjoy the journey of life, and not just focus on the destination!
I decided to see what would happen when I asked Chat GPT to provide principles for personal finance from the perspective of the world's top 4 religions (Christianity, Islam, Hinduism and Buddhism). Take a look at what Chat GPT came up with.
Christian principles for personal finance are based on biblical teachings and values. Here are some principles that are commonly considered important:
Stewardship: Christians believe that everything they have is a gift from God and should be used responsibly. This includes money, time, talents, and other resources.
Giving: Christians are called to be generous and to give to those in need. This includes giving to charities, churches, and other organizations that serve the community.
Contentment: Christians are taught to be content with what they have and to avoid the love of money. This means avoiding materialism and consumerism, and focusing on what is truly important in life.
Hard work: Christians believe in the value of hard work and diligence. This means being responsible and reliable in your work, and using your skills and talents to the best of your ability.
Avoiding debt: Christians are encouraged to avoid debt and to live within their means. This means avoiding unnecessary purchases and using credit wisely.
Planning: Christians are taught to plan for the future and to be responsible stewards of their resources. This includes setting financial goals, creating a budget, and saving for emergencies and future expenses.
Overall, Christian principles for personal finance are based on the belief that money is a tool to be used for good, and that it should be managed responsibly and in accordance with biblical values.
Hindu principles for personal finance are based on the teachings of Hinduism, which emphasize the importance of living a responsible, balanced, and ethical life. Here are some principles that are commonly considered important:
Karma: Hindus believe in the concept of Karma, which means that one's actions have consequences. This means that individuals should conduct their financial affairs with responsibility, honesty, and integrity.
Dharma: Hindus are encouraged to follow their Dharma, which means living a righteous and moral life. This includes being responsible with one's finances, avoiding excessive debt, and saving for the future.
Generosity: Hindus are encouraged to be generous and to give to those in need. This includes giving to charities, helping others in need, and practicing acts of kindness.
Avoiding extravagance: Hindus are encouraged to avoid extravagance and to live a simple life. This means avoiding unnecessary expenses, living within one's means, and being content with what one has.
Wealth creation: Hindus are encouraged to create wealth through honest and ethical means. This means engaging in lawful and productive work, investing wisely, and saving for the future.
Spiritual wealth: Hindus believe in the importance of spiritual wealth, which means developing one's inner self and finding contentment through spiritual practices. This includes meditation, yoga, and other spiritual practices that help individuals find inner peace and contentment.
Overall, Hindu principles for personal finance are based on the belief that wealth should be managed with responsibility, honesty, and integrity, and that it should be used to promote social and spiritual well-being.
Buddhist principles for personal finance are based on the teachings of the Buddha, which emphasize the importance of living a simple and mindful life. Here are some principles that are commonly considered important:
Non-attachment: Buddhists believe in the importance of non-attachment, which means not being overly attached to material possessions. This means avoiding materialism and consumerism, and focusing on what is truly important in life.
Mindful consumption: Buddhists are encouraged to consume mindfully, which means being aware of the impact of their consumption on the environment and society. This means avoiding unnecessary purchases and using resources wisely.
Generosity: Buddhists are encouraged to be generous and to give to those in need. This includes giving to charities, helping others in need, and practicing acts of kindness.
Ethical investing: Buddhists are encouraged to invest in businesses and ventures that align with ethical and sustainable principles. This means avoiding investments in industries that harm the environment or society.
Simplicity: Buddhists believe in the importance of simplicity and living a simple life. This means avoiding unnecessary expenses and living within one's means.
Mindful planning: Buddhists are encouraged to plan for the future mindfully and with awareness of the present moment. This includes setting financial goals, creating a budget, and saving for emergencies and future expenses.
Overall, Buddhist principles for personal finance are based on the belief that wealth should be used mindfully and ethically, and that it should be managed with awareness and simplicity.
Islamic principles for personal finance are based on the teachings of the Quran and the Sunnah (the practices and sayings of Prophet Muhammad). Here are some principles that are commonly considered important:
Zakat: Muslims are required to give a portion of their wealth to charity, known as Zakat. This is typically 2.5% of their annual income and is meant to help those in need.
Avoiding interest: Islam prohibits the charging or paying of interest (known as riba). This means that Muslims are encouraged to avoid taking out loans or using credit cards that charge interest.
Halal earnings: Muslims are encouraged to earn their income through lawful means (halal), which includes working in fields that benefit society and avoiding unethical or illegal practices.
Avoiding excessive debt: Muslims are encouraged to avoid excessive debt and to live within their means. This means avoiding unnecessary purchases and using credit wisely.
Planning: Muslims are encouraged to plan for the future and to be responsible stewards of their resources. This includes setting financial goals, creating a budget, and saving for emergencies and future expenses.
Investing in halal opportunities: Muslims are encouraged to invest in businesses and ventures that align with Islamic principles and values. This means avoiding investments in industries such as gambling, alcohol, and tobacco.
Overall, Islamic principles for personal finance are based on the belief that wealth is a blessing from God and that it should be managed responsibly and in accordance with Islamic values.
According to ChatGPT for www.xlyourfinances.com
Summer vacations are a great way to relax, recharge, and make lasting memories with your loved ones. However, they can also be expensive and take a toll on your personal finances. That's why it's important to plan ahead and make smart financial decisions to ensure that you can enjoy your vacation without breaking the bank.
Firstly, set a realistic budget for your trip. Consider your expenses for transportation, lodging, food, and activities, and allocate a reasonable amount of money for each category. Be sure to factor in any unexpected expenses, such as medical emergencies or car repairs, by setting aside a contingency fund.
