The In-Depth Guide to Mapping Your Money, and How It Can Fortify Your Business, Part III

In the last two parts of this in-depth guide to money mapping, we’ve talked about why it’s helpful and how to get started. We’ve also touched on creating a system of accounts to set up a regular paycheck for yourself and an assurance of profit. Creating your own money map based on these ideas takes a lot of evaluation of your finances. You need to assess your operating and tax expenses and analyze your living expenses and savings goals. Once you’ve assessed these amounts, they translate into the percentages you put into each account.

What’s Your Percentage?

I help clients figure out what their percentages could be. We assess the needs of their business, and we figure out how much they actually need to live on. We discuss their life goals, and how those relate to money. There are good benchmarks for each percentage, which are suggested by Profit First. For your reference, the suggested percentages are: 5% profit, 50% owner’s pay, 15% taxes, 30% for operating expenses. This breakdown applies to most solopreneurs (anyone under $250,000 in annual revenue).If this doesn’t feel doable for you right now, don’t sweat it. It takes a lot of work, evaluation, and good financial habits to create a sustainable money system.

Applying the Model

Let’s look at an example of all of this mapped out. In this example business, the owner is using the ideal benchmarks and keeping a cushion in their Owner’s Pay account. What they do take out is then subdivided, with 20% of their pay taken off the top for three savings goals (I like to call this “paying yourself first.”). The remainder of this money goes to living expenses. While this model might be unrealistic from where you stand, keep in mind that this is something my clients work towards. I’ve included it here so you can start to picture what your own money system looks like.

If you enjoyed this guide, I recommend also checking out Part I, and Part II. And, try going to the Tools page, where you can play with an allocations calculator. Plug in your revenue and your preferred percentages to see what your amounts are! Then you can start filling in your money map.

Money mapping is an important tool, and one that I enjoy walking clients through. If you’re interested in working with me, check out my services page to check out my packages, and schedule a call.

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Angela

 

Image by:

Estée Janssens

The In-Depth Guide to Mapping Your Money, and How It Can Fortify Your Business, Part II

Last week, I talked about money-mapping, why it’s helpful, and how you can get started. Today, we’re going to dive into more money-mapping using the Profit First methodology. Profit First posits its own money system, pictured in the above map. Its goal is to ensure that you as the business owner get paid.

Solopreneur Paycheck

In order to ensure that you actually get paid by your business, you need to portion off a certain percentage of your income, and then designate that for your personal finances. This portioning off is exactly what the Owner’s Pay account is for in the Profit First system. The Profit First system advocates for creating separate accounts for all your different pots of money associated with your business. If you can’t do that or don’t want to, I advise using a spreadsheet. You can use this to keep track of how much money is designated for Profit, Owner’s Pay, Taxes, and Operating Expenses.

So, back to that Owner’s Pay Account. Once you put a percentage of income in it, you then transfer some portion of that to your personal account, which serves as your solopreneur paycheck. When I work with clients, we work to figure out what portion should go into this account. That amount depends on how much the business makes in revenue, and what portion of their personal expenses they want to cover using income from their business. If income in their business varies month to month, we decide on an amount that they transfer to their personal account, leaving the leftovers to act as their cushion during slow months. This way, the business owner receives a steady stream of income, even if their business varies from month to month. This is the solopreneur paycheck.

The Function of Profit

Cordoning off funds for operating expenses and taxes may seem practical enough, but the Profit account is what makes the Profit First system unique. The profit account accumulates and then is distributed quarterly. Business owners are encouraged to use their Profit Distributions to reward themselves for their hard work. This keeps the owner excited about and invested in the business. It also discourages any tendency to reinvest everything back into the business, or over-save.  Rewards can range from a day out to charitable giving, to really anything you want!

In part three of this series, I’ll discuss what applying this model to your business can look like, and integrate all the info we’ve gone over so far. If you’re enjoying this and would like more, check out part one! You can also head to my services page and schedule a call with me. Money mapping is one of my favorite subjects. Come talk about it with me!

