2012 Financial Regimen
I never give financial advice and I don’t pretend to be a financial expert. But I have worked with thousands of solo practitioners and firm owners, and I have learned from my own mistakes. So here are some New Year’s suggestions for a healthy financial regimen.
1. Pay yourself first. Set up a new business account separate from your regular personal and professional accounts. Transfer 10% (choose your own percentage) of EVERY dollar you collect in 2012 into that account. If you close a $150,000 project, transfer $15,000. If you sell $200 worth of products, transfer $20. Try not to touch it except in emergencies (a new car is not an emergency).
2. Fund your retirement plans during the year to their maximums through installments. Figure out what you can contribute to SEP IRAs, IRAs, 401Ks, or whatever else you’re created, and contribute as you go through the year. (Example: If you are confident your personal income will be $160,000 or greater, you can contribute a maximum of 25%, $40,000, to a SEP IRA—and more if you’re over a certain age. That means you should start contributing about $3,000 a month, and try to pay it in the 2012 calendar year, even though you have until April of the following year.)
3. Make a plan to payoff credit card balances the same way. Every month, pay ALL the new charges and then pay at least one-twelfth of the remaining balance. This will decrease interest payments, improve your credit score, and free up credit if you need it in an emergency in the future.
4. Make plans to maximize your TOP LINE revenue. No one grows through cutting expenses. Doing your own monthly financials on software programs instead of hiring a bookkeeper for $250 a month is just ridiculous. Focus on truly growing your business and start thinking BIG.
5. Create “budgets” that you fund for key, planned expenditures: school costs, vacations, house improvements, and so on. Try to fund these monthly, as well. It actually helps to keep them in different accounts.
6. Monitor your spending. There are sites such as Mint.com and apps such as Pageonce Pro than can help if you’d like an automated system that notifies you of bills due, spending deviations, bank charges, and so forth. While I don’t believe in cutting to grow, I have found that some people don’t realize where and how their money is actually being spent.
7. Pay forward. By that I mean this: When you incur a major credit card debt (e.g., you’ve run a meeting, taken in all the revenue, but the hotel balance is $20,000) start writing checks immediately. If you wrote a $10,000 check at the time to, say, Amex, and then the balance when the actual bill arrived, it’s less of a bite and less chance that you’d spend that first $10,000 elsewhere. Better still: If you can, hold revenues from future events in an escrow account and pay the hotel bill at one time from there. (These are also very important if you are forced to cancel and repay all money already received.)
8. Delegate everything you can. Stop doing your own graphics design, slides, software fixes, bookkeeping, taxes, printing, travel reservations, product fulfillment, and so forth. Have others do it, because the money you spend is paid back one-hundred-fold in free time to devote to marketing and raising your top line. (Do you want YOUR clients doing things themselves that you should be hired to do and you can do faster and better than they?)
9. Don’t “play” the market. Put your long-term investments in the care of professionals. Ask for referrals and references from people who are successful to find the financial advisors who are best for your situation and philosophy. Never accept financial advice from anyone who is also selling a product (insurance, securities, and so on), because their product will always be the “answer.” Just pay for advice or the management fee. Remember that the idea in life is not to make money, but to create value and help people. As George Merck said, “Do good and good will follow.”
© Alan Weiss 2011. All rights reserved.
Jack McGowan
Alan,
Great advice I am committed to improving my finances this year and will refer to this information.
Thanks,
Jack McGowan
Alan Weiss
It’s done well for me. You just need the discipline to enforce paying yourself.
Constance Dierickx
Alan –
One other thing I’ve done on the advice of my accountant is working very well. Every time I receive payment, I move a percentage (appropriate for my tax bracket) into a separate account. When the quarterly payments are due, it’s a simple matter to pay it. Importantly, I have the joy of knowing that the money in my regular business account is after tax.
Constance
Alan Weiss
Except, Connie, I would think you’re hoping to move into higher tax brackets! Finding that you’ve withheld too little at the end of the year because you’ve earned so much is a very pleasant problem!
Constance Dierickx
Yes – I’m prepared for success.
Morton
Thanks Alan. At the vanguard as usual.
Alan Weiss
Simple, but requires discipline.
Daniel Mitchell
Hi Alan. Thanks as always for the sage advice. However, I would also add to this great list the need for many to develop pricing as a core competence. I imagine many out there are still charing per diem based on a faulty model. I prefer to price by project based on what the client and I agree is the value to be delivered by the project. It’s made all the difference for me financially.
Thanks! Dan in Singapore
Graham Franklin
Thanks Alan as I get back to work what a timely piece of advice…..
Alan Weiss
Vanguard as opposed to rear guard: always better!
Great point about pricing, also!