Productive Leaders

Ph.D., CSP, CDR, US Navy Ret.,
CPAE Speaker Hall of Fame

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Simple Tips for a Wealthier 2011

Kick off the New Year by making a viable spending plan. Make a commitment to manage your
finances. A savings and spending plan, whether for home or for business, is an integral part of how you
manage your home and business resources. A plan helps you focus on your wants and needs, and directs
where you devote time and energy. If managing finances isn’t fun for you, try following these simple steps.

  1. Take a snapshot of your finances. If you don’t know where you are, it’s impossible to plan for the future. Where are you financially right now? What did you make and what did you spend? What are your assets at the start of 2011? How much debt do you have right now? You need to know where your finances are as you plan to be successful going into the new year. Look at all of your bank statements. Add up all assets and then add up debt. Do this every year.
  2. Assess last year’s spending.Pull out the credit card statements, the weekly bookkeeping, and the spending plan. Was last year’s plan effective? Was it accurate? Did the plan achieve your goals? Were you able to stay focused and spend what you intended? What were the over expenditures? In what areas did you under spend?Look at the discrepancies between what you planned for and what actually happened. Adjust either the numbers or the spending to reflect your priorities for this year. Are you satisfied with what you spent and where you spent it? If not, make note of the changes. These areas help you identify the realities and the goals for this year.I frequently advise people to examine their spending as a means of gauging their priorities. An honest appraisal is key to developing programs that work effectively.For example, in a home spending plan, the categories of budgeting are defined by function and their necessity, such as the rent or mortgage, electricity, food, and utilities. Other categories that are nice to have, but are not necessary, might include entertainment, dining out, superfluous clothing, or vacations.If you spend $4.00 on coffee every day, but you feel guilty because it was not in your budget, you need to budget for it. It is clearly a priority for you, so rather than blowing the budget and feeling as though you failed, plan for the expenditure so you can enjoy the coffee, and forego something else that you do not value as much, such as an evening dinner at a restaurant.

    The same spending concept applies to business. If you planned on spending a certain amount on marketing or events, but consistently go over budget because you get a greater rate of return from those activities, plan for that and cut other areas that are less valuable for you.

  3. Expect the unexpected. Unanticipated expenses can create a hardship because they came as a surprise. This is a problem for both home and business budgets When I sit down with families or business planners, they often protest that THIS MONTH is not reflective of their usual spending patterns because the kids are out of school, the in-laws are visiting, it is the holidays, their business product does not sell in winter, or any number of other excuses. These events ALWAYS happen. There simply are no usual months.People often share that they always go into debt during the Christmas season. Why? Because they do not plan. The arrival of November and December is hardly a surprise, and yet not everyone saves all year for the extra expenses associated with the holidays. Repeatable line items, such as something that occurs on a predictable and yearly basis, should be part of the plan.Business budgets are often thrown off by a change of plans. Maybe you weren’t planning on hiring and training a new employee, or branding a new line, or perhaps that market research cost 20% more than estimated.There are always going to be unanticipated expenses, and they need to be considered in the budget planning.
  4. Identify your rates of return. Where did you spend resources that made sense? What expenditures gave you a good return on your investment? Do you need to devote more resources to those activities that were successful? In business, does this means that you need to hire additional staff or explore a new product or research a new idea? One area where many people can realize an immediate rate of return is paying off high interest credit card and other debt. If you are paying 12% on credit card debt, but your savings account is only yielding 1%, divert some of your savings money to reducing debt and you essentially get an 11% return. Look at your products and make sure that your rate of return is still profitable.
  5. Plan for this year now. Many businesses and families don’t make a budget, and then they wonder where their money went. Get out your spending plan from last year. For many businesses and homes, this plan was abandoned before Valentine’s Day. Find a previous budget and use your data from last year to formulate a realistic spending plan for this year.Don’t have a budget? There are many budget plans available online. Don’t use online programs that charge you a fee – you probably don’t need to. Also stay away from any offers that store your data on their server. That is a serious
    breach of confidentiality. If you need a template, try mine – free, of course, and completely yours – just download the excel spreadsheet and manipulate it from there. It is at the bottom of this page. Make a monthly template and then make seasonal adjustments when necessary. I print out my monthly budget, three-hole punch them for a binder, and make pen and ink changes on a weekly basis or as expenditures change.
  6. Plan for success. I attended a seminar where the speaker told his audience to write down how much they wanted to make the following year. He advised people to dream big. While dreaming big has merit, planning realistically is also valuable. Write down what you made last year and then look at what you think you are going to make this year.If next year’s number is higher than the standard inflation rate of 2-3%per year, why is it higher? And are you willing to do what is necessary to make the number higher? Will it mean more travel, more work, and less free time? Or will more profit mean launching new products, implementing better processes, and becoming more efficient?
  7. Financial considerations.Now is a good time to look at options when it comes time to mapping out your personal wealth strategy.
    1. Examine the company’s retirement plan and make sure that you are contributing as much as possible.
    2. Individual Retirement Accounts (IRAs), whether a traditional or a ROTH, can be very valuable for planning for the future. ROTH IRAs grow tax-free. Forever. I think ROTH IRAs are fabulous.
    3. Balance your portfolio. Not sure how? Hire a financial adviser for help. They do this every day and they study financial data all the time. Their expertise is well worth the investment.
    4. Explore tax implications of your income and your company’s income. Not sure where to start? A great accountant is a valuable partner.
    5. Consider real estate. Yes, I know the market is down, which means a lot of real estate is on sale. Your business may be able to buy their business building and rent out additional office space as added revenue. Many homes are deeply discounted right now as well. For most Americans, owning their own home is their largest sources of wealth accumulation, so buy wisely. If you are not going to live in a location more than 3 years, do a VERY careful cost-benefit analysis of the commissions, taxes, and maintenance before taking the leap into home ownership. As many people discovered over the past 6 years, real estate valuations do not always go up, but there can be great tax benefits to both home ownership and having rental property.
    6. Review your life and health insurance policies and programs. If you are part of a company life insurance program, check to make sure that the insurance company that you initially signed up with has not changed, and that you have updated your own records as well as updated your beneficiaries. If you are part of a shared health plan, review the options and know what is covered and what is not. You may need additional coverage.

Whatever you decide, commit to a financial plan that makes sense for you and your business and family. I wish you health and prosperity in 2011!

1 Comment

  1. Sheryl Gunn

    Thank you for the reminders and prompts to do the right things at the right time, Mary. I love ROTH IRAs, too, and hope that more people work to understand their value and begin investing.


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