Budgeting and Business Planning

Budgeting and Business Planning

Once your business is operational, it’s essential to plan and tightly manage its financial performance. Creating a budgeting process is the most effective way to keep your business – and its finances – on track.

This guide outlines the advantages of business planning and budgeting and explains how to go about it. It suggests action points to help you manage your business’ financial position more effectively and ensure your plans are practical.

  • Planning for business success
  • The benefits
  • What to include in your annual plan
  • A typical business planning cycle
  • Budgets and business planning
  • Benefits of a business budget
  • Creating a budget
  • Key steps in drawing up a budget
  • What your budget should cover
  • What your budget will need to include
  • Use your budget to measure performance
  • Review your budget regularly

Planning for business success

When you’re running a business, it’s easy to get bogged down in day-to-day problems and forget the bigger picture. However, successful businesses invest time to create and manage budgets, prepare and review business plans and regularly monitor finance and performance.

Structured planning can make all the difference to the growth of your business. It will enable you to concentrate resources on improving profits, reducing costs and increasing returns on investment.

In fact, even without a formal process, many businesses carry out the majority of the activities associated with business planning, such as thinking about growth areas, competitors, cashflow and profit.

Converting this into a cohesive process to manage your business’ development doesn’t have to be difficult or time-consuming. The most important thing is that plans are made, they are dynamic and are communicated to everyone involved. See the page in this guide on what to include in your annual plan.

The benefits

The key benefit of business planning is that it allows you to create a focus for the direction of your business and provides targets that will help your business grow. It will also give you the opportunity to stand back and review your performance and the factors affecting your business. Business planning can give you:

  • a greater ability to make continuous improvements and anticipate problems
  • sound financial information on which to base decisions
  • improved clarity and focus
  • a greater confidence in your decision-making

What to include in your annual plan

The main aim of your annual business plan is to set out the strategy and action plan for your business. This should include a clear financial picture of where you stand – and expect to stand – over the coming year. Your annual business plan should include:

  • an outline of changes that you want to make to your business
  • potential changes to your market, customers and competition
  • your objectives and goals for the year
  • your key performance indicators
  • any issues or problems
  • any operational changes
  • information about your management and people
  • your financial performance and forecasts
  • details of investment in the business

Business planning is most effective when it’s an ongoing process. This allows you to act quickly where necessary, rather than simply reacting to events after they’ve happened.

A typical business planning cycle

  • Review your current performance against last year/current year targets.
  • Work out your opportunities and threats.
  • Analyse your successes and failures during the previous year.
  • Look at your key objectives for the coming year and change or re-establish your longer-term planning.
  • Identify and refine the resource implications of your review and build a budget.
  • Define the new financial year’s profit-and-loss and balance-sheet targets.
  • Conclude the plan.
  • Review it regularly – for example, on a monthly basis – by monitoring performance, reviewing progress and achieving objectives.
  • Go back to 1.

Budgets and business planning

New small business owners may run their businesses in a relaxed way and may not see the need to budget. However, if you are planning for your business’ future, you will need to fund your plans. Budgeting is the most effective way to control your cashflow, allowing you to invest in new opportunities at the appropriate time.

If your business is growing, you may not always be able to be hands-on with every part of it. You may have to split your budget up between different areas such as sales, production, marketing etc. You’ll find that money starts to move in many different directions through your organisation – budgets are a vital tool in ensuring that you stay in control of expenditure.

A budget is a plan to:

  • control your finances
  • ensure you can continue to fund your current commitments
  • enable you to make confident financial decisions and meet your objectives
  • ensure you have enough money for your future projects

It outlines what you will spend your money on and how that spending will be financed. However, it is not a forecast. A forecast is a prediction of the future whereas a budget is a planned outcome of the future – defined by your plan that your business wants to achieve.

Benefits of a business budget

There are a number of benefits of drawing up a business budget, including being better able to:

  • manage your money effectively
  • allocate appropriate resources to projects
  • monitor performance
  • meet your objectives
  • improve decision-making
  • identify problems before they occur – such as the need to raise finance or cash flow difficulties
  • plan for the future
  • increase staff motivation

Creating a budget

Creating, monitoring and managing a budget is key to business success. It should help you allocate resources where they are needed, so that your business remains profitable and successful. It need not be complicated. You simply need to work out what you are likely to earn and spend in the budget period.

Begin by asking these questions:

  • What are the projected sales for the budget period? Be realistic – if you overestimate, it will cause you problems in the future.
  • What are the direct costs of sales – i.e. costs of materials, components or subcontractors to make the product or supply the service?
  • What are the fixed costs or overheads?

You should break down the fixed costs and overheads by type, e.g.:

  • cost of premises, including rent, municipal taxes and service charges
  • staff costs –e.g. wages, benefits, Québec Parental Insurance Plan (QPIP) premiums, contributions to the Québec Pension Plan (QPP) and to the financing of the Commission des normes du travail (CNT)
  • utilities – e.g. heating, lighting, telephone
  • printing, postage and stationery
  • vehicle expenses
  • equipment costs
  • advertising and promotion
  • travel and subsistence expenses
  • legal and professional costs, including insurance

Your business may have different types of expenses, and you may need to divide up the budget by department. Don’t forget to add in how much you need to pay yourself, and include an allowance for tax.

