Saving money is important. So is not spending more than you earn. And so is understanding the implications of big financial decisions like taking on student loans or a mortgage. All of these are crucial for long-term financial sustainability.
But one huge piece of the equation that not a lot of people focus on is the earning money part. As you can imagine, I spend a lot of time thinking about this concept.
Read MoreI’ve been spent the better part of the last four years thinking about both the small and massive role that money and finances have in our lives, from the global economy to our everyday choices.
The following principles I’ve written goes beyond the standard practical information I tend to put together. These are things I find myself regularly thinking about often sharing. They are the things I’ve learned through my work helping people and from my annoying curiosity about where our lives intersect with the financial and economic world.
Read MoreFor the past year, I’ve been using an income account as a part of my weekly accounting process.
Accounting process sounds fancy, but it’s just a workflow process that I use every week. The reason I started using an income account was because I wanted to have a better understanding of how much I truly needed to earn. I also wanted to see if I could run my business with less money each month by only giving my business a certain amount of money to work with.
Read MoreI’m sure you’ve heard of Murphy’s law; an old adage that states "anything that can go wrong, will go wrong.” And then there is Parkinson's law that basically boils down to: work expands to fill the time available for its completion.
Now, I’d like to introduce you to Paco’s law.
Read MoreDisclaimer: I am not an accountant and this is not tax advice. There are different methods and strategies for saving for taxes. This is one I’ve found to be very simple.
If you’re tired of being totally freaked out about owing taxes because your business earned money, listen up. Instead of being unsure about how you’ll pay your tax bill, you can get ahead of the curve by saving for your taxes as you earn income.
Read MoreThe world of finances is wide and deep. From building a budget to understanding insurance and everything in between; it can be intimidating. Jumping in all at once can result in a harsh flop followed by a defeated retreat.
Read MoreHow to Be Financially Responsible | The Basics of Financial Responsibility
One of the most frequent financial struggles that people talk to me or email me about is having trouble being "fiscally responsible".
When it comes to doing the things one ought to do with their money, according to what I've learned from the industry and society at large, we fall short in a few common ways. Most people have trouble saving when you know you should save, curbing spending on bull shit that you don't need and understanding how the financial markets and economics. I get it. I make weird choices too. A lot of us do it because we're emotional creatures that act on our feelings.
Read More
I’ve been in finance for over ten years (wow - how did that happen?) and I’m basically never not talking to people about money. It is a common thread in our society. Our dependence on it unifies us, while our competition for it can be dividing.
Read MorePhoto by Phung Hi
In the early stages of running a business, it’s easy to get away with a hobbled together, spreadsheet-based bookkeeping system. But once your operation starts to expands, the financials tend to get more complicated or you have less time to manage all the administrative stuff. At that growing pain point, you’ll realize you’re in over your head and that it’s time to hire a professional bookkeeper.
There no set point that determines exactly when you should hire a bookkeeper. But the following symptoms will present themselves, making it more obvious that it’s time for you to bring on professional help.
You’re always behind on your bookkeeping, so you never actually know the state of your business finances. It’s stressful and mildly infuriating that you don’t have this information. You’re discouraged from getting caught up because it feels like an impossible task. And if you’re never known the beautiful glory of not being behind, you can’t truly understand why this is important.
With proper bookkeeping, you know how much money your business made last month and all the months before it. You know how much your business spent and if you’re even making a profit. With a great bookkeeper, you receive your monthly financial reports on a regular basis.
Being and staying caught up on bookkeeping is literally a whole new world of clarity and understanding.
Tax season doesn’t have to be fraught with multiple, confused emails fired off from you to your accountant at 2 am. It also doesn’t have to be you printing out 200 pages of bank statements, using six different color highlighters and a calculator to figure out your profit and loss statement on your office floor. I promise you, it doesn’t have to be this way.
In fact, it should be a pretty smooth process. I know your accountant wants that too. Here’s how it should go down:
If you’re like most businesses, your accounting period will close along with the calendar year on December 31 and you close out your bookkeeping for the prior year sometime in January.
You send your financial reports and all your other tax documents to your accountant and they file your taxes for you.
If you owe taxes, you already knew you would because you were keeping your books all year long and you saved for taxes as you earned income. Or you get a refund, yay!
Tax season isn’t stressful if you go into it being prepared. And being prepared is something totally within your control.
You might think you’re a genius for forgoing monthly bookkeeping and having your accountant haphazardly put together your books right before tax time, but here are the pitfalls of this strategy:
You aren’t watching your business finances month to month, so any business decisions you’re making aren’t rooted in actual data. For example, can you really afford to hire someone? Or does it make sense to stop offering a particular service because it’s not as profitable as other services?
You’re probably spending more having your accountant do your bookkeeping since accountants tend to charge more per hour.
Your bookkeeping probably won’t be done in as much detail. This is fine, until it isn’t. Meaning, sometimes when you realize you need the data, you realize you don’t have it - like during a small business loan application or when you’re trying to understand the value of your business because you’re going to bring on a partner or investors.
So now that you know you need a bookkeeper, what are the qualities you should look for in a bookkeeper or bookkeeping firm?
A good bookkeeper can effectively communicate with your accountant and you. They should be able to explain your financials to you in plain language.
You should be receiving your financial reports in a timely fashion so you can use the data to help you make decisions. A timely delivery is receiving your financial reports no more than two weeks after the close of the month. If you don’t receive reports for months at a time, you’re flying blind.
Your bookkeeper should work with you to make sure your reporting and categorization is accurate. They should make sure your bank balances match and they’re taking your accountants advice into consideration.
