Posts Tagged ‘pay yourself first’
Today’s tip is specifically for women who own a business, are self employed or a commissioned based sales person.
One of the biggest mistakes I see so many female entrepreneurs do is they don’t treat their finances like a business. Time and time again, I run into women – many who have been in business for many years and often who are even making a lot of money who don’t respect their money and treat it like a business.
A Cash Cow is a business person who:
- Runs all their income through one checking account.
- They normally don’t have a bookkeeper.
- Wait till year end to tackle their bookkeeping for their CPA.
- Rarely have the funds available to put into their retirement account.
- Are scrambling to pay taxes at year end.
- End up overwhelmed and miss out on so many deductions.
- When they get a big sale or commission, they spend more – so they are not operating with a budget.
- It’s always feast of famine – no cash cushion.
- They often fund their business through personal credit cards.
- They experience a lot of money drama.
If this sounds like you or someone you know, here are some smart cash flow tips you can implement immediately:
- Set up a separate business checking and savings account just for your business – even if you are a sole proprietor.
- Deposit all your business income into this account only.
- Create a budget so you know exactly what your business expenses are every month.
- Pay Yourself First!
Here’s how you will pay yourself first. Every two weeks you cut 4 checks:
1. Your personal paycheck:
Identify how much you need to be paid as a paycheck to cover your personal expenses and pay that to yourself two times a month.
Tip: Even if you earn $10,000 per month, if you only need $3,000 per month to cover your personal expenses then cut yourself a check for $1500 twice a month.
The extra builds up in your business and then you can pay yourself a bonus quarterly!
2. Emergency Fund:
Send a check to your savings until you have a 3 month money cushion.
3. Retirement Fund:
Send a check to your savings account so you can fund your retirement plan – usually some sort of IRA. So you have the money when your CPA tells you how much you can contribute. More on this next week. If you goal is to fund $10,000, then you want to be sending a check for $384 every two weeks.
4. Estimated Tax Fund:
Send a check to your savings account to pay for your estimated taxes payments. Your CPA will tell you how much this is and give you the forms to send it.
If your goal is to have a successful business, to create wealth and to be able to sleep at night, then you need to schedule time right this minute in your calendar to sit down and address these cash flow techniques.
This will probably mean a meeting with your CPA to put your retirement and estimated tax payments on your radar screen. Meeting with a financial planner to set up a retirement plan if you don’t already have one in place and meeting with your banker to set up the appropriate business checking account.
And of course…. not being a cash cow.
Would you like to use this article in your E-Zine or Web site? I would be honored just please be sure to include this complete blurb with it:
Katana Abbott is a certified financial planner, prosperity coach, speaker, author, host of www.smartwomentalk.com radio show with over 100,000 subscribers, and founder of Smart Women’s Coaching – an on line global community of Smart Women who come together to learn, grow, and connect. For more information about Katana visit her Website at www.katanaabbott.com.
Now this may seem obvious to you, but as a society, we have been taught and actually encouraged to spend every penny we make, to get it now and pay for it later, and to live beyond our means. What ends up happening is that we find ourselves living paycheck to paycheck or client to client and these habits are destroying any chance we might have for financial freedom and financial peace.
So what is the solution you might ask? The solution is to create a clear picture of how much is coming in for the full year and how much is going out.
1. Your first goal is to see where your money is going today. You can do this by listing every one of your expenses for a full year.
Remember, some of your expenses like car payments and utilities are monthly, others like auto insurance or the water bill might be quarterly, and then others like property taxes and insurance might be semi annually or annually.
Take this total for the full year, then divide it by 12 and this will give you how much you spend every month.
Now be sure to track your pocket money and go through your credit card statements to make sure you get everything.
2. Take the amount you make every month (after taxes) and subtract this figure. What do you see?
Is there money left over?
If there is extra, then that’s fabulous, because next week, I will show you what to do with it. Yay!
