Finances

Do These 6 Things Differently than Others if You Want to Get Ahead Financially

Do you ever wonder what the difference is between those who get ahead and those who are constantly struggling? There is a pattern of actions that are taken repeatedly by those who get ahead, while the opposite is true of those who struggle.

Action #1: Delayed Gratification

The financial impact of delaying gratification for future success is astounding. The best example is an expensive car or high-end home. These things are great, but if you know that you will be stretched to purchase them, then give it some time before doing so. Once your finances enable you to comfortably purchase these items then go for it if it fits into your overall financial goals.

Action #2: Seek Advice from the Right People and Listen to Them

It is always a good idea to seek the advice of those we trust, but they must also have competence to provide you with the proper advice. Do not ask your brother in law that has declared bankruptcy twice and is reckless with money for financial advice. On second thought, you may want to ask for his advice and do the exact opposite! Also, seek the advice of a qualified professional or successful mentor who has relevant experience.

Another, related aspect of seeking advice knowing who is trying to work with you and who is working against you. Don’t beat up the people that are on your side and don’t let the bad fruits in the gate.

Action #3: Save and Invest Constantly

Even a small amount of saving/investing can add up over time. Also, investing does not have to only be in the stock market, but can consist of growing your business to make it more valuable, purchasing rental properties, investing in or purchasing other businesses, etc.

Action #4: Be Cautious When Incurring Debt

Debt has its proper place, but it is misused quite often. Many of us are lured into large, unnecessary purchases or poor investments because we can finance them over. Even if the debt is helpful for the production of income, it still may not be the best course of action. Debt also makes us lazy, meaning that it is easy for us to make decisions without really thinking them through fully.

Action #5: Have Endurance

Don’t give up too easily. It may take several tries to get where you want to go, but you need to keep on getting back up when you falter. Yes, it hurts when you get derailed, financially or otherwise, as life happens, but keep on moving forward.

Action #6: Don’t Make Decisions Based Solely on Emotions

Just because someone made you angry doesn’t mean that you need to let them go. Can you imagine telling off your boss (very bad move), or firing a key employee or vendor because you overreacted to a non-fatal mistake that they made? Trust me, you will suffer financially for this.

To Sum it Up

Did you notice that most of the above are based upon emotions and relationships? Healthy emotions and relationships will help you to be get ahead and make the journey more pleasant, while knee-jerk reactions, seeking instant gratification, and unhealthy relationships will create a roadblock to getting ahead.

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An Alternative to Setting Goals

Setting goals can become very frustrating and produce anxiety when we realize that they aren’t being achieved. Should you set goals that are very likely to happen or goals that are very difficult to reach? What if you miss your goal by a minor amount or the outcome was good, but not what you expected? Alternatively, there is a much less stressful, and possibly more effective alternative to setting goals and achieving your desired outcomes.

The truth about goal setting: The truth is that they are all guesses, estimates, arbitrary, and do not tell the whole story of what you are trying to accomplish. Ironically, you may achieve a better outcome than your goal, but still fail to achieve that goal because you didn’t make the numbers. For example, if you want to lose 20 pounds, but only lose 15 pounds because you also gained lean muscle mass, then you just failed at your goal. You may be healthier, are in better shape, look better, and are stronger, but according to your goal, you just lost. This doesn’t make sense, does it?

Think about the general direction you want to move towards: Do you want to lose weight, make more money, or save more money? Know the direction that you want to go in, but do not specify an exact number. However, it is still important for you to take measurements before, during, and at the end of the year.

Form habits: Goals are not accomplished without actions, which is why your energy should focus on your habits. If you want to lose weight, then start exercising on a daily basis, even if just for 20 minutes a day. If you want to increase sales, then spend 30 minutes a day on marketing activities. Devise a plan of which actions you need to take and then keep repeating them until you build momentum and start seeing results. Tweak as necessary.

Intensity should be based upon desired outcome: If you want to achieve dramatic results, then there should be a direct correlation between the size of the desired outcome and the amount of intensity and effort to achieve that outcome. A desire to increase sales significantly should spark you to spend more than 30 minutes a day on marketing activities, and quite possibly double or triple that.

The bottom line is to set actions instead of goals to achieve desired results.

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Are Traditional, Low-Tech Ways of Handling Your Finances Better than Modern Ways?

Electronic banking, ATM and credit cards, leasing, online shopping, installment plans and subscriptions, and anything else electronic is the way to handle your personal finances nowadays, but is this better? In some ways yes, but many ways not so much.

