Everyone is running their own business is some form (Yes your household is a business, especially when it comes to the financial side of things) and you are the CEO & CFO (Chief Financial Officer)
Without a good grasp of all funds coming in and going out you won’t get very far. In this day and age of advanced technology it is easier than ever to find an app or a program that will help you stay on top of your finances. A couple of dollars here and there quickly adds up. If you don’t know where your money is going you will end up frustrated with your bottom line. Here are five tips to help improve your business and personal finances.
- Understand Expenses.When is that last time you took a hard look at your expenses? Almost everyone who runs a business, or a household has at least some idea of what their monthly expenses are. Having some idea is not enough. To truly understand your finances, you need to really dig into them. Start by obtaining a copy of your credit report or referencing last month’s bank statement (or both!). Write down every payment you made. In addition to the payment write down the current balance owed and the proposed payoff date. You also need to make note of monthly items that may not fixed such as gas, food and other periodic payments. Take a look at every expense you made over the last 30 days and note exactly what it was for. Doing this may open your eyes to how quickly money can go and how it is often spent on unnecessary items.
- Look for Ways to Save. After you are done with your expense report look for ways to cut some items out. If you eat lunch out four times a week you can consider either home or taking a lunch a few days. If one of your utility bills is high you can look for ways to lower, it or possibly switch companies. The same should be done with any credit cards. There are always balance transfer promotions available. Some of these can make sense for certain cards. If you look hard enough you can probably cut your expenses by at least 10%, if not more. The problem is that very few people have the time or desire to make calls and put the work in to get good deals. 10% a month may not seem like much but prorated over the course of the year could equal hundreds of dollars to your bottom line. This is certainly worth whatever time it takes to lower your expenses.
- Make Financial Goals. Where do you want to be financially in six months? How about in two years? Have you thought about ten years from now? You make goals for your business and personal lives so why not make goals for your finances. The beauty about making goals is that they can be anything you like. You can try to eliminate one credit card in the next twelve months. Maybe you want to have a certain amount in savings by the start of the next year. Perhaps you want to purchase a property using exclusively your own capital on a future deal. Whatever your goals are you need to be patient. Your financial problems did not happen overnight, and they will not be solved in that timeframe either. By taking small steps eventually you will get there. It is important that you make goals to give you something to strive for. Without goals in place it is easy to fall into the same traps over and over again.
- Develop A Routine. Having goals is a great start but you need to accompany this with a plan of attack. It is not enough to declare that you want to tackle your debts or save more you need to map out a plan. Start by writing down all of your bills, the monthly payment and the due dates. If you need to put a giant poster where you work, use your phone as a reminder, post it notes, whatever works for you! From there you need to estimate when you have capital coming in and how much you are going to allocate to your bills (if it helps set up different accounts and label them, we used to use jars of money so it was visual and right in our faces, using different accounts and checking them daily is a great visual replacement). Knocking down debt often takes discipline and sacrifice. There will be times after you close a deal and pay off debt that there won’t be too much left over for yourself. Think of this as a small price to pay to achieve your goals. Ten years from now you won’t regret not going to dinner or skipping out on a vacation if you are set up financially.
- Start A Rainy-Day Fund. One of the things that can quickly derail your business/household and cause stress to your life is unexpected emergencies. You never know when your furnace is going to go in a rental property. Your basement could flood, or a tree could fall on your house at any time. While you can’t predict these issues, you can prepare for them. On every deal you close you should put some money away in your rainy-day fund. This should be used for emergencies only. These emergencies have a way of happening more than you may think. By preparing for them you can avoid the stress that comes with it. This will also prevent you from having to borrow funds to take care of the issue and plunging further into debt (You should try to have at least 6 months of monthly obligations saved in the bank)
Dealing with finances and cleaning up issues is not an easy battle to face. However, it is an essential part of being a successful real estate investor. The more comfortable you are in your finances the easier your career, and life, will be.
“I have the simplest tastes. I am always satisfied with the best”