My story of learning to make my money work for me…one week at a time.
You never get over those “first day of school” jitters, do you?
I sat down for my first Profit Planning session with butterflies in my stomach. And it wasn't just because I felt out of my depth on this whole financial planning thing. To be honest, the thing I was most nervous about was what Jess (The Bottom Line's client care specialist) would think of the chaos that reigns over my business finances.
As I said in my last diary post, I got into this work-for-yourself thing by accident. It wasn't a plan. I just started making a little money, and then a little more, and before I knew it, I had a full-time business that I was figuring out on the fly.
But while creativity, goal-setting and marketing come naturally to me, I DON'T have a head for numbers. For the past five years, I've been just throwing all my extra cash into a savings account until I needed it for something, like paying taxes or repairing my computer.
I've worked with Jess for a long time and I've seen how she handles entrepreneurs like me–big on creativity and low on financial savvy. She's like the head cheerleader, the mother hen and a boxing coach all wrapped into one. But I couldn't help feeling like maybe I'd be the first case where she would raise an eyebrow and say, “Are you kidding me with this?”
I probably don't need to tell you that's not what happened in my Profit Planning Session #1.
Here's what did…
Money Is Just a Tool
First, we chatted about my business. Jess asked me to tell her what I was most excited about, what I'm struggling with, how I'm hoping to see it grow.
Well, there's nothing an entrepreneur likes better than to talk about their business!
I told her that I was very proud of how I've found my niche this year and owned it and built my client base around it. But I've been struggling with feeling knowledgeable about how to really make my business work for me, from a financial standpoint. It feels great not to be worried about money the way I was a year ago, but I feel this suspicion that I could be more strategic with the money I'm earning, instead of just having “more money” as my goal.
Here's what Jess said:
“'Money as a goal' is about as descriptive as anybody can get about their goals for money. Money is the tool for freedom, for independence, to stop being a slave to someone else.
“But money is just a tool. The older and more knowledgeable we get about our finances, money becomes the means rather than the end.”
It's always great when your accountant can read your mind.[Tweet “It's always great when your accountant can read your mind. #TheBottomLine #ProfitPlanning”]
Budgets Are Ew!
Just about everybody knows what being strategic about money involves (say it with me now):
When this word came up, here's what Jess had to say:
“Ugh. I hate the budget word. Budgeting sucks.”
You said it, sister.
I was raised by very frugal parents, so I have strong natural instincts against spending too much on things I don't need, and I always look for stuff on Craigslist and eBay before I will consider paying full price at a store. (It drives my husband nuts.)
Still, budgeting puts a bad taste in my mouth. And Jess explains this feeling for me: it's the unpleasantness of introducing discipline into your finances. Suddenly, you're feel like you're supposed to watch every penny, feel guilty every time you spend, and not feel satisfied until you've hit a certain number in your savings account.
That's why, when people decide to start budgeting, they usually do one of two things:
- Put way too much into taxes/operating account because they're afraid of not having enough.
- Determine to pay themselves way too little, but keep dipping into other accounts because they don't have enough to live on.
But neither of these approaches is sustainable, Jess tells me.
“The key,” she says, “is making a plan that is executable.”[Tweet “The key to budgeting is making a plan that is executable. #TheBottomLine #ProfitPlanning”]
When you're bringing discipline into the picture, you have to do it gradually for it to work over the long term. It's a lot like losing weight: instead of thinking of it as one big number, you have to approach it as a series of smaller losses.
The best approach, she says, is to start saving in each of your accounts with 1% increments until you get into the discipline of doing it, and then up the amount by 1% every 90 days.
“It’s discipline that changes your business over time. Not becoming miserable because you have no money anymore. That does nothing for your business.”
Changing Your Money Mentality
The way we grow up around money has a lot to do with our financial savvy when it comes to our business.[Tweet “The way we grow up around money has a lot to do with our financial savvy. #TheBottomLine “]
Like I mentioned, I grew up with very frugal parents. We weren't poor, but somehow I adopted a poor people's attitude toward money–that you always had to be extra careful because you might wake up one day and find that there wasn't enough.
As a result, I've always had a scarcity attitude toward money. I want to save, but even that feels like a luxury.
That's a common feeling, Jess says.
“People often think, ‘I’ll save when I have more money to save.’ But if you take that mentality, you’ll never save.”
The big question is this:
Am I going to let my money tell me what I can do? Or am I going to tell my money what it’s supposed to do?
“Those dollars are workers. They're tools. They do things for you. If you tell your dollars what to do, versus them lying around wondering where they're going to end up, you’re going to be more strategic.”
There are a few things you have to train dollars to do, she adds:
- You've got to pay yourself because you have to take care of yourself and your family. (And no, you don’t have to sacrifice your pay to follow your dream.)
- You've got to put back money for taxes because they come every year. (And if you don't have money when they come, you're just going to be stressed out.)
- You've got to put money back as profit, because part of our purpose on this earth to enjoy ourselves. (When was the last time you heard an accountant say that?!)
“Don’t wait until the money gets here to decide what to do with it. Because you always make different decisions if you wait until it gets here than you would if you had a plan ahead of time.”[Tweet “Don’t wait until the money gets here to decide what to do with it. #AccountingWisdom #TheBottomLine”]
It doesn’t mean some big complicated plan, she tells me. The key is keeping it simple, keeping it smart, and keeping it something that you’ll actually work at. That’s the whole point behind having a financial system in place.
“The right plan is one that fits you like a bathrobe. A plan that isn’t aggressive, but at the same time says ‘I’m taking myself seriously, because I’m worth it.”
The Bottom Line
By the end of this meeting, I'm…speechless. I can't believe how excited and confident I feel. Far from being scared of my own finances, I feel a sense of purpose and a drive to get this stuff nailed down and make my money work for me.
It makes such a difference in this process to feel truly supported. You can hear in Jess' voice that, far from judging you for not knowing what a chart of accounts even is, she's excited for you and believes in your business' potential. She can make you feel like a million bucks at the same time as she makes you feel capable of earning a million bucks.
Next time, Jess will be leading me on a deep dive into Xero, The Bottom Line's favorite money-management software. Which means I'm going to finally learn what a chart of accounts is. Will it blow my mind? Will I even understand how to use it? Check back next month to find out!