If it’s negative, then what do you think is going on here? You are probably spending more than you make and going into debt. Do you have credit card debt? This should be a wakeup call and the message is to “stop spending more than you make”.
3. Go back through your list of expenses and put a plus mark by everything that is absolutely crucial and everything that raises your self-worth. Then you want to see what areas you might be able to eliminate to increase your bottom line.
Yes, just a like a business, you want to increase your bottom line.
So this week, just work on this one area to get really clear about where you stand. What is coming in and what is going out.
The secret will be to spend less than you make while living a rich and rewarding life and over the next few weeks, I will be sharing more and more ways to do just this.
You are welcome to use the “Expense Tracking Worksheet” that I have attached at the end of this blog to see where your money is going today.
Your ultimate goal is to create a healthy bottom line – meaning you have money left over at the end of the month. Having money left over at the end of the month means you are spending less than you make which is the first step to creating wealth.
Next week, we will talk about “How to pay yourself first.”
In the meantime, if you have any questions for me or any comments, please post them below and I answer them!
Please share these tips with your friends. I believe in you and I want to see you have a rich and rewarding life. So do this assignment, and I will see you next week for our next Smart Money Tip!
In my Smart Money Video Tip series, I have been sharing smart ways to create and grow money. One of the best ways to grow your money is through the magic of compound interest.
“Compound interest is the eighth wonder of the world. He who understands it, earns it. He who doesn’t … pays it.” Albert Einstein
Today, I want to share a story that demonstrates this concept with the Magic Penny Doubling Effect. If you were given the choice between taking $3 million in cash today or a single penny that doubles in value every day for 31 days, which would you choose? If you have heard this story before, you know the right answer is the penny, right? But why?
You know that picking the penny will lead to greater wealth over the long term. So why is it so hard to pick the penny? It’s because it takes so much longer to see the payoff of choosing the penny.
Let me explain. Let’s say you chose the $3 million cash and your friend chose the “doubling penny” what would it look like?
|Day||Your Friend’s $0.01|
Well on day five, your friend has 16 cents vs. your $3 million. Day 10 your friend’s penny is just $5 bucks. Day 20, your friend still only has $5000. So with only 11 days left, it looks like you made the smarter choice right?
Well this is when the example gets really interesting and the power of compounding really works its magic.
|Day||Your Friend’s $0.01|
On day 28, your friend’s doubling penny is now worth over $1 million and on day 31 your friend now has over $10 million which is 3 times your $3 million. Amazing right?
Well there may not be anyone who is going to offer you a magic doubling penny or $3 million dollars but you can apply this principle in your life today.
This story is an example of how smart choices plus consistency over time will equal a Dynamic Change in your life.
Smart Choices + Consistency + Time = Dynamic Change
Let’s say you ate a cheese burger, fries and a cola today for lunch. It’s not going to hurt you and it’s not going to help you. BUT if you eat this meal every day for lunch for the next year what will happen?
Or if you go to yoga class today, it’s not going to hurt you and it’s not going to help you very much. BUT if you go to yoga class every day for the next year what could happen?
Smart Choices + Consistency + Time = Dynamic Change
The same principal applies to your money.
If you invest $10 today it’s not going to help you and it’s not going to hurt you, but you invest $10 a day for 35 years at 10% and you will have over $1 million.
Think of how you could find an extra $10 a day with lose change, found money, managing your credit card points, using coupons, working smarter, skipping the $5 latte, getting better gas mileage, selling some stuff on eBay, increasing your fees or asking for that raise, taking the stretch and stepping out of your comfort zone, getting a new quote on your car insurance.
That’s only saving an extra $300 per month. Could you do this? The answer is probably yes!
So my tip is to ask yourself – What small changes can you begin to make in your life today that will equal Dynamic Change and a life of true prosperity for the rest of your life?
