October is Financial Planning Month

Tips from a personal and business owner's perspective

Ask 10 different people about financial planning and most likely you will get 10 different answers. There are professional financial planners, financial advisors, investment advisors, CPA’s, bookkeepers, estate attorneys, Mom and Dad, and cousin Barney. Most of us do not know the difference and don’t have a clue who to listen to or ignore. I will throw my ring into the hat, hoping you will find something of value in my words.

First my credentials: I am a woman within five years of retirement. I have been married twice, divorced once. I sent two sons to college without enough money to pay for even the 1st couple of years. I am known for being good with numbers, which always has led to the assumption that I would be good with money. In my younger years (before I knew better) I was called on by family and friends to prepare their taxes. I job hopped a bit, and usually was hired because the employer wanted someone, anyone, who was willing to deal with their money. By the way, I have a marketing degree, not an accounting or finance degree.

I purchased a business that failed and drove me to bankruptcy. Today, I am almost 17 years into owning a firm offering bookkeeping expertise and accounting advisory services. I will save the story of how I got here for another time. What I have learned is that there are a whole lot of us out there that struggle to figure out this money puzzle, and I am proud to say that, finally, my puzzle is complete. I offer a few tips, from both a business owners perspective and from a personal one.

Determine your goals

If you do nothing else, dare to dream about how you want your life to look. That dream is the basis to determine your goals. Without them you have no reason to do anything that any advisor suggests. Include where you want to live, what activities you want to engage in, who you want to spend time with, if and where you want to travel. You can make these goals at any age and as soon as you do, the path will begin to appear. For me, clarity of goals came only in the past few years and will be accomplished in just a few short years more.

Pay yourself first

This is especially critical for business owners who often sacrifice paying themselves to have funds to invest in their business. No. To have a sustainable business, the business owner must take a fair salary. Without paying yourself first, you could end up resentful and most likely waste years of your life with nothing to show for it.

Paying yourself first applies differently if you are a salaried employee, but still applies. Keep those goals in mind when moving up the ladder and be comfortable that your salary is appropriate for your position. If a retirement plan is offered and matched with company funds, always maximize that opportunity.

Create a budget

Include all essential expenses such as mortgage, food, auto, insurance, utilities, charitable contributions and paying down debt. Your budget will help you determine an emergency fund. Be liberal in paying down debt.

Business owners, your budget is critical. Be certain to review it regularly to determine if you are on track.

Establish an emergency fund

Make it a priority to have three to six months of expenses set aside for emergencies. Bankrate.com suggests that four in 10 Americans would have to borrow to cover a $1000 emergency. 

If you own a business, plan on three to six months set aside for business emergencies/opportunities, plus three to six months put aside to handle personal expenses.

Only spend what you make

To reach those goals you determined, it is critical to spend only what you make – no credit (important in most business situations also). The only exception is a mortgage, and I recommend looking at lifetime spending on a home as opposed to monthly payments. As your income increases, apply most of that additional income to reduce your mortgage. True financial freedom comes from owning a home free and clear.

Hire advisors that you trust

You will need help in your journey, and there are professionals who will be essential partners in that journey. You will need an insurance agent to protect your assets, an estate attorney who can be sure your wishes for your estate are followed once you are gone. Someone that understands the intricacies of investments will be critical once you start to build a portfolio, and an accountant to help you minimize your taxable income is a must. There may be more depending on your situation. 

What is important is that you are comfortable with and trust your advisors. Ask for recommendations, interview more than one. You are establishing a team that will be with you in many years to come.

Ruth Urban is president and CEO of On the Money, an accounting advisory and bookkeeping firm in Phoenix. The company’s mission is to help businesses take control of finances. She serves as a trusted advisor to clients, helping them build highly profitable businesses.