Transactions are too easy to make nowadays, which causes us to be more impulsive. It’s not just Amazon that makes it easy to purchase products, but even your local grocery store has online capabilities to place orders at 3:00 AM. The problem with this approach is that you do not feel, either physically or mentally, that you are making purchases, especially when using ATM and credit cards, which in turn, makes you spend more money. Traditional ways required more effort to both purchase items and to pay for them.

In the past, you had to wait until you received your bank statement in the mail to see what your bank balance was. Because of this, you were forced to record each transaction that you made in a paper check register to know what your real balance was. Most likely, you actually reconciled your checkbook to your bank statements on a monthly basis. Ironically, since it is now so easy to check balances and transfer funds, most people tend to pay less attention to the details.

Almost everything can be purchased or rented with small or no down payments and monthly payments. You can finance your iPhone and also that cute little puppy. You  can also cut your cable service to save money, but use 23 different, $9.99/month services and spend more money. It might seem minor, but it really doesn’t make sense.

Please let me know if you still save up to make substantial purchases. Substantial is relative to your situation, but most likely you will take out a loan or use a credit card. Tell your friends and family that you paid cash for your car and they will ask a lot of questions to determine your mental health. Today’s mentality is that if you want something then you should have it immediately. The tactic of delaying purchases is very effective if you want to have strong finances.

I don’t think that we need to go back to the way things were not too long ago, but we should consider combining the best of traditional ways and modern ways. Automatic savings is a perfect example of combining the new with the old. Can you think of others?

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Are You Too Financially Cautious?

Is it possible to be too financially cautious?  Cautious does not mean that you are just conservative or frugal with your money, but that you are too afraid to spend your money wisely. You may not even be aware that you are too cautious and here are some examples:

Hesitate to make the right investments: Aside from traditional investments, you may be too cautious to invest in your own education and knowledge, spend the money for new equipment and technology, marketing, or spending money on employees.

Too cautious about wasting money: If you are so concerned that you will waste your resources then you will end up spending too much time trying to save a nickel, but it ends up costing you a dollar. For example, you don’t want to spend the money to keep track of your finances in QuickBooks or even Quicken for personal use, but yet you incur hundreds of dollars of insufficient funds charges each month. I have seen clients spend approximately $10,000 for insufficient funds fees.

Not taking a loan when you should: I am not an advocate of borrowing money excessively or foolishly, nor do I think that borrowing should be avoided at all times, which some pundits advocate each position strongly for. However, sometimes you need to have a line of credit to smooth out some bumps or to take advantage of low-risk opportunities that arise. Alternatively, if you pay off all of your debts too quickly then you may not have any cash available.

Time versus money: Using your time productively strongly dictates your financial success. However, if you spend your time on $10 per hour activities that drive you crazy instead of paying someone to perform them, while you can be making $200 per hour, then that is a poor use of your time and financial resources.

Money before relationships: If you are too financially cautious then you will probably never want to get married, and if you do, then you will worry about not having enough money for your children and will probably not have any.

Another way of saying financially cautious is to be penny wise and pound foolish. Don’t try to save your pennies, but make dollars!

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5 Traps to Avoid When Growing Your Business Rapidly

Growing your business, especially growing rapidly, can be a really great accomplishment, but there are dangers when growing too quickly. Here are several traps to avoid to ensure successful growth:

Cash flow: Quite often, a small business will have cash flow issues when growing too rapidly. This is due to a delay of getting paid, while expenses need to be paid for upfront or before getting paid. There are 3 solutions that can help depending upon your situation. The first is to see if you can obtain terms with your suppliers to delay expenditures, second is to obtain a line of credit to support your receivables, and third, which tends to be the hardest, is to build up a cash cushion first.

Finances: As you grow your business, the financial aspect becomes even more crucial to your success. This entails a focus on investing in more robust accounting software, accounting staff and/or accounting services, streamlined processes and procedures, and internal controls, to name a few.

Employees and management structure: Unless you enjoy working 24/7, you need capable managers to manage your employees (you have been hiring more employees, right?). It is easier to have a few people reporting directly to you then several dozen. Also, make sure to acknowledge and reward the loyal employees that helped you to obtain your success.

Personal time and wellness: It is very easy to put in excessive hours to handle the massive growth of your business. There will be times when you need to work extra, but if this becomes the norm then it is easy for your personal relationships to suffer, along with a decline of healthy habits.