Post your comments below or on my facebook page. I love to get feedback on this concept.
by Katana Abbott, CFP®, CSA®
I just returned from a fabulous retreat in Baltimore with one of my mentors, Barbara Stanny. The retreat was focused on Sacred Success – for women who have reached affluence and are looking to make a difference in the world. When I called the retreat center to ask how they recommended getting from the airport to the retreat center, they gave me two options.:
- I could take a cab for $120 round trip.
- I could take light rail for $3.20 round trip.
Now, I am from the Midwest, and am not used to taking public transportation. Plus, I asked myself “Why am I even considering taking the public transportation after investing thousands of dollars on this retreat?” Just do the cab, right? I can afford it, I deserve it, right? What do you think I did?
I decided to take the “light rail” for two reasons:
- I looked at is as an adventure and it was. In fact, I ended up having an amazing conversation with a man from Jamaica and a retiree who is a world traveler. We talked about this very issue. The retiree told me that in Italy he noticed that the gondola was $24 for the tourist. All he had to do was go “down one level -where the locals went” and it was $5. He shared several other interesting experiences by following this principle.
- I thought it would be fun to decide what to do with this extra $116.80 since I am teaching women how to be smart about money.
So what do you suggest that I do with this “extra money”?
- Spend it on a massage or facial?
- Use it to pay for my miscellaneous expenses from the trip (tips, few glasses of wine, etc)?
- Add it to my savings account?
Well I am actually depositing this $116.80 to my business “savings” account today. I am doing this to honor these dollars, since its money that I would not have had if I hadn’t made this decision. By following the 3 secrets of wealth below, my husband and I are now financially independent.
- In my April 8, 2012 blog post, I interviewed my manicurist, Kahi. He is a Vietnamese refugee and entrepreneur who has a unique way of saving money. He has created financial freedom and is now able to give back! Be sure to check it out.
So here are 3 simple tips for creating wealth:
Respect and Appreciate Money:
By appreciating your money and treating it with respect, you will not only be more aware of what you have, where you are spending it, but you will also be attracting more wealth to you. Remember, we get what we focus on most. Ask yourself, “What do you do when you find a coin on the ground?” I pick it up as good luck and put that money in a special place. I express gratitude everyday for the wealth that our family enjoys. Gratitude is how you begin this process too!
Track your Income and Expenses Every Day:
- Keep your receipts in a special place in your wallet and at the end of each day, write on that receipt what it was for, and then put it into your bookkeeping file.
- Also, record every penny you make or find on at tracking sheet, and then express gratitude knowing that there is more on its way. My husband watches our credit card purchases daily and tracks Quicken weekly.
Pay Yourself First:
Set up a savings plan even if you have to start with a small amount. Make sure you are setting aside money for Cash Reserves (Emergency) and for Long Term Financial Freedom (Your Retirement Savings Accounts). This is a way of honoring yourself and taking the first step to financial freedom.
I will leave you with this one thought: Money is a reflection of our own value. Your Self Worth Equals Your Net Worth. Add to your Self Worth and Your Net Worth Account every day by following these three simple secrets and watch your life begin to transform. Next week, we will talk about “How to Invest”!
By the way, I’m having a $100 OFF CLOSE-OUT sale of my popular program, “Get Clarity Now: A 5 Step Roadmap to Your Purpose and Passion with Prosperity” Just enter the coupon code: clarity. This sale ends Monday night, so learn more and get your copy before it’s too late!
© 2012 Katana Abbott Consulting , PLLC
WANT TO USE THIS ARTICLE IN YOUR EZINE OR WEB SITE? You can, as long as you include this complete blurb with it:
“Certified Financial Planner and Prosperity Coaching Katana Abbott teaches soul centered entrepreneurial women how to awaken their brilliance and create wealth while making a difference in the world. Get her FREE Smart Women’s Prosperity System” at www.Katana Abbott.com“
By Katana Abbott, CFP, CSA
Last week, I posted an article called, Five Smart Steps to Taking Control of Your Finances, and today, I want to go deep on Step #1: Pay Yourself First. We all have heard this statement, but what does it really mean AND how important is it?
