Admit it, when you look at your bank balance online or on an ATM receipt, you assume that’s how much money you have to spend.
Well, I have news for you, your bank account is lying to you.
The days of keeping a ledger at the back of our checkbook are gone (I know who still writes checks?) But, that doesn’t mean we have any excuse for not clearly tracking how much money we have and where it is going. How many times have you accidentally overdraft one of your accounts because you forgot that XYZ automatic charge was coming out? Or, maybe you’ve started your business in the last couple years and ended up with credit card debt because you had start-up expenses.
There are a number of great money management tools, even free ones, for your phone and online. The problem is that you can have all the tools in the world, and they won’t do squat unless you start using them properly.
When you are trying to get a handle on your money you need a plan. Call it a budget, a spending plan, or whatever you want. The first step to knowing how much money you actually have is writing it out. If you are self-employed you are going to have to create 2 separate plans, one for business and one for personal.
Let's start with the basics:
- List out your regular monthly expenses, your debts, and any savings (non-tax) goals you have. If you have been in business over a year, then I want you to work your budget off of your lowest earning month. Trust me on this, it will help you in the future.
- Then list out the average amount of money you’ve brought in over the last 3-6 months. I understand that most businesses have variable income. There is often no guarantee of a set amount of income as an entrepreneur, but we can use averages to help us plan. Also, if you have services or products that are on a subscription type plan then you can better predict a minimum of income.
Now, remember I want you to do this twice. Once for your business and once for you personal.
When budgeting for your business think percentages! When we think about budgeting it’s hard on variable income because we're afraid to set exact dollar amounts. Start with percentages so that you can work with what you've got. You will probably have to make adjustments as time goes on because things will flux. The four main areas I want you to set a percentage for are owners pay, operating expenses, taxes, and savings. If you are able to start telling your money where to go rather than feeling out of control it will be life changing.
Personal budgeting is its own dance. Often people don’t like to write out a budget because they feel restricted by it. In reality planning ahead with your money will give you more freedom and peace of mind knowing exactly where things are going. You’ll want to start by creating categories for the basic needs like Rent/Mortgage, Utilities, Insurance, Food, Gas, clothing, personal care, and the like. The beauty of a budget is that you don’t stop there! If you really love to go to the coffee shop regularly then work it into the budget. If you take a vacation every summer with the family, then set aside a little each month so you have the cash to spend rather than wracking up your credit cards and taking the rest of the year to pay it off.
An important thing to remember when starting to budget for any area is that it won’t be perfect. The longer you budget, the better you will be at allocating the right amounts to the right categories. If you end up making adjustments 10 times in the first month, that’s ok. The point is to get started and keep at it!
We’ll be diving deeper into money management over the next couple months to help you take control of your business and personal finances.