Personal Finance 101–Set Priorities
Another component of the S.M.A.R.T. Action planning process is prioritizing. As mentioned earlier virtually every goal has some sort of financial obligation assigned to achieving it. If the goal is to buy a house, car, computer, or go on a vacation deciding which goal to take action on first generally depends on timing, costs, and desires.
Designing saving strategies to meet the goal’s financial requirement also depends on timing, cost, and desire. There are three popular saving strategies:
- Open up multiple saving accounts to save for multiple goals.
- Open up several saving accounts and save for only one goal at a time but use a savings snowball method.
- Use one saving account to pay for all goals.
Different methods work for different people. Method 1 works best for people who are organized and can manage multiple tasks. Method 2 works well for people who are very focused and want to create savings momentum. Successfully saving enough money to pay for one inexpensive goal in the beginning, creates a saving habits so more expensive goals are easier to achieve. Method 3, which rarely works in the long run, is best used by extremely analytical people with time to measure how close they are to each financial goal.
The typical downfall of using one saving account to pay for everything is:
- The amount saved for each goal is hard to determine.
- Saved money can be spent easily for the wrong reason.
- The reason for saving is forgotten.
- The total amount saved is often over inflated.
- It is hard to determine how close or far from the goal the savings are currently.
Each of the saving strategies above can be set up with a bank or credit union using automatic transfers. Each month a fixed amount can be moved into the appropriate saving account(s).
Personal Finance 101–Funding Your Final 7000 Sleeps (Retirement Funding)
It is amazing how time quickly passes by. One day we are single with no one to look after except ourselves, then over a span of 17,000 sleeps we have developed careers, families, and communities. With all the planning and hard work required to accomplish these goals and visions what is often forgotten are the expenses we incur during the final 7000 sleeps.
Most often throughout the previous 17,000 sleeps we exchanged time for money. When we completed a job or task we were often rewarded with money. However, during the final 7000 sleeps we may not want to continue exchanging time for money, especially if the time we give up is not doing things we truly enjoy. With proper planning during the 17,000 sleeps we can reduce or eliminate an unwanted exchange.
The amount of money needed during the final 7000 sleeps depends upon the cost required to fund our life style expenses. Once this has been determined then we can make sure money has been set aside and put to work, so we do not have to make the exchange.
Use the calculator to find out how much you should be saving each month.
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Personal Finance 101–Buying a House or Condo
For most, buying a house or a condominium may be one of the largest purchases we make in our lifetime. With the average Canadian house price hovering around $470,000 and the average condo cost around $260,000 finding ways to turn dreams into reality requires lots of planning, sacrificing and hard work.
Setting S.M.A.R.T. goals will not only help bring structure to our plan, and keeps us from making unwise choices. Early in the planning stages it is important to understand if home ownership is right for you (click here). Once this has been determined deciding how to make the purchase effectively is the next step.
Typically, real estate investment purchases are made using mostly borrowed money. Anywhere from 80% to 90% of the funds needed to pay the cost of purchasing a house or condo comes from using someone else’s money. The rest of the cost is paid for with money that has been saved.
Use the calculator to find out how much you should be saving each month.
Savvy Business Owners Plan for Success…ion–Set Financial Goals 3
Imagine funding one of your long term financial goals from the proceeds of the sale of your business. Do you know the sale price needed to adequately fund the lifestyle you want to live? Do you know which operational steps (Increase revenue, Decrease direct and indirect costs, Increase Net Profits) are needed to move towards receiving the asking price? Do you know how much is needed each month to fund your quality of life?
As with important things worth accomplishing, establishing SMART personal financial goals and performing SMARTER actions will help put a business sale in proper perspective and increase the likelihood of a achieving a successful outcome. Setting these SMART personal goals early on will help set operational objectives as we work towards selling or transitioning our business.
When it comes to funding personal financial goals the money received from the sale of a business can play a big factor in successfully reaching financial goals. However, prior to selling the owner needs to not only understand how much is needed to fund goals but which funding and exit strategy is best. (sell business in part and remain involved with its operation, sell business in full and remain involved with its operation and be paid salary, or sell business in full and end involvement with its operation.)
Personal Finance 101–Buying a Car
At some point in time it may make sense to buy or lease a car. However, before making the right purchase a few things need to be considered; what is the cost to purchase or lease, and what are the upkeep costs?
Determining the best purchase price or lease rate will require lots of research. To help control this cost it is important to understand why the vehicle is needed in the first place. Investing in a vehicle should provide more than just freedom and independence, it should provide an ends to a means. With a purchase or lease a larger goal should be easier to achieve like going to a job to earn money.
Cars are expensive to maintain. Without proper planning and research the cost to keep the car running can cost as much as the value of the car.
