Starting up a business – The importance of financial management

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How much start up capital will I need? In my experience, the most common way for people starting up a business to estimate their start up capital needs, is to have an educated guess.  The problem is that the guess is not at all an educated one.   Hence the need for thorough business planning and competent financial management!

Those who do try to work it out generally underestimate what it takes to start a business.  Inexperience causes them to not consider many of the issues and costs involved.  Hence ‘initial set-up’ budgeting is done considering only the matters (and costs) that appear obvious to them.  This is often well short of commercial reality.

Many people thinking about starting up a business have no idea about the extent of what is actually involved.  Therefore, they are oblivious to all of the costs involved.

They wonder whether they should trade as a sole trader, a partnership or a company.  They are generally oblivious to the issues surrounding an ABN (Australian Business Number), business name registration, intellectual property and taxation.

It would be so easy to go see an accountant who would outline all the relevant issues and their costs but to many, that means having to spend money on stuff that seems irrelevant to the core task of starting up a business.

Hello!! You can’t hope to be in business without spending some money now and again.  Let me assure you that buying good advice is what the smart people starting up a business do.

For more reading on financial management and your path to financial wellbeing, visit http://www.aikido-secrets-to-calm-success.com

Until next time!

The Coach

Financial wellbeing – 5 Common mistakes in financial management

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  • The first common mistake in financial management is to rush straight into ‘a flurry of activity’ without first setting goals or doing any planning.  It is critical that your ‘flurry of activity’ is productive and prioritised towards achieving your goal of financial wellbeing.
  • The second common mistake is procrastination.  That is, doing the thinking, the talking and maybe even some planning but never getting around to doing any of the activity to make it happen.
  • The third common mistake is never committing plans and budgets to paper.  The problem with keeping it all in your head is that it is easily forgotten.  The plan in the head can easily change to follow an outcome.  The plan must be on paper, out there and shared.  That’s what makes it real for everyone involved.  The plan must come first and outcome second; not the other way around.
  • The fourth common mistake is learning (what passes for) financial management and wealth building from friends and family.  Unless the advice giver is a trained professional, the advice is next to useless.  Smart people surround themselves with much smarter people.
  • The fifth common mistake is to believe that debt is the answer to satisfying every immediate need.  Debt has its place in financial management but it must have a productive purpose; it always has to be repaid; and you must always maintain the capacity to repay it.

For more reading on financial management and your path to financial wellbeing, visit http://www.aikido-secrets-to-calm-success.com

Until next time!

Gary

Financial management – the key to home and business success

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In the quest for financial wellbeing, the two skill sets that the vast majority of people lack are financial management and wealth building skills.

Both are needed to run a successful business and a run a successful household.

Lack of financial management skill is one of the main reasons for business failure in Australia.  It is also the reason why the amount of personal debt is so high.

As a business starter, you spend years learning a trade or profession only to find that you possess only a fraction of the skills required to run a business.  One of the glaring omissions is financial management – the ability to manage your own money.

In your home or in your business, it is highly distressing to consistently run at a loss.  That means debt must be accessed just to make ends meet.  Not only is it a stressful situation to be in, but parents are inadvertently teaching their children some terrible financial habits.

The first step in financial management is to do an honest assessment of your situation.  Being honest with your self is paramount.  Seeking help is the second step.

You may think that you are in a desperate financial situation, all alone in a place that no one understands, but you are wrong!  Talking to a professional adviser can make a world of difference.  Your situation is not uncommon and there are some practical steps that can be taken towards a solution.

The process of changing from bad to good financial management is like quitting smoking.  You need to recognise you are addicted to bad habits.  You have to want to quit and be open to learn new habits.

The new habits will include some simple business planning or lifestyle planning and the preparation of a budget.  The budget shows you the expected result if you follow your plan.  This will be your blueprint for a new direction to financial wellbeing.

The principles of financial management are the same for your business and for your household.  Whatever else you may believe your business to be, it is a valuable source of income to finance your precious family’s lifestyle.

For more reading on financial management and your path to financial wellbeing, visit http://www.aikido-secrets-to-calm-success.com

Until next time!

Gary

Financial wellbeing – Moving forward from budgeting

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Looking for ways to make money for you?  The financial wellbeing budgeting exercise, that I guided you through over the last few posts, is a tried and proven way forward to reaching financial targets.

Those who accepted the challenge and prepared a budget, reviewed it, revised it and shaped it, obviously have the will to help themselves.

The rest of you have either achieved financial wellbeing, or you are still living in a state of procrastinatory inactivity.