Infrastructure and organization: This applies not only to the physical nature of your business, but especially your operations. Have you outgrown the physical space that you occupy? Are you using equipment, technology, or IT that is not keeping up? Are your vendors and advisors able to handle the growth of your business? What about marketing and marketing staff? These are all areas to consider; otherwise, they will act as barriers to your growth.

Growth needs to be profitable, stable, and smart; otherwise, your results can easily go in the opposite direction that you intended. Think long-term, strategically, and surround yourself with the appropriate advisors to help you along your journey.

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An Observation Regarding Money Worries

There are a few things that I noticed over the years that seem to contradict each other regarding money worries. There seems to be a link between being charitable, concerns over saving too much, and stress about money.

Charitable giving: some people make a lot of money and give little to nothing to charity, especially as a percentage of their income, and the opposite is sometimes true regarding those with modest incomes. Theoretically, the greater your income then the greater should be your charitable giving. Why does this make sense? I believe that it has to do with a scarcity mentality and a fear of letting go. If you are overly concerned with not having enough money, whether real or imagined, then why would you part with your money?

Overly concerned about saving: Let’s face it, it is daunting to think that we have to make sure to save enough for retirement, college, a house or a larger house, 6 months of expenses for an emergency fund, weddings, sweet 16 parties (they can be over the top nowadays), vehicles, business ventures, and everything else. It even makes me exhausted just writing that! However, some take it too far and save so much or are concerned so much about saving that they get really stressed out. Although I am an advocate for saving up for most of the above (I’m not a big fan of massive weddings and outlandish sweet 16 parties), you have to balance that with current needs or you will be miserable. Who wants to eat the cheap steak to save an extra $10 for their retirement?

Do any of these apply to you? Maybe just a little?

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How to Resolve Conflicts with Less Stress

Conflicts are inevitable and happen in all aspects of your life, including disputes with your customers, disputes as a customer, with family, neighbors, and in any situation. However, there are ways of minimizing conflicts and to also resolve them fairly and quickly. Here’s how:

Resolve at the lowest level: A perfect example is when a customer at the grocery store is not satisfied for some reason and they immediately ask to speak to the store manager. Quite often, the easiest way to have resolved the issue would be to let the cashier know the issue first, then customer service if still not resolved, then finally with the store manager.

Don’t make threats or take drastic action: As soon as you say that you are going to contact your attorney, then you just escalated your issue to a whole level higher, and the relationship will most likely be damaged forever. Ironically, I think that this threat has been overused anyway and nobody really cares all that much. Another example is to demand a raise from your employer and if not given one, then threaten that you will leave. Why not either ask for a raise, if you deserve it, or ask your boss what you can do differently to receive a raise?

Avoiding conflicts: Avoiding conflicts does not mean trying to make everyone happy because that is not possible, and you will make yourself unhappy and exhausted in the process. Do not avoid conflicts just to avoid conflicts or just to be nice as sometimes the truth hurts, although you should make sure that you say it in a charitable way. A good practice is to always strive to determine how to conflict proof your decisions.  For example, if you know that you are going to make a change to your business practices, then let people know ahead of time, when possible. This can involve alerting customers to price increases, billing methods, payment methods, and timing of providing a service. The key is to communicate with people in a smart, proactive, truthful, and thoughtful way.

Put it in perspective: Is the conflict really that important or even worth pursuing? Weigh the pros, cons, and the actual cost of entering a battle.

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How and Why to Strengthen Your Personal Finances to Increase Profits

Most people view their business to be a completely separate entity from their personal finances, and rightly so. This is generally true from a legal, tax, and accounting standpoint, whereas your business operations and finances should be separated from you personally. However, most small business owners are completely dependent upon their business to support them, as they feed off each other. So how and why should you strengthen your personal finances to increase your profits?

Why:

The business won’t starve: By withdrawing every single penny of profit from your business, it will make it much harder to invest in technology, equipment and capital improvements, and people. One of the main reasons that businesses fail is due to a lack of capital.

Increased profitability: If you have a large personal expense that is coming due, such as your mortgage, then you are more likely to take on less profitable customers, jobs, or may even sell your products at a discount due to desperation.

Better business decisions: It’s no secret that people make better business decisions when they are not feeling stressed or anxious. A common example of a bad decision is to cut expenses that support the main operations of a business to save a few pennies, but it ends up costing you dollars of revenues.