Secondly, start saving early. Create a separate savings account specifically for your vacation expenses, and contribute a set amount each month leading up to your trip. You can also consider cutting back on unnecessary expenses leading up to your vacation, such as dining out or buying expensive clothes.
Thirdly, be strategic about your destination and accommodations. Consider traveling during the off-season or booking a vacation rental instead of a hotel to save money. Research free or low-cost activities in the area, such as hiking or visiting local museums, and prioritize those over more expensive tourist attractions.
Fourthly, use credit cards responsibly. Consider applying for a credit card with travel rewards, such as airline miles or hotel points, to help offset some of your expenses. However, be sure to pay off your balance in full each month to avoid interest charges and debt.
Lastly, be mindful of your overall financial goals. While it's important to enjoy your vacation, don't let it derail your progress towards your long-term financial goals, such as saving for retirement or paying off debt. Consider setting aside some money specifically for your vacation, while continuing to contribute to your other financial priorities.
In conclusion, with proper planning and smart financial decisions, you can enjoy a summer vacation without jeopardizing your personal finances. By setting a budget, saving early, being strategic about your destination and accommodations, using credit cards responsibly, and keeping your overall financial goals in mind, you can have a memorable and affordable summer vacation.
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.
When you are young, just beginning your career, often, your income is slim. During this stage of life, you have to stick to your budget and start making choices that will lead to financial stability and success in the future. Even though there isn’t much to work with, you need to minimize your debt load and avoid accumulating credit card debt. The best thing you can do is start directing your money, no matter how small an amount, to the areas you know are best. Make sure you have basic insurance coverages, start contributing to your 401(k), and set aside money from each paycheck toward an emergency fund.
As your career gets going, you may start earning some extra money, but the crazy thing you will find is that there never seems to be enough. This is because you keep increasing the spend. You improve your living conditions, you get a more reliable car, you realize you want to be more generous and give to charity, you may get married and now have pressures to start a family, the list is literally, endless. You are probably most vulnerable to the credit card pitfall at this point because you have a million things you are trying to accomplish and you start to believe you should be able to afford it. The reality is, you can afford it, over time, just not all at once.
Later on in your career, you may start hitting some of your goals and start feeling better about your financial position. However, if you have kids, you will realize there still doesn’t feel like enough as you worry about helping them through college, paying for weddings and in general helping them get a better start to life than you had. It becomes more important as you have more money to know where it is going and make good decisions about how you spend, save and invest that money. This can be overwhelming and sometimes people make some very poor decisions with their money because they don’t have a plan. It is too easy to just spend money as it becomes available on home improvements, cars and other ‘wants’, when the reality is you may have needed to save some of that money for the future.
All of these stages demand more money from you then you will probably have. How do you deal with this? The best thing you can do, is make sure you are maximizing the money you do have. The problem is, if you aren’t tracking your finances and comparing it to a meaningful budget, you really don’t know what you have. Every month is a surprise. Some months you may feel really good and suddenly you have a car breakdown, or your property taxes come due, or you overspend while on vacation. A good financial tool will not only track what you are spending, it will help you build a budget and compare your spending to that budget. This is your scorecard. The main barrier to truly tracking your finances, is the time it takes. But if you can develop a weekly habit of downloading your financial accounts (Bank and Credit Card Transactions), you will save yourself stress and worry and will have a better chance of getting yourself on the right track. If you want to save yourself a lot of time each week, the www.xlyourfinances.com budget spreadsheet is designed to not only make this weekly process quick, it also makes it easy. The spreadsheet is automated to auto-label your transactions, remove duplicates and validate your downloads. The transactions are summarized and compared to previous months and years and most importantly, compared against your budget.
Since all your transactions are in the spreadsheet, the budget inside the xlyourfinances spreadsheet shows you by category what you have spent over the past few years and makes it easy to create that meaningful budget. The budget tab becomes your scorecard as it compares your actual spending to your budget through any date range you would like to look at. You can compare by month, year to date, or even look at a previous year.
The xlyourfinances spreadsheet not only saves you the time of building your own spreadsheet, it is automated to make the weekly process quick and easy. Your balances will match your online accounts because it won’t allow you to post duplicates and you can easily see the last transaction you posted. All your financial history is stored in one place, year over year, which makes doing taxes and anything that requires knowing your past history (verifying when you made a purchase for a warranty claim etc) simple and quick.
Xlyourfinances budget spreadsheet also has a cash forecast. This is an invaluable tool to ensure that you never overdraw your bank account. You may have multiple accounts you are juggling and you need a tool that can handle them all!
Throughout all these stages of life, you have the added stress of planning for your future retirement. How much should you be investing and what kind of investments should you be making? You will want to work with a certified financial planner to make sure you are doing the right things. When you sit down to talk to your advisor, they will have a lot of questions about how you spend your money, what your goals are, and what is your net worth. If you have the xlyourfinances budget spreadsheet up and running, you will be able to confidently answer all of their questions, because you have already took the time to figure these things out.
No matter what your current financial position is, knowing where your money is going and directing it to where you want it to go, will lead you to financial peace and stability. You can make sure you are saving appropriately, building your financial net worth, and see those improvements, year over year. Don’t go another day in the dark, invest in the budget spreadsheet designed for every stage of life at www.xlyourfinances.com.
I have been an Auditor, Analyst, Accounting Manager, Business Systems Manager, Controller, School Board Vice President, Director of Finance, CFO and COO 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.