I know from experience that the majority if you fall into the latter category, so when you are finished talking and deferring action, feel free to catch up.

The path to positive cash flow

When you complete the financial wellbeing budgeting process, you achieve the following:

(a)    You cut unnecessary expenses – i.e. those that are detrimental or have no worthwhile impact on your life

(b)   You reallocate money towards those things that will have a positive impact on your life and make a real difference to you

(c)    You become alert to ways of increasing your income or decreasing tax

(d)   You achieve positive cash flow in your household (i.e. your after tax income is more than your household expenses)

(e)    You acquire the habit of a lifetime – the ability to budget (set your goals financially) and to review regularly

You have finally realise that you can set a budget that will reflect every financial and lifestyle goal that you’ve ever wanted.  The only challenge is to meet the income target to support it; and there are so many ways to make money for you.

Now you are on the start line, in a position to begin the next phase.  But it is not a time to relax.  The path to financial wellbeing requires action and lots of it.  Whilst that doesn’t necessarily equate to hard physical work, it does mean generating the energy to maintain singular focus and sustained effort.

To do that, you will need reserves of energy over time and that means you must be healthy and stay healthy.  Sick and unhealthy people do not have the same focus or the energy to sustain effort.  They are generally focused on taking it easy and recovery.

So isn’t it lucky that you skewed your household budget towards good health and longevity?

For more reading on ways to make money for you on your path to financial wellbeing, visit http://www.aikido-secrets-to-calm-success.com

Until next time!

Gary

Two sides to the budget story!

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When most people sit down to do a budget they regard their income as a given and look to reducing expenses to create savings.  Financial wellbeing is a lot more than cutting expenses.  There are other ways to make money for you.

Income is never fixed – except in your mind!  If you think like that you will quickly reach the glass ceiling that will keep you locked down in poverty forever.

So here is another piece of wealth grower’s thinking:

  • Income is never fixed
  • There is no upper limit to income
  • The only limit on income is the one in your own head

The objection I hear most is:

“I can’t increase my income because I am already working 50 hours a week.”

The answer to this objection is:

“You must start thinking outside the box!”

Do you think for a moment that wealthy people earn a million dollars a year by working 40 hours a week at an hourly rate of $500 per hour?   Of course they don’t!

You have assumed that everyone is like you …. that they are employed by someone else and selling their time.  By doing that, you have already placed a limit on your income because there is a limit to how much time you can sell.

There are only 24 hours in a day and 7 days in a week.  Therefore there is a limit of 8,736 hours in a year.  It might sound like a big limit but it is still a limit – and you have to sleep sometime.

Your budget is your opportunity to at least recognise the need for additional income, and work out how much more you need.  How you actually achieve it is a matter of strategy.

So you can see that budgeting is not only about cutting down and re-prioritising household expenses.  Your first pass budget is your wake up call!

And then when you figure out ways to make a surplus in your household, your budget becomes your blue print to financial wellbeing.

Your goal to earn more income and build wealth starts with your budget. It the simplest financial planning tool of all to make money for you.

Yes it might require some time and tears; and eventually some creative thought; and yes it may well involve a bit of hard work and sacrifice.

But at least I have pointed you in the right direction.  Whether you move forward or not is your choice!

For more reading on ways to make money for you on your path to financial wellbeing, visit http://www.aikido-secrets-to-calm-success.com

Until next time!

Gary

A budget is your path to plan and build

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The aim of a budget is to plan and build to the point where you achieve financial wellbeing.  Now that you have completed both the income side and the expenses side of your budget, it is time to review your work, and get ready for a few home truths.

This is the time when you may realise some stark home-truths.  For example:

  • Your budget should be viewed as a plan for the future, not merely a reflection of your past spending habits
  • There are certain expenses you can’t avoid (e.g. rates, loans, rent etc) and there are others that are entirely discretionary (e.g. food, clothing, personal items, treats, eating out).  In other words, it is up to you whether you spend the money or not.
  • You may find that you have little or no savings (i.e. too bad if the fridge breaks down)
  • You will never be able to afford that holiday next year unless something changes
  • You have eliminated takeaways but you still can’t break even (i.e. your expenses are still higher than your income).
  • If you are running your household at a loss, the difference will be reflected in your increased borrowing.  Now you realise why your credit card bill keeps rising
  • You don’t have health insurance, enough life insurance or superannuation so your entire financial planning is at risk
  • That your dental bills are high and perhaps you should review your health insurance to include dental cover
  • Now that you see the expenses involved, it might be too expensive to run two cars
  • You are spending a fortune on packaged food and treats at the supermarket and not enough on fresh food.  It may be cheaper to acquire more cold storage and buy in bulk
  • You may want to divert some money to long term savings
  • You may start thinking about how you can earn more income
  • You have several loans and they may need to be consolidated
  • That if you want to continue on just the way you are then you are going to have to increase you income

You may wish to revisit some of your ‘expenses’ on your budget planner and re-prioritise them.  So it is now time to make a second pass at your budget.

