| Today, my baller friend above and I will touch on the subject of money since this Sunday is National Financial Awareness Day. I’ll share some of my tips & tricks on personal and business finances in the hopes you will find them helpful. Things get very serious when money is involved, so before we begin, I have some disclosures to make: I’m not a trained or licensed financial advisor in any capacity. The suggestions I’m about to make are based on my personal experience. All investments come with a level of risk. Please do your homework and evaluate your choices well before making any financial decisions.
Let’s kick it off with personal finances. My first tip is a very common one: have savings accounts and contribute to them on a regular basis. I recommend one savings account for your home and another for personal emergencies. If you have pets or kids, it’s also a good idea to have separate savings accounts for them. A nice vacation can be a large expense, so you guessed it right: I suggest having a savings account for travel as well. No matter how small the contribution, if it’s consistent, your money will grow, you will be able to budget your spending, and most importantly sleep better at night. Though it goes without saying, when choosing a bank to open these accounts, do your homework on fees and minimum balance requirements. I also find it helpful to set an upper limit and monthly contribution amount, and review them annually.
Do you travel funds exceed your needs because you didn’t have a chance to go anywhere last year? Maybe some of that money can be invested. My first tip for investment is to set some ground rules based on what you are comfortable with and how your mind works. For example, I consider debt and investments as two separate matters and I don’t mix them. Common knowledge says if you have a debt with a high interest rate and your investments are providing returns well below that rate, its best to pay off the debt first. This is probably sound advice, but that’s not how my mind works. Disrupting my investment schedule would break the consistency so I rather create a payment plan and seek a lower rate to refinance my debt first. Also, know your limits. Investing is a profession of its own and I learned to accept I’m not qualified to choose how my investments are placed, which is why I prefer robo-advisors like Wealthfront which offer lower fees and require minimum user input. Here is a list of some of the best ones out there. I have setup an automatic monthly transfer of a predetermined amount to be invested. The amount I invest is small enough to ensure I can live without it; therefore, I can wait out any dips in the market. I also don’t check my investments very often to avoid anxiety. Instead, I review and adjust my investment amount annually as needed. When consistency meets automation, magic happens!
When it comes to business finances, I’ll share some of my favorite tips with the hope that at least one nugget of information is helpful to you.
Much like the personal finances, I recommend utilizing a savings account for business related emergencies. Having a safety net will help when an expensive situation arises. I review the max balance and monthly contributions to my emergency savings account annually. How do I set these numbers? By looking at the P&L (profit & loss) statement. P&L is arguably the most important report every business owner should review. Here is a quick summary on how to read a P&L. I aim to have one month of gross revenue from the most recent quarter sitting in my savings account. In addition to an emergency savings account, I also recommend a dedicated checking account for payroll and benefit expenses. Ideally, this account should carry an enough balance to always cover 1 month of payroll expenses. Setting up weekly transfers from your business operating account to the payroll account will help budget and automate your expenses.
My next tip is about taxes, and P&L will help you there as well. Most accounting apps will let you see a P&L statement side by side with figures from the previous year. I find this very useful and check it regularly to ensure I don’t end up with a large tax obligation. If necessary, I speak with my accountant to make tax payment adjustments throughout the year. I also recommend taking a closer look at profits on the P&L statement during the last quarter. If there is an excess in profits, it’s a good idea to ensure any necessary expenses are paid sooner rather than later to offset tax obligations.
My last but potentially most important piece of financial advice is to invest in the right people. Positive cash flow is the lifeline of your business and you can’t do it alone. The first person to invest in is an office administrator who can help with the basic accounting tasks to ensure all receivables are collected promptly, expenses are paid on time, and records for both are updated timely. The second important person is your bookkeeper. Someone who can organize your books, setup automations, walk you through important reports, and point out any areas that require attention. The third person is your accountant. They can help manage taxes, payroll, and other financial tasks while providing you with checks and balances.
Whether it’s personal or business, finances can be quite boring. Yet, you can always count on the accuracy of math and the ease you will feel when you start seeing the systems you put in place work.
May your personal and business savings accounts reflect the riches of your kindness,
– Burak Sarac, Team Lead
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