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When it’s time for you to upgrade your from DIY to a professional bookkeeping solution, check out our guide to help you understand your options.
Photo by Simon Migaj
My wife is a woman of many, many talents, but cooking is not one of them. I marvel that the same woman who is militant about being creative everyday is somehow baffled by the challenge of a freestyle kitchen session.
Besides her lack of interest in preparing food, I think the fact that she doesn’t spend time strategizing and coming up with a plan is a huge factor in her adversity to cooking. And we all know once you’re hungry, you’re no longer a rational person. You’re a shell of a human, hijacked by your emotions and panicked because your tiny brain thinks you aren’t going to survive.
This exact approach, or lack thereof, is how a frightening number of freelancers and small business owners approach the income side of their economic equation. If this is you, know that I’m not judging you nor am I throwing shade. Just realize that if you don’t spend the time strategizing and coming up with a game plan for your monthly income, you may find yourself becoming irrational, taking on weird jobs or working with less-than-ideal clients because you fly into a panic-induced survival mode.
This can set off a chain reaction of problems. For example, let’s say you agree to work for less than you should because you have no clue how much money you’re earning, you just know you need to earn money. And if you’re earning less, you’ll need to work more. And if you work more, you have less time to for the things that bring you joy. And with less joy in your life, you’re a bummer to be around. If you’re a bummer to be around, you don’t attract your ideal clients who can actually afford what you’re selling. And you’re trapped in this cycle.
When you allow yourself the time to project your income for the month (or months) ahead, you’re allowing yourself to have insights, to make plans for future growth or plans to slow down to keep a manageable pace. After you make the projections, you can observe the results. Which allows you to realize what’s working, what isn’t working, what predictions were right and which ones need to be refined. In other words, it’s a way more chill way to be, dudes. And yes, this is the method I use to make sure I’m on track with my business goals.
This is the first step; it’s the prequel. You have to first calculate how much you need to earn each month. A good place to start is to look at your expenses. How much does it cost you to stay alive on this lovely planet? And what are the other things you’d like to spend on each month? How many box subscriptions does one need to attain happiness and enlightenment? If you still to figure out how much you need to earn, here are some methods to go about doing so.
Once you know your monthly income goal, you have to make time to see how close or far you are from that goal, given the information you have at the moment. For the sake of example, let’s say you need $4,000/month to live your best damn life. Here’s what you’ll do during your mapping session.
Pick Your Method. You can go analog with a pen and paper. You can use a fancy calendar app or a quick-and-dirty spreadsheet. Choose a method for mapping out that resonates with you. It’s helpful if it’s a method you feel comfortable using so you’ll keep using it. Set yourself up for success; don’t create barriers to doing the work you need to do.
Do The Math. Once you choose your method, make a list of how much money you know you’ll be earning for the month. List how you’ll be earning it. For example, you have 5 clients who committed to one-hour breakdance lessons at $100/hour. So, 5 hours x $100 = $500. And let’s also say your beautiful face is getting paid $2,500 to be a model for vegan, artisanal, shaving cream or something weird like that.
As of this mapping session, you expect to earn $3,000 ($500+ $2,500), which means you’re short of your monthly income goal by $1,000. If this is where you’re at, I can understand why you have avoided mapping out your revenue. It sucks to have a goal and not achieve it. So process those feels and let’s get on with figuring out a strategy.
Strategize. I think there might be a few options if you’re short of your goal.
Option 1. Learn to live on less. This is a totally viable and reasonable option. It’s all about living with the compromises and understanding the tradeoffs.
Option 2. Do nothing and have good luck and/or good timing. Possible, but maybe not probable?
Option 3. Do things that may help you earn more money. The following is a list of things you can do: Reach out to potential customers who might have previously expressed interest in working with you, try a new marketing channel, try a marketing campaign that makes you stand out, send out an email blast, change your pricing, change or repackage your offering, ask customers for referrals, put a product on sale, sell something you haven’t sold before, ask your friend who runs a popular website to feature you in an article, etc. There is a universe of possibilities here. Go on, get creative.
As an added incentive, knowing your deficit means you need to be specific about the amount of money you need to earn to close the gap. And being specific is perfect because it helps you discern what opportunities to say yes to. And oddly enough, sometimes when you aren’t specific, you fail to see opportunities.
And if you’re reaching your monthly income goal, that side of the coin has plenty of options to weigh as well. Should you keep things the status quo or scale back or raise your prices? Should you take a nap? The possibilities are endless.
It’s really easy to make predictions and forget about tracking or revisiting them, especially if you’re worried about not reaching your goal.
You should track your progress at least monthly, if not more frequently. Twice a month or once a week are both great time tables for assessment. Daily might be a little too crazy - unless you’re running a restaurant, in an specific industry or in a critical time where meeting daily goals can have a dramatic impact on the long-term survival of your company.
If you’re consistently not meeting your goals, then think about changing something. The trouble is not just knowing when to change, but also what to change. Are your goals too lofty or are you not hanging on long enough to see true results? Can you move the needle in a meaningful way with small tweaks to your copy or do you need a new marketing strategy? Does one thing need to change or does everything need to change?
Remember fifth grade science when you learned the Scientific Method? Here’s a refresher: Make an observation, form a question, form a hypothesis, then conduct your experiment, observe the data, analyze and interpret it and come to a conclusion about your hypothesis. That is basically what I’m telling you to do, just through the lens of earning income.
So much of being a freelancer or running business is about experimenting. We have an idea about a problem that we can solve, we start figuring out how to solve it, how to speak to the people who will buy our solution, how to make adjustments to refine our offerings and reach our targets. Make sure to listen to the market and your customers and to be open that the answers are all around you.