Let’s look at some numbers:
In a June 2008 Associated Press survey, it was reported that:
- 78 million baby boomers are approaching retirement and that 66 percent –of these individuals expect to continue working after “retiring” to supplement their pensions, Social Security and savings.
- In a recent Gallop Poll – that number is now up to 80%
- Just 59% of workers are currently saving for retirement and one‐half of them have less than $25,000 tucked away, according to the survey.
How much do you think you will need for retirement?
This part is best left to a professional like a financial planner or a CPA since they have access to computer software that can calculate inflation to give you the future values of your needs over time. There are also Retirement Calculators that can give you a general idea like these on my CPAs website.
However, if you are not working with a financial adviser, I suggest that you spend some time getting a clear picture of your current financial situation. I have created a 33 page ebook that will help you do just that and it’s available to you for FREE as part of my Smart Women Success System.
What you want to do is to complete the worksheets and calculate what you own, what you owe (your Net Worth), plus what you spend and what you earn (your Cash Flow). The goal is to identify what you will have coming in at retirement vs. what you will need.
If there is a shortage, then you will either need to save more, work longer, get a higher return, or supplement with post retirement income. I also talk about this in the Prosperity System when I talk about The New Retirement Solution.
If you are looking for one on one help, please schedule a 30 minute complementary Money Breakthrough Method Consultation with me at www.talkwithkatana.com I am only offering these for a limited time, but right now, you are welcome!
How should you Pay Yourself First?
The smartest way to do this is to be saving in at least two pots — one for your Emergency Fund and one for your Retirement. Let’s talk about each and let’s start with your retirement plan:
- Most of us have access to some sort of “pretax retirement plan” through our employer. If we are self employed, we can set up a SEP IRA or simply an IRA or Individual Retirement Account.
- If you are employed, simply make sure that your employer is taking the MAX out of your paycheck each week and investing it into your retirement plan at work. You will have the responsibility to select how the money is to be invested and will want to get some advise if you aren’t familiar with investments.
- If you cannot invest the maximum, then consider starting somewhere, even if it is just $25 per week. But start now. Below, you will see the power of compound interest over time. The earlier you begin investing, the more you benefit from compounding interest. At one point, your investment will be making much more money from compounding than you can even add yourself. Isn’t this exciting!
Check out this chart showing how much you need to save to have $1 million by age 65 at an annual rate of 10%? As you can see, the secret is starting early. AND its never too late, you just need to save more or save longer!
Age Daily Savings Yearly Savings
20 $4.00 $1,460
30 $11.00 $4,015
40 $30.00 $10,950
50 $95.00 $34,675
Now let’s talk about creating an Emergency Fund:
- The next time you get your paycheck, go to the bank and set up a “Savings Account”. Before you deposit your paycheck, take 10% or a specific dollar amount, even if it just $10 and deposit into your savings.
- Now, here is the Secret: Every single paycheck, you will put this same dollar amount into your Emergency Fund (savings account). You will do this automatically and preferably “electronically”, so you don’t even see it.
- Continue to do this, even if you are paying down credit cards. (this will be addressed in a separate article)
For the Self Employed:
You probably get paid in chunks of money, at various times, and in uneven amounts. In fact, there are times when you get large amounts, and then times when you have no income coming in.
Here is the secret for YOU: Stop Being A Cash Cow! What this means is spending MORE when you have a BIG balance in your account. The most important thing you can do is discipline yourself with these three steps:
- Treat Your Business Like a Business and PLEASE make sure you have a Separate Bank Account for your Business.
- Put yourself on the payroll with a specific paycheck, just like everyone else. And actually write yourself a paycheck and deposit it to your personal account. Remember, you will then set aside your “specific amount” for personal savings!
- Now cut TWO MORE checks (or electronic transfers)
- Deposit this into your SEP IRA for your retirement.
- Deposit the second one into a Savings Account to pay your Estimated Tax Payment to the IRS.
