I ask clients many questions, it’s part of the job, and for those who are self-employed or directors of limited companies, the main area of understanding is income!
“How much do you pay yourself?” I ask. Three top answers are:
- Well I am not paying myself as much to the moment because I am still growing things and its takes time.…
- I don’t want to pay too much tax so I am only paying the minimum at the moment.
- I’ve started paying myself more this year but on paper my accountant has made it really ‘tax efficient.’
I have a big issue with all these responses.
I don’t tell the client this of course. How they run their business is nothing to do with me. I am helping them get a mortgage, arrange protection, set up a pension, give general financial advice or support them with lifestyle planning (not business coaching or an accountant).
But, as a business owner myself, and as a financial adviser, running the businesses finances is something I strive to be good at. I am not perfect, not by a long stretch, when I first started in business I was so off track and didn’t understand a thing. Now nearly eight years in, I am now certain where things should be and I strive to achieve them where I can.
All of these responses are not putting the business owner first. They are putting the machine of the business first. They are coming from the place that business profits belong to the business. While they do legally speaking if it is a limited company, but either way who is running the business? The owner! So the owner should benefit, not the business.
The ‘business’ becomes this fat cat boss who is in charge, it is dictating who earns what and when, not giving anyone a pay rise or paying minimum wage even. Driving the staff into the ground, not looking after them or giving them a day off.
So how can we change this? How can we stop the fat cat eating your business income?
We have to stop looking at the business as a separate object or thing and more as a facility to provide us with an income and lifestyle we desire. It facilitates our wishes in life and provides for us, makes us comfortable.
So what should we do?
- We have to stop thinking of our income as a tax limit allocation. That we earn within a certain bracket because it is tax efficient.
- We have to stop allowing our business to have a massive list of outgoings, become a monster we have to feed, or making us more ‘tax efficient.’
- We have to stop treating our businesses like they are babies. They shouldn’t need cuddling and fussing over to the extent that we are new mums suffering and not had a good night’s sleep in a century…
- We should be able to have a business that pays us for our time and hopefully some more.
Once you are paying yourself more income, you are able to make better financial decisions, plan for the future and enjoy life that bit more.
How you are looking after your personal finances and your business finances are directly linked, because the link is you! Are you up to date with your personal finances? Are you keeping them on track? After all, if you do well in your business, pay yourself more then start earning more…. Are you just going to pour that money into a pot with lots of holes in it?
You are over spending on worthless ‘stuff’ and don’t have a clue where it all goes?!
Yep, so many people feel like this. I really can’t tell you have many people have said this to me. “I don’t know where it all goes?”
STOP SPENDING… that’s it! Just stop… that’s the answer.
This is easy to say and much harder to do, yet, there are some really easy things you can do to save money. Remember the old saying, ‘look after the pennies and the pounds will look after themselves?’
It doesn’t matter how much money you have in the bank or how well you budget, most people overspend even with the best intentions.
So this is where we have to change our habits, habits which have been built up over years and also passed down from our parents.
What is a habit? It’s something that you don’t think about, something that you see as part of your daily routine, but may be completely unnecessary to your health and wellbeing even if you enjoy it. It can also be something that you used to do with old friends, and now you have moved on, you still do it because it’s what you’ve always done.
Here we are trying to help you change old habits and make new ones which will save money rather than spend it. A bit of focus and thinking before you buy, can help you keep the money in the bank at the end of every month.
So, to start with, you need to track what you are spending. This can be enlightening as most people don’t track what they buy throughout the month and are then surprised that they are in the red at the end of the month. Start making a list of everything you spend. This will then tell you what is unnecessary and what a habit is.
Why are you wasting so much money?
So, we may now have some disposable income and some savings, but are they really working for us? Are they moving us towards our goals in life or business? We have a mortgage but is it in best place? We have insurances but are we paying too much?
Look at short and long-term debt.
A long-term debt would be your mortgage, usually taken over a period of around 20 years, your working lifetime.
A short term debt could be a loan for a new sofa or a car over a period of two or three years. If you look at the interest rates you are paying you will notice that normally the mortgage will be at a much lower percentage than the short term loans.
What does this mean for financial management? Well, when you get to a point that you can start paying off debt, look at short term debt first to get rid of them and then tackle the long-term debt a bit at a time. You will get rid of the debt that is charging you the most interest, which will give you more substantial disposable income to start paying off the long-term debt.
Create a plan to move forward with.
Having a plan gives you a focus and allows you to create goals of where you want to be financially. Maybe you want to be debt free in five years. If so, write a plan of how you are going to achieve that.
Think about where you want your money to be in five or ten years’ time? Is it in your children’s trust funds, in your pension or paying off credit? Which would you choose?
Join me online…
If you have enjoyed reading this, I would love for you to join me online. I am running an hour webinar titled:
Three steps to money success…
Do you feel as though money just slips through your fingers? Would you like to have spare money each month with a savings pot for all you need in life? Then join me from the comfort of your own home online for this free webinar and if you can’t catch it live you can catch up via replay.
Many people don’t know where their money goes each month. They literally get to the end of each month and have no idea where it has all gone! They get very frustrated and know something has to change, but don’t know how or where to start. Pay day comes back round again, the process starts all over again.
Does this sound like you?
Join me on this webinar if you feel you’d like to make better money decisions, make a change which will make a massive positive impact on your bank account and give you long term peace of mind. Register here:
FOR BUSINESS OWNERS AND EMPLOYEES – I’ll be sure to give my attention to both of you