How:

Decrease your personal spending: There are numerous ways to decrease your spending, including groceries, dining, entertainment, taxes, auto, clothing, and virtually every category of spending. Some of my other posts will give you ideas regarding cutting expenses, but a few tips including: using cash more, cash budgeting (aka the envelope system because almost no one actually prepares a real budget), reviewing all of your “necessary” expenses, and delaying expenditures/gratification.

Increase cash reserves: Most people are poor at this (no pun intended), including those who save well for retirement. Savings should be allocated for short-term needs, such as emergencies, mid-term needs, such as for a house, and long-term, such as retirement. The easiest way to start saving is to allocate a very small percentage of every deposit that you make in your personal account towards a separate savings account. You can even start with 1%, just to get used to doing this and you’ll quickly realize that it is not that difficult. Over time you can increase your savings rate as you increase your business profits.

Reduce debts: Similar to increasing your cash reserves, you can start with applying a small percentage of every personal deposit towards your debt balances. The big question is which debts should be paid down first. Since finances are very behaviorally driven, then one technique is to start with the smallest debts first while ignoring the interest rate. The reason for this method is because it creates a sense of accomplishment once a debt is paid off, and will motivate you to continue moving forward.

 

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What is the Best Type of Business to Own?

What’s the best type of business to own? One that makes money of course, but let’s dig a little deeper . . .

Simple: The more complex a business is then the harder it is to operate. For example, if your business requires the talents of very technical people, then this complicates the delivery of your products and services. Unfortunately, it also requires more time and expertise of the owner. Such businesses include engineering, law, healthcare, IT consulting, accounting, and other technical fields.

Low capital requirements: If you need to invest heavily in equipment, real estate, or large amounts of inventory, then this can create a drain on your cash. Supposedly, lack of capital is one of the main reasons for business failures.

Repeat business: A perfect example of a business that receives repeat, recurring sales is a subscription based software company. An example of the opposite type of business is a general contractor. There is a wonderful book called, “The Automatic Customer” by John Warrillow that outlines the value of a having a business with predictable, steady, recurring sales. He gives numerous examples on how this can be applied to many businesses, and not just software companies. I’m a big advocate of businesses trying to maximize their recurring sales.

Easily duplicated: Any business that can easily replicate the tasks that the owner performs is a plus. Did you ever notice that many of the chain restaurants do not serve overly complex dishes? If they did, then it would complicate the way the run their business.

If you are thinking of starting a new business, an additional business, or even a side business, then you should strongly consider a business with these traits.

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Don’t Be Embarrassed if You Have Financial or Tax Problems

There is a stigma attached to having financial and tax problems, but it doesn’t have to be that way or it may make the problems worse. Sometimes these problems develop as you become more successful, which easily happens with both celebrities and business owners. Other times they develop due to a quick downturn in business, withdrawing money from retirement accounts early, losing your job, health issues, or any other negative event. Even some very successful people have had financial struggles and then bounced back, including:

Donald Trump: Although he never filed bankruptcy personally, his casinos and hotels have. He is now president of the United States.

Mark Victor Hansen: One of the co-creators of the “Chick Soup for the Soul” book series.

Walt Disney: He had financial struggles early on.

Jim Rohn: Entreprenuer, author and motivational speaker who went broke after a business expansion went bad. He is credited with the business success of many and some of his talks can be listened to on YouTube.

Also, the number of celebrities that have financial and tax issues is too long to list . . .

What should you do if you find yourself in trouble or better yet, how can you avoid problems? Here are a few ways:

Hire competent professionals and heed their advice: As your success increases, you need to work closely with advisors that can guide you in the right direction to minimize risks, strengthen your finances, and reduce your tax burdens. If you view and treat professionals as purely costs, then you will not only hire the wrong ones, but you will not seek their advice, which is usually worth more than their cost.

Too much leverage, not enough cash: There are those that are 100% against any types of debts, and I can definitely see how this can be a smart strategy to keep you out of trouble. However, there are many times that you will never realize an opportunity if you do not take upon some debts and risks in a wise manner. Having a reasonable cash cushion will also help to thwart many smaller financial setbacks.

Know the tax consequences: Virtually every financial transaction has a tax consequence and it is prudent to seek professional advice to minimize negative consequences. Having a good year in business, followed by a not so good year can easily cause a tax issue if taxes were not properly planned and paid for. Another tax catastrophe is withdrawing from your retirement accounts and not accounting for income taxes and early withdrawal penalties.

Don’t be so hard on yourself or delay seeking the advice of a professional or your problems will just get worse.

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