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Angela

The In-Depth Guide to Mapping Your Money, and How It Can Fortify Your Business, Part I

Keeping track of your money and where it needs to go may feel like a difficult task. That’s why visually mapping it can be especially helpful. When I work with clients, I help them create a visual flow chart to show where every dollar goes. Today, I want to walk through why I do this, and how you can get started on your own money map.

Simplify Decision-Making

The goal of money mapping is creating a clear visual guide of what to do with every incoming dollar. If you’re confused about where to put incoming money, your systems can quickly get out of whack. By drawing out the paths your money can take, you make it clear to yourself where everything needs to go. You also simplify the decisions you need to make, because you have everything spelled out right in front of you! This way you’re able to take action to put your money in the right place quickly and easily.

For extra points, you can automate some of these transfers each month, so that you don’t have to move everything manually. If that sounds interesting, you might like to read “Pick One of These 5 Tips to Automate Your Wealth”.

How Much Do You Need?

In order to create that map and streamline your decision making, you need to do the math up front. It’s important to think about how much you need for your own pay, business taxes, and operating expenses. When I work with clients, I help them determine these numbers in the process of creating their map. If you want a DIY version, you can check out my articles on financial self-care, which will help you determine your personal expenses and understand how they relate to your business finances. Going through your records and averaging your operating expenses can help you get a good idea of what that percentage might be.

The above image is an example map from Hadassah Damien at Ride Free Fearless Money. In this example, you can see that she’s fleshed out the necessary percentages of income that need to be set aside for savings, taxes, business expenses, and personal expenses. In part 2 of our discussion of money mapping, I’ll talk about Profit First and what these percentages are according to their theory.

From Income to Final Destination

Above all, the goal of money mapping is to know where your money is going every step of the way. From the moment you receive income, to the moment that money is saved for taxes, invested for retirement, or put away for a savings goal – you’ve got a plan. Consequently, this is an opportunity to define those final destinations. Creating a tax savings account and an operating expenses account come in handy here. You can also think about creating savings goals for yourself, and making a plan to contribute regularly to those.

If you found this article interesting and helpful, I invite you to download the first 5 chapters of Profit First! The book has its own suggested money map that I’ll also talk about in part 2 of this series. If you’re into this kind of thing, I’m sure you’ll enjoy the book.

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Angela

All About Oversaving, And Why Overcoming It Can Strengthen Your Business

Often issues with money stem from not having enough – so when you hear the word “oversaving,” it might not sound bad. However, oversaving can be a serious issue that may be blocking the potential of your business. It may also point to anxieties that need to be resolved. Let’s take a look at what oversaving is and what you can do to overcome it.

What Is It?

If you experience anxiety or guilt over spending money, even on basic necessities, you may have oversaving tendencies. You might struggle to spend money on your business or operating expenses. Alternatively, it might be hard for you to spend on something other than reinvesting in your business. Or, you might have a hard time parting with any money know you could save it for retirement or business emergencies.

Oversaving both stems from and enhances anxiety, stress, and burnout. It often comes from a fear of scarcity. While saving money is an important skill, if it’s taken to an extreme, it can keep you from spending money to solve urgent problems in your business and your personal life.

What Can You Do About It?

Saving money is a great habit, but the key to overcoming the oversaving habit is to get strategic about your saving. Rather than living in this panicked feeling of “I have to save every dime I possibly can,” create some money systems! Coming up with savings goals, establishing a spending plan, and automating your money are all great ways to introduce strategy and systems. 

Savings goals can be especially helpful, because they can lend purpose to all that saving, but they also create an end point you’ll eventually meet. Limiting and directing your savings in this way can help curb the habit and assuage your anxieties. When you use the Profit First system, you put aside money to pay yourself first, but you also save for taxes, put aside money for operating expenses, and also distribute profits every quarter, which are meant to be spent by YOU so you can reward yourself for your hard work. If you’re interested in learning more about the Profit First System, check out the first 5 chapters of the book here.