Choosing the best mode of transportation that is cost effective and safe takes time and careful planning. Treating a car as an expense rather than an investment helps keep costs in check, but should never outweigh safety.
Use the calculator to find out how much you should be saving each month.
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Savvy Business Owners Plan for Success…ion–Set Financial Goals 2
Creating an effective and efficient business succession plan must meet or exceed the goals of the current business owner. One of the most important pieces in succession planning is to clearly identify financial goals (future annual income needed for owner, staff, shareholders).
Early on in our business life cycle we have paid ourselves some sort of reward for taking the risk of starting a company. Depending on our business structure either a salary/bonus, dividends, or a shareholders loan has been used to help fund financial goals (emergency savings, supporting quality of life, retirement). Each of these methods of payment has provided advantages and disadvantages that accountants have generally provided guidance as to maximize their benefits.
As we progressed though the stages of our business (start up, growth, and maturity) we moved from paying ourselves basic living expenses in the start up phase to moving towards funding other financial goals with retained earnings, as our company grows and matures. Proper financial planning will help identify efficient tools and strategies requiring a steady withdrawal or movement of corporate compensation (takes time to build pot of money to replace income level drawn)
There are two main reasons why it was and continues to be important to monetarily reward ourselves for our business efforts. First, the salary or dividend we are paid should be used to fund other financial goals outside of building our business. Diversifying investments plays a key role in reducing risk in order to reach long range financial goals. The second reason why it is important to routinely receive compensation from our business is because future buyers will also want to earn a living when they pick up where we left off. New owners don’t want to have to recreate a business just to pay their expenses.
To find the cash used to pay ourselves successful business owners have altered the revenue equation of R – e = profit to R – p = e. Often the difficult part in transitioning the business is the dependency we have developed on the regular business cash flow we receive. We develop this dependency because we have not built the replacement income stream required to offset our accustomed quality of life.
Begin transitioning your business today by first clearly understanding the financial goals you are trying to reach. By doing so transitioning your business will be much easier.
Savvy Business Owners Plan for Success…ion–Set Financial Goals 1
One of the many financial goals (emergency savings, buying other business, education, buying house, retirement) small business owners and entrepreneurs (business, old idea vs big new idea) think about is retirement planning. Unfortunately many business owners fail to move beyond the thinking stage and move into the planning stage.
The first step in creating a successful business succession is to clarify financial goals. When it comes to retirement planning it helps to identify which level of retirement (Financial freedom, Financial Independence, Financial security, Financial Uncertainty) is desired. With the retirement level identified early on various strategies (cash flow, sell of company) can be implemented to successfully achieve the financial goal.
A SMART retirement goal is:
- Financial freedom,
- Financial Independence,
- Financial security,
- Financial Uncertainty
What actions can be taken today to move beyond the thinking and planning stages to the Doing stage? Surround yourself with the right people to help make it happen?
Savvy Business Owners Plan for Success…ion–Built to Sell
There are a variety of reasons why we originally chose to become business owners. (Money, Boss, Vacations, Improve lives). Making the transition from employee to employer often requires lots of hard work, intuition, extreme commitment, and focus. With all of the effort we put into building our business we will want to be rewarded. Generally this means paying ourselves on a regular basis and then funding many of our other financial goals with the eventual sale of our business.
Building a business with the intent of selling it will help us develop features (ways of increasing the value of the business, income streams, and the business without you) that future buyers will be interested in. Having a “Built to Sell” mentality requires developing effective and efficient systems that increases the value of a business by:
- Increasing a profits,
- Increasing sales, decreasing expenses
- Strategic uses of retained earning
without us being there. To implementing these systems requires a strategic long term plan that forms part of the business succession plan. The business succession plan forms part of the blue print used to not only guide us to improve operational efficiencies and make better financial decisions but also prepare us to turn the keys over when the timing is right.
Beginning with the end in mind will help prepare us and avoid that panic feeling when buyers come knocking, even when we are not selling.
Will you be ready?
Savvy Business Owners Plan for Success…ion–Why it is Important.
As a business owner you have no doubt spent a great deal of time and money into developing your company. In many cases the sale of your business may be the largest contributor to funding your retirement plan. A well thought out business succession plan is a great way to maximize the value of the sale of your business so that the proceeds adequately fund your retirement needs.
In order for a business to remain successful it must adapt to an ever changing world. With changes in technology such as artificial intelligence and online shopping as well as changes to the personal and corporate taxes rates it is important to be prepared. Prepared to transition your business on the terms you set.
One component that helps business owner maximize their company’s sale value is providing a seamless and smooth transition. To better help maintain stability during a business transition there needs to be enough time to put the succession plan into action. A transition plan may take two to five years to develop. If a plan has to be implemented in a moments noticed it could drastically affect your retirement funding.
Find a team of service professionals to help you develop your plan today!