For more reading on ways to plan and build your way to financial wellbeing, visit http://www.aikido-secrets-to-calm-success.com

Until next time!

Gary

Drawing up your personal expense budget

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Do you seek financial wellbeing?  Last time I talked about the income side of your budget.  Now let’s continue with the expenses side of your budget.

Before you start make sure you have your file of bills paid.

As I said last time, you should start with an annual budget, and break it down later to a monthly budget.   Be aware that you will have expenses that are paid yearly, quarterly, monthly and weekly.  There will be other outlays by cash or card that you might make on an ad hoc basis (e.g. personal items or eating out)

You will need to convert all of your expenses to annual.  If you are using the FIDO budget planner http://www.asic.gov.au/fido/fido.nsf/byHeadline/Budget planner, you will find that the ‘On line’ and ‘Excel spreadsheet’ versions have a payment converter (in blue).  Use that to convert your expenses to annual.

Expenses

There are 10 broad categories:

1.      Housing

2.      Utilities

3.      Transport

4. Food

5.      Education

6.      Medical

7.      Maintenance (child)

8. Personal

9.      Other

10.  Loan Expenses

The highlighted categories are areas of largely discretionary spending, where your costs may have blown out in the past.  These are prime areas to tighten your spending.

If you are using an electronic version of the FIDO Budget Planner, your sub-totals and totals will be calculated automatically.

Now that you have completed the first pass of your budget we will review it and find ways to refine it.

For more Brisbane business building tips and financial wellbeing articles go to http://www.aikido-secrets-to-calm-success.com

Until next time!

Gary

Drawing up your personal income budget

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General advice warning:

The article below is general advice only.  It is not personal advice tailored to suit your individual needs and therefore, you should consider whether this advice is appropriate for you.

Here is one of many good business building tips Brisbane people can use.  The beauty of doing a household budget is that it gives you a good indication of how much money you must generate to finance the life you want for you and your family.  This financial wellbeing advice applies to employed people too.

Now I want you to sit down and prepare your own household budget!  It really isn’t that much different to doing a business budget.  If you have never done a budget before, it will take about an hour.

Before you start, get out your file of bills paid and also find your tax records for you and your partner.  If you are employed, go to your tax records or at least find a recent pay slip or PAYG summary; as well as any details of Centrelink payments, investments and any other income received.

You can use any good budget planner.  If you want to see (and use) a comprehensive personal budget planner, go to FIDO’s Budget Planner at:

http://www.asic.gov.au/fido/fido.nsf/byHeadline/Budget planner

As a start, I would do an annual budget, and break it down later to a monthly budget.   By doing an annual budget first, you should pick up all income and all expenses, including those once a year payments like home & contents insurance and vehicle registration, plus those quarterly bills like rates and water charges, together with your regular monthly commitments like mortgage repayments.

Start with income

The figure you need is Income after tax.   This comes from your most recent tax records, or if things have changed since then, you can make estimates using a recent pay slip or PAYG summary.  But remember, these employer generated documents represent tax deducted by your employer, not tax ultimately paid by you.

It may also be the case that other payments besides income tax, such as like superannuation and health insurance are also deducted by your employer from your gross salary.   Don’t count these expenses twice!

When you get to the relevant expense line item in your budget, make sure that you don’t deduct them again.  If you do, make sure you add those amounts back to your after tax (cash in the hand) salary.

Don’t forget Centrelink payments, rent from boarders and any part time income that you earn.  Include interest from bank accounts and term deposits, and dividends from shares etc.  If you are including rent from an investment house, you will have to deduct all associated expenses first.  These may or may not be more than the rental income.

If you are self-employed, you should probably consult last year’s tax records or ask your accountant to tell you.  It may not be immediately clear.  Please don’t confuse it with total money actually received or amounts that you take out of the business from time to time.

If you draw a salary from your own company, that is only part of the story.  There is still your profit (or loss) to consider as well.  Unless you have very good accounting skills, it is best to speak to your accountant.

For more Brisbane business building tips and financial wellbeing articles go to http://www.aikido-secrets-to-calm-success.com

Until next time!