Doing some emotional work around money can also really help you clear up your oversaving. I recommend reading Bari Tessler’s The Art of Money for more ideas about this. She helps you unpack your feelings around money and combining the practical with the emotional. If you’re interested, check out my book review.


Oversaving can be a sneaky habit, difficult to catch and overcome, but I believe in you – you can do it! And anyway, saving is so much more effective when it’s done in order to meet a goal. If you enjoyed this article, I suggest looking into Profit First. If you want to chat more about these ideas and take a look at your money, you can take a look at my service packages and book a call. You have a few more days left to set up a Quickbooks 2020 Reboot, which you can schedule here. Doing a year-end review could help you identify a couple goals to save for!

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Angela

Photo by Sharon McCutcheon

Financial Advice: How to Avoid the Bad and Find the Good

Financial advice is important, but the wrong resources can steer you in a rough direction. You don’t want the resources you’re looking at to lead you to a place of boredom or despair due to unrealistic goals. Last time, I gave some tips on finding the right financial advice for you, but today I want to break down some red flags to avoid. Then, we’ll look at some signs that show you’re on the right path!

How to Discern an Unhelpful Resources

A financial resource may not be right for you if:

  • The resource is targeted to an income level higher than yours. Even if you aspire to increase your income, financial advice will provide you with feasible next steps if it acknowledges your starting point. Starting out by reading investing guides for people with a $100k to distribute might leave you feeling alienated.
  • The resource chastises you or shames you for habits or behaviors. While many of us do carry emotional baggage around money, I firmly believe we should not be put down for this, or for our financial habits. Shame and blame do not facilitate financial learning. If a resource is telling you to quit things that make life enjoyable, or scrimp every penny as a path to wealth, evaluate these strategies carefully.
  • The resource uses financial jargon you don’t understand. Something like this can quickly lead you to boredom or discouragement. You can always look up the vocabulary words you don’t know, but finding something more accessible makes for a more pleasant and sustainable learning experience.
  • The resource doesn’t reflect your vision for your business or personal finances. Not everyone needs or wants piles of cash – so you won’t enjoy a book about how to get that if that’s not what you want!

Signs the Resource is a Good Fit

Alright, we’ve looked at red flags, now let’s talk green flags. A resource can be great for you if:

  • The resource acknowledges and takes time to help you work on your emotional stories and stressors around money. (One of my faves for this is The Art of Money by Bari Tessler)
  • The resource is accessible, easy to read or consume, and enjoyable. The more you want to come back to something or refer to it, the more helpful it will actually be!
  • The resource is tailored to your version of financial success and gives you steps for moving towards it.
  • The resource is targeted towards your income level.
  • The resource focuses on long-term solutions like mindset changes, money systems, and improved habits rather than “hacks” or penny-pinching.

If a resource ticks all these boxes for you, it will probably set you down the path to financial wellbeing! And it will feel a lot better than trying to read something that just isn’t for you. Next time, we’ll talk about starting the search for resources. For now, feel free to do some good ol’ googling. You can also check out my article on some of my favorite resources. I post more resources and video summaries of important concepts on Facebook, so check that out and see if you get green flags!

☮

Angela

Image Sources:  David Iskander, Thought Catalog

To Increase Your Earnings, Take Action

So, you’ve shifted your mindset: you see the potential for abundance and your life and you’re ready for the cash to roll in. But now what? It’s time to take action. By getting the wheels in motion, you get closer to earning what you deserve. This is the second in a series of posts on the seven strategies used by high earning women Barbara Stanny interviewed in her book Secrets of Six Figure Women. You can check out the first post on shifting to an abundance mindset here! According to Barbara’s insights, here are a couple action steps you’ll want to take. 

