Your Finance Routine Doesn't Have to Be Complicated! 5 Must-Have Monthly Habits
Let’s chat about your finance routine. Newsflash: it does not have to be complicated! Some people have a 20 step routine, but I'm breaking it down into the five must-have monthly habits when it comes to your business finances. You can do these with your personal finances too!
#1: Track and Categorize Your Expenses
You know I tell you this all the time! It's so important to do this because it tells you what's going on in your business. Your numbers tell the story, and without tracking you don't know the story. And if you don't know the story, you can't change the ending, you can't make any adjustments.
If you're tracking your income and expenses and you think ‘oh crap, I'm gonna be broke in two months.’ Well, it's time to make some adjustments now, so that it won't happen. But if you're not tracking your income and expenses on a monthly basis, you'll never know! You'll hit that brick wall 90 miles an hour and it'll come out of nowhere. So, be proactive every month. Don't wait until the end of the year, because then it's too late and you can't make any changes.
Categorize them as well - are they advertising? Are they payroll? Are you paying freelancers or contractors? Are you paying rent or utilities? All these things need to be tracked and categorized every month.
You should have a separate bank account for your business, and you should also be putting this in some type of software, whether it be QuickBooks Online, QuickBooks Desktop, or some type of spreadsheet, such as my Calculated Tax planner.
#2: Review Your Numbers Monthly
A lot of times, we stop at just tracking. We check the box: I've tracked my income, I've tracked my expenses, I'm done. But that's just part of the process. You've written the story because you've got it all outlined, but now you have to read the story. Reading the story is reviewing your numbers.
So you're reviewing those income numbers, you're reviewing the totals, you're reviewing to see if there are any subscriptions you’ve been paying that you’re not using? Are you spending too much on one thing and there's not a return on my investment?
I had a client not too long ago that came to me and they were spending thousands of dollars a month on Facebook ads. When I asked this client “well, what is your return on this?” She looked at me like a deer in headlights because she had no clue. In her eyes, she just needed to be doing Facebook ads, because that's what her business coach told her to do. She needed to put money into Facebook ads, but she never tracked whether she was getting any return on those thousands and thousands of dollars every month. We found out that she was spending thousands and she may have gotten $100- $200 in revenue.
So that was not the best use of her money, but she never would have known that had she not read the story, meaning reviewing your numbers. So once her numbers were reviewed, then we could take steps to change them, saving her thousands of dollars per month.
#3: Save for Taxes
As you're reviewing those numbers, you'll know what your profit is. Uncle Sam wants a share, so I also want you to save or set aside money for taxes every single month. It's easier for you to set it aside in the beginning than it is for you to recoup later and figure out how much it is at the end of the year, and try to start borrowing from Peter to pay Paul. We don't want to do that, that's not how we run a business. Look at that profit line, and I want you to put away 30%. 30% is on the high side, but I tell people that all the time, I always aim high. If you put away too much and then you go to file your taxes and you don't owe as much, well, there's a good bonus for you.
I recommend that you open up another bank account whether it be a business savings or another business checking at the same bank, and go ahead and transfer that money into that account. Out of sight out of mind!
#4: Proactively Reduce Your Debt
Now if you don't have any debt in your business, you can just skip this step. But maybe you've bought vehicles, maybe you have credit card debt - for those types of things in your business, I want you to proactively reduce your debt. What I mean by that, is I want you to keep track of your debt. You should know how much interest you're being charged every month. You should know how much you're adding to that credit card debt each month.
I want you to pay more than the minimum. I'm a huge fan of paying what you charged last month - pay the whole thing off because it saves you interest. But I also know sometimes it's okay to carry debt in your business. I'm not going to be one to tell you that nobody should have debt within their business because there are some big products that you may need to purchase. There's nothing wrong with that, but we should be working towards reducing our debt, not increasing our debt unless we were purchasing something.
We shouldn't just be putting every little thing on a credit card and then it’s just compounding and compounding because then your cash flow is going to be a mess.
And like I said in the beginning, you can do this on a personal level too. So for your personal credit cards, you should be paying more than the minimum payment and should be trying to reduce that debt every single month.
#5: Pay Yourself
This is a biggie that is very controversial sometimes. If you are a sole proprietor, meaning you are ‘your name’ doing business as whatever your business name is, or you're a sole member LLC, then you still need to pay yourself. You're not on salary, you're not on payroll, but you have to pay yourself out of the business.
Too often, entrepreneurs just get caught up in the everyday trying to get their business off the ground, and they keep reinvesting back in their business. Maybe their business is profitable, but every month they find something new for the business that they need to purchase. I've been there, I know that they never pay themselves. What happens is they hit burnout, and I did a live and wrote a blog on this a few weeks ago about how to fall back in love with your business. So go back and check that if you are getting burnt out.
But one thing, again, is that it's all about your money mindset. If you're working, working, working, but you don't see a return, meaning you're not getting paid out of that business, so that you can do something fun with the money - you need a break. Eventually, you're going to start not liking your business very much.
Imagine going into another job and you're working for someone, and you work, and you work, and you work - you put your blood, sweat, and tears into a business and they don't pay you. Well, just think about how you would feel if that were the case. The same thing can happen when you are self-employed. You work, and you work, and you work and you put your blood, sweat, and tears into your business and at the end of the day, you don't get paid.
I want you to start paying yourself every single month. Set a goal, and if you know your numbers because you've been tracking them and you've been reviewing them, you know on average what your profit is every month. You've set aside that 30% for taxes, and maybe you've set aside another percentage because you're trying to save up for a big item in the future for your business, and the rest is profit. The rest is your paycheck.
Some months there may be more than others and that's okay, but you need to get an average. So if you’re making on average $12,000 a year in profit, your paycheck every month should be $1,000. But you don't know how much you can pay yourself if you're not tracking your expenses, reviewing your numbers, and looking at projections - it all ties together.
So in the beginning, if you're in startup, I want you to pay yourself every single month. I don't care if it's $10, but I want you to get into the habit and mindset of paying yourself.
Now if you're an S Corp, you should already be on payroll. That's a requirement of an S Corp that you are paid a reasonable salary for what you were doing. Think of yourself as if you were an employee, or if you hired someone to do the work that you're doing. What would you pay them? What would it require for you to onboard someone who's doing what you're doing? So let’s say I work 50 hours a week, my paycheck should be 300 grand, right? I mean, be realistic on exactly what you're actually contributing, and how much it would be hourly to pay the person if you had someone step into your shoes. That is what your salary is supposed to be according to IRS regulations, and that needs to be set up. You can do that on a bi-weekly, weekly, or monthly basis, however you want to do it for an S corporation.
So, there are your five must-haves!
Track and categorize your income and expenses every single month
Review your numbers. Check those subscriptions. Check it to see if you're spending too much in one category where you should not be. Are you have do you have a return on investment for things that you're spending?
Save for Uncle Sam - save for taxes and put that money aside in a separate bank account
I want you to proactively reduce your debt, so you should be reducing, not increasing, your debt every month.
Pay yourself, at least a little bit! Figure out what it should be over the course of a year and then divide it up.
If you’re ready to make these habits part of your monthly routine and fastrack your success - I have a spreadsheet you can use called the Calculated Tax Planner that will simplify everything! Click here to download yours now!