Gary

Gary Weigh, Financial Planner, Director, Gary Weigh & Associates Pty Ltd ABN 41 084 228 679, Corporate Authorised Representative (No.256617) of The FinancialLink Group Pty Ltd ABN 12 055 622 967, Australian Financial Services No.240938

Start with a wealth grower’s budget

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General advice warning:

The article below is general advice only.  It is not intended to be personal advice tailored to suit your individual needs and therefore, you should consider whether this advice is appropriate for you.

Financial wellbeing starts with a household budget – what you earn after tax, in your hand, minus what you spend.  The budget is a simple and very effective financial strategy, but it gets bad press because people know that, like going on a diet, they must be disciplined.

People also assume that after the budgeting process is complete, they will have less money to do the things they want to do.  Nothing could be further from the truth.  It is likely that after you plug a few spending leaks, you will have more money available.

Budgeting is like losing weight.  If you treat it as going on a diet, the old habits will return as soon as you stop the diet.

The trick is to think of budgeting the same way as you would think of permanent weight loss.  That is, make some permanent lifestyle changes – small changes, bit by bit!

A useful business building tip in Brisbane is to prepare yourself a wealth grower’s budget!

So what is so special about it?

  • A wealth grower’s budget is a state of mind, not some new fangled budget tool that will instantly solve all your problems.  Actually any decent budget tool will suffice.
  • A wealth grower’s mind allows you to pin point those areas where you currently spend your money that has no meaningful effect on your life.  That money can be redirected to where it will have meaningful effect and positive impact on your life.
  • A wealth grower’s budget is not one that creates a bit more spending money.  It is one that gets you closer to your goals in life; those things that are really important to you.

For example, you might decide to spend less on eating out and divert that money to your ‘long term / not to be touched’ savings account.

Here’s another important point!  You must become a saver before you can become an investor!

Your wealth grower’s budget is the tool to help you do that.  If you have no savings, then you will be forced to borrow 100% of money you need to invest.  That strategy carries serious risk at the most dangerous level.

You will find a very good (and very comprehensive) budget planner (FIDO’s Budget Planner) at the ASIC website.

There are three versions to choose from

(a)    the online version (flash player required), or

(b)   the Excel spreadsheet version, or

(c)    the print version

Go to http://www.asic.gov.au/fido/fido.nsf/byHeadline/Budget planner

For more reading about financial wellbeing and for more useful business building tips in Brisbane, go to http://www.aikido-secrets-to-calm-success.com

Until next time!

Gary

Gary Weigh, Financial Planner, Director, Gary Weigh & Associates Pty Ltd ABN 41 084 228 679, Corporate Authorised Representative (No.256617) of The FinancialLink Group Pty Ltd ABN 12 055 622 967 Australian Financial Services No.240938

Think like a ‘wealth grower’

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I have said it before and I’ll say it again, there are a few positive money habits that you need to adopt before you launch headlong into planning your financial wellbeing.

Forget the millionaire mindset!  You shouldn’t think that you have to be a millionaire to achieve financial wellbeing.  Making small changes and taking small steps is what’s important.

Here’s a Brisbane business building tip! Just do what wealth growers do!  For a start, they don’t live on credit card debt while spending everything they earn.  While wealth growers are quietly growing their wealth crop they don’t splash money around and they don’t try to keep up with the Jones’s next door.

Wealth growers grow wealth by observing a few simple rules:

  1. They don’t spend more than they earn so they do not incur personal debt
  2. They are more comfortable with cash or a debit card rather than a credit card
  3. They don’t buy new; they seek out quality and quality secondhand is fine
  4. They do not succumb to social pressure, herd mentality and impulse buying
  5. They factor both the short term and the long term into their thinking
  6. They put money away regularly into long term fund and allow it to do its work
  7. If they want to buy cars and holidays etc in the shorter term, they start another savings / investment fund for that (i.e. they don’t dip into the long term fund)
  8. They don’t waste money on things that depreciate in value; They buy things that are likely to rise in value

Adopting the wealth growers’ rules will be your way forward also.   Start by paying off your credit card and cutting it up.  Get a debit card and re-introduce yourself to the concepts of cash and saving.

If you get into these simple habits, you will be well on your way to financial wellbeing.

To read more Brisbane business building tips on financial wellbeing, check out this article “Seek life’s broader wealth solution” at http://www.aikido-secrets-to-calm-success.com

If you want change to a calm martial mindset, then try Aikido at http://www.griffithaikido.com.au

Until next time!

Gary