Step One: Get Clear

The first step is to get clear on where your finances are right now.  You need to know what you have in the bank, how much you are spending monthly, and what and whom you owe.  If you are currently ignoring this information, you cannot move forward until you face these numbers.  In her book, Barbara gives many examples of women who have changed their patterns with their finances.  Many had to stop overspending in various areas, some had to pay off credit card debt or stop using credit cards altogether.  But they all had to first examine their current behaviors and then think about where they wanted to end up and make the decision to make change. If you’d like a guide for this step, check out my post Three Steps to Financial Clarity

Step Two: Make a Change

Making changes may include trying new strategies with your spending and saving.  It may mean not using credit cards at all, or seeking out someone to partner with to make change, like a money buddy or accountability partner. One of the women interviewed actually set up a system of saving one third of her income, setting aside one third for taxes and living off of one third.  This may not be a feasible option for every income level, but setting up and automating some percentage of saving is a great place to begin. You can read my article about automation for more resources. The author points out that when you do make a change, “each step builds to the next, increasing confidence, competence and resources.” With that in mind, the best thing to do is pick an idea, try it, and see if it does some good for your financial situation. 

To Increase Earnings, Take Action title imageThree Keys

Once you’re on your way to making changes, it’s good to know the keys to managing your money. Barbara points out three key steps to successful money management: spend less than you earn, pay yourself first, and then put your money to work.  This last step is often the trickiest. Many people are tripped up by fear when it comes to investing and building wealth. That’s why we’ll going in depth about it next week, when we’ll talk about wealth building. I haven’t talked a whole lot about this here, beyond a few ideas about retirement prep, so I’m excited to get more into it!

If you think you’d be able to take more action with the guidance of an accountability partner, I’m always here to help. Take a look at my services, book a call, and let’s have a chat!

Angela

How to Set Informed Income Goals

How to Set Informed Income Goals: At Peace With Money

This article is the fourth in a month-long series on taking care of your finances as self-care. Specifically, I’m focusing on what you can do with your money to take care of yourself and improve your business in 2019. You can read the whole series by clicking here. 


One of my favorite sayings comes from the artist-turned-business mind Jennifer Armbrust: “A business is a needs-fulfillment machine.” Your business exists to support you; to fulfill your needs. However, if you don’t have a clear picture of what those needs are, it can be difficult for your business to fill them. This week, I’m suggesting that to really financially care for ourselves, we investigate the true costs of our lifestyles. By doing so, we will be able to make informed decisions about what income goals we’d like our businesses to meet. 

The Process

Time to take a realistic look at how much money you’re spending every month. Dig up the past three months of your bank and/or credit card statements. (For most of us, these should be available online). Go through line by line to see where your money is really going. Total up all the expense categories, i.e. groceries, utilities, rent, etc. 

Once you’ve got your totals, you have a realistic picture of how much money you need on a monthly basis. At this stage, you may find it helpful to look critically at your lifestyle, and see if there’s anything you’re interested in culling. If you’re looking for some ideas around creating a budget or spending plan, I’d recommend these articles of mine. Click here. 

Set Informed Goals

Whether you decide to create a spending plan and reign in your expenses, or feel satisfied with your lifestyle costs, you now have a complete picture of your financial needs. At this point, you can now set informed income goals that are designed to meet those needs in your personal life. Without this crucial information, your goals will just be shots in the dark, aimed at an amount of money that “sounds nice” but doesn’t tangibly satisfy a need.

Additionally, once your have this information, you can also take a look at how your business is doing in its current state. Is it making enough to support you? Whether you’ve got a side hustle or something you want to stretch into a full source of income, checking in with this question is important. If your answer is no, you can start to strategize around how you might close that gap. For more ideas on this, check out this post.

I hope this post inspires you to keep working to create a business that truly meets your needs. If you’d like to work with an accountability partner or need coaching around this, please check out my service packages and don’t be afraid to schedule a curiosity call!

