We have just passed the end of financial year not too long ago and most individuals and business owners have completed or are well underway in finalising their tax returns and preparing their financials for the year just passed.
What this means is that it gives you the opportunity to reflect on your performance for the last year. For individuals, that means what was your salary or wage for the year? Also how did any of your investments like a rental property perform? I find many individuals are surprised at their income for the year and they usually ask “where did it all go?”
For business owners, I’m sure you are well aware that you need to know your numbers like revenue, profit and tax obligations so this shouldn’t be much of a surprise but it is a time to reflect on the annual totals and how they stack up to previous years and how do they compare to your plan or budgeted numbers? Did they meet your expectations? If no, then why not?
What I believe is that if we didn’t have to prepare tax returns and financials each year most individuals wouldn’t be obligated to review their income and how they are tracking. For most people, their wage comes in then it all goes out. All of our individual clients are involved in property so we know a portion of their income will flow on to fund those investments but just like a business, its always smart to stay on top of your numbers and see how your investments are tracking. Should you put your rent up? Do I need a valuation to determine how much the property has gone up in value? Sometimes it’s wise to cut your losses and move onto a more prosperous investment if your current structure is not serving you. Or maybe you have stacks of equity in a property and you can look at utilising that opportunity to invest again.
The same goes for a business, each year you should review your numbers at an absolute minimum and put in place a little plan, or a little road-map as to how you think you can go over the next 12 months. What could you do differently to boost and improve your numbers? How can you get a little more time back?
Anyone that knows anything about growing roses in your garden will know that each year you need to prune heavily. Most people are shocked when they see how hard an experienced gardener prunes back their roses but they are doing this for a reason. They prune heavily because the roses flower well on the new growth and they look neat and tidy. Most of us need to do some heavy pruning in our lives. Where do you really need to prune back on your expenditure and your time?
Start by pruning back 15 minutes to put together a little plan of what you want to achieve. I speak to individuals all the time that want to buy a property, or setup a trust, or start a business and the first question I ask is why and then I keep asking why to drill down and determine the truth which is usually surprising for both parties.
So if you struggle with your finances you might want to plan to put aside say $2,000 in an account for emergencies and preferably in an account you don’t log into and see every day otherwise it will most likely get spent on shoes or a new fishing rod. If you’ve got some bad debt like credit cards that you need to rope in then plan to put aside X amount each pay period.
For business owners the same goes. Plan your revenue target for the next 12 months. What is that going to allow you to do that you can’t already do? How are you going to grow it? What drivers of revenue are you going to tweak to increase it? Or if you want say X amount free cashflow in the bank, how are you going to achieve that?
I love the saying that we spend more time planning our holidays then we do planning our business or personal finances, so its no wonder we are in this position.