The secret here is to keep a running cash reserve in your business checking account or savings account, so you can sleep at night. In addition, it is important to have a business line of credit to help you through the dry spells, even if it is from your credit card. I have a $50,000 line of credit at the bank at 6%, and even though it doesn’t have a balance, I will keep that account available for emergencies, as long as I have my business.
So I hope this has been helpful. Whether you are just starting out with your savings plan, or have built up a large nest egg, paying yourself first is a Smart Foundation to creating a life of Financial Freedom.
If you haven’t done so yet, be sure to pick up your FREE Smart Women’s Prosperity System and print out your copy of my signature 33 page Financial Organizer Planner eBook. And be sure to share it with your friends! My dream is to help thousands of women around the globe live with Awakened Prosperity – a life of health, wealth and happiness!
Founder and Prosperity Coach
Smart Women’s Prosperity Institute™
Creating Wealth While Making A Difference!
Five Sensible Steps for Taking Control of your Finances
By Katana Abbott
One day it hits you like a rock. Youre knee-deep in financial quicksand with no savior in sight. Maybe it comes as a declined credit card purchase, or a minimum payment higher than your bank balance. Maybe its just the realization that you really are mortal and will need funds to support you when your working days are over. The bad news is youve got to dig out of the hole before you can build for the future. The good news is that with commitment and time, you can gain control of your finances.
Start with these five sensible steps:
- Pay yourself first
- Start a cash reserve fund with the intent of building it over time to at least three months worth of fixed expenses rent or mortgage payments, utilities, auto payments, credit cards, food, and gasoline. Start today, even if you can only save $10 a week in the beginning.
- If your employer offers a retirement plan, enroll immediately. Since women outlive men and often take time out of the workforce to care for both children and aging parents, it is important for women to save more than men.
- 2. Respect Money and Control your Debt
- Pay your bills on time, and pay off your credit card every month, if you can. If you are in debt and able to make only minimum payments, stop spending and get help immediately.
- Buy a small journal and document every penny you spend for one week to identify your “spending leaks. Typically, leaks are things like late fees, movie rentals, overpriced coffee, fast food, and anything else you dont need for survival. These are the dollars you will use to begin paying off your debt and building a cash reserve.
- Saving $4/day at age 20 at 10% could potentially build to $1,000,000 by age 65. Wait until youre 30 and you will need to save $11/day. At 40, youre up to $30/day and by age 50 its $95. So get serious and start now!
- 3. Assess your job or career path
- How is your income affecting your life and your finances?
- Are you passionate about your work, or is it “just a job? Would you still do it if you won the Lottery, or had a magic wand? If not, then why are you still doing it?
- Are you utilizing your unique talents and skills?
- Are you earning what you are worth?
- Stretch take charge of your career, and youll take charge of your income.
- Create a game plan
- Write down your goals for the next 12 months.
- Make your goals clear, measurable, and time-specific so you can track your success.
- Tape the list to your mirror, on your refrigerator, or on your bedroom wall, where you can read them and focus on them every day. We really do attract the things on which we focus, so keep your focus on what you want in your life!
- 5. Find support and hold yourself accountable
- Surround yourself with positive, supportive people.
- Hire and meet regularly with a financial planner.
- Find a life coach or mentor.
- Read self improvement books and learn how to be smart about money.
- Get help on the internet with a virtual community or forum group.
- Take a tele-class or seminar focused on money, career or starting a business.
Money and financial growth consciousness doesnt come in flash. It may take months maybe even years to gain total control of your finances. But if you consistently follow these steps, that day will come. And when it does, celebrate!
ABOUT THE AUTHOR: Katana Abbott is currently writing, “Secrets from a Midlife Millionaire Create Your Perfect Life. After a 20-year career, she left her $100 million investment management and financial planning practice to follow her dream of helping women find their passion, be financially aware and prepared, have access to the right resources and meet some of the top business-building experts in the country. Visit www.smartwomenscoaching.com to sign up for her free 7-part audio mini course, “Your Perfect Life Focus and to access her other programs!