Angela

Image Sources:  rawpixelMelissa Askew

Three Steps to Financial Clarity

3 Steps to Financial Clarity: At Peace With Money

As the holidays set in and the mad rush of preparation begins to slow, you might find yourself with a little time to reflect on your year. Why not take the opportunity to reflect on your finances? Your money, much like all the other pieces of your life, deserves your attention, thought, and critical eye. This exercise is meant to lead you to financial clarity. By completing it, you’ll gain a better understanding of what you want from your money, and how to get there.

Step 1: Define Your Destination

What’s your destination with your money? What are you planning to do with it? Is there something you’re saving up for? You might have vague plans, a well-defined roadmap, or nothing at all. This is the step where you can dream and imagine that destination. If you already have one in mind, check in and make sure it’s where you want to go. Make sure you investigate any current money goals you might have to make sure they really align with your desires. If you don’t have any goals, think of some you might like to adopt!

Step 2: Drop Your Pin

Pinpoint your current location. In other words, figure out where you are now financially.  It’s time to get clear and honest about what you have, what you owe and where your money is going each month. Use this step as an opportunity to total up your expenses and debts and track your recent income. Leave no bill unturned! If you want further instructions on this step, I recommend checking out my article on creating a spending plan, specifically the section on analyzing your expenses. 

Step 3: Plan Your Journey

3 Steps to Financial Clarity: At Peace With MoneyNow that you know where you are and where you’re going, it’s time to figure out how you’ll get there. This is the step where strategy comes in. Based on all the information you’ve already looked at during Step 2, you should be able to determine what will help you get to your destination. Whether that’s saving more money, paying yourself first, cutting out certain expenses, increasing your income, or a whole host of other ideas, identify your moves and decide when you’re going to make them. 

This process may take you a little while to complete, but it will ultimately bring you to a place of much greater clarity when it comes to your finances. This exercise can be applied to personal finances but it can also be applied to your business finances. I hope this season of reflection serves you well.

If you need any assistance looking through your finances, I’m happy to help you reach a place of clarity. Schedule a call with me!

Angela

Book Review: Your Money or Your Life

If you’re looking for a full financial makeover, you’ve just found your inspiration. Vicki Robin, co-author of Your Money or Your Life, is also known as the mother of the FI (Financial Independence) life. She is a talented writer and a renaissance woman in her own right. I was interested in reading her book after hearing her podcast interview with Paula Pant. Though the book was originally published in the 90’s, a fully revised edition was released earlier this year.

Favorite Points

This is a great book if you’re looking for a guide to help you really examine your life and your finances. The book includes lots of thought provoking exercises and insights around leading an intentional life and being intentional with your money. It prompts you to go through your beliefs around money with a fine-tooth comb, and includes a lot of advice and guidance for doing so. One such nugget of wisdom is the mantra “no shame, no blame.” Vicki brings this up when asking us to examine our financial pasts. This is very important advice for anyone trying to remake their financial life. We can’t change our financial pasts, but Your Money or Your Life Book Review: At Peace With Moneywe don’t need to stew and feel bad about them. The best thing we can do is move on and take action to enhance our financial futures. This mantra helps us remember that instead of being distracted by our past mistakes, we should look forward and act now. 

Included above is another nugget of wisdom. The chart indicates the sweet spot our finances can allow us to live in without letting our jobs and our need for income control us. This is marked by the top of the chart labeled “enough.” The writers explain that to achieve FI, we need to find our own “enough” zone, a place where our financial needs are sustainable and satisfying. In our culture of material excess, this is a very profound point. This insight alone can easily revolutionize your financial outlook!

I definitely recommend taking a good deal of time to read this book and do the steps. It is chock-full of information. Especially if you’re new to the world of FI, each chapter takes a while to absorb. Don’t let that intimidate you! With serious commitment, this book can change your financial life. If it sounds intriguing, please check it out. I also recommend having a look at the book’s website, it includes a lot of other helpful tools and resources if you want to get started!

Angela

Image Sources: Free in Ten Years, Your Money or Your Life