Your business plan should help in establishing projected sales, cost of sales, fixed costs and overheads, so it would be worthwhile preparing this first. See the page in this guide on planning for business success.

Once you’ve got figures for income and expenditure, you can work out how much money you’re making. You can look at costs and work out ways to reduce them. You can see if you are likely to have cash flow problems, giving yourself time to do something about them.

When you’ve made a budget, you should stick to it as far as possible, but review and revise it as needed. Successful businesses often have a rolling budget, so that they are continually budgeting, e.g. for a year in advance.

Key steps in drawing up a budget

There are a number of key steps you should follow to make sure your budgets and plans are as realistic and useful as possible.

Make time for budgeting

If you invest some time in creating a comprehensive and realistic budget, it will be easier to manage and ultimately more effective.

Use last year’s figures – but only as a guide

Collect historical information on sales and costs if they are available – these could give you a good indication of likely sales and costs. But it’s also essential to consider what your sales plans are, how your sales resources will be used and any changes in the competitive environment.

Create realistic budgets

Use historical information, your business plan and any changes in operations or priorities to budget for overheads and other fixed costs.

It’s useful to work out the relationship between variable costs and sales and then use your sales forecast to project variable costs. For example, if your unit costs reduce by 10 per cent for each additional 20 per cent of sales, how much will your unit costs decrease if you have a 33 per cent rise in sales?

Make sure your budgets contain enough information for you to easily monitor the key drivers of your business such as sales, costs and working capital. Accounting software can help you manage your accounts.

Involve the right people

It’s best to ask staff with financial responsibilities to provide you with estimates of figures for your budget – for example, sales targets, production costs or specific project control. If you balance their estimates against your own, you will achieve a more realistic budget. This involvement will also give them greater commitment to meeting the budget.

What your budget should cover

Decide how many budgets you really need. Many small businesses have one overall operating budget which sets out how much money is needed to run the business over the coming period – usually a year. As your business grows, your total operating budget is likely to be made up of several individual budgets such as your marketing or sales budgets.

What your budget will need to include

Projected cash flow -your cash budget projects your future cash position on a month-by-month basis. Budgeting in this way is vital for small businesses as it can pinpoint any difficulties you might be having. It should be reviewed at least monthly.

Costs – typically, your business will have three kinds of costs:

  • fixed costs – items such as rent, salaries and financing costs
  • variable costs – including raw materials and overtime
  • one-off capital costs – purchases of computer equipment or premises, for example

To forecast your costs, it can help to look at last year’s records and contact your suppliers for quotes.

Revenues – sales or revenue forecasts are typically based on a combination of your sales history and how effective you expect your future efforts to be.

Using your sales and expenditure forecasts, you can prepare projected profits for the next 12 months. This will enable you to analyse your margins and other key ratios such as your return on investment.

Use your budget to measure performance

If you base your budget on your business plan, you will be creating a financial action plan. This can serve several useful functions, particularly if you review your budgets regularly as part of your annual planning cycle.

Your budget can serve as:

  • an indicator of the costs and revenues linked to each of your activities
  • a way of providing information and supporting management decisions throughout the year
  • a means of monitoring and controlling your business, particularly if you analyse the differences between your actual and budgeted income

Benchmarking performance

Comparing your budget year on year can be an excellent way of benchmarking your business’ performance – you can compare your projected figures, for example, with previous years to measure your performance.

You can also compare your figures for projected margins and growth with those of other companies in the same sector, or across different parts of your business.

Key performance indicators

To boost your business’ performance you need to understand and monitor the key „drivers” of your business – a driver is something that has a major impact on your business. There are many factors affecting every business’ performance, so it is vital to focus on a handful of these and monitor them carefully.

The three key drivers for most businesses are:

  • sales
  • costs
  • working capital

Any trends towards cash flow problems or falling profitability will show up in these figures when measured against your budgets and forecasts. They can help you spot problems early on if they are calculated on a consistent basis.

Review your budget regularly

To use your budgets effectively, you will need to review and revise them frequently. This is particularly true if your business is growing and you are planning to move into new areas.

Using up to date budgets enables you to be flexible and also lets you manage your cash flow and identify what needs to be achieved in the next budgeting period.

Two main areas to consider

Your actual income – each month compare your actual income with your sales budget, by:

  • analysing the reasons for any shortfall – for example lower sales volumes, flat markets, underperforming products
  • considering the reasons for a particularly high turnover – for example whether your targets were too low
  • comparing the timing of your income with your projections and checking that they fit

Analysing these variations will help you to set future budgets more accurately and also allow you to take action where needed.

Your actual expenditure – regularly review your actual expenditure against your budget. This will help you to predict future costs with better reliability. You should:

  • look at how your fixed costs differed from your budget
  • check that your variable costs were in line with your budget – normally variable costs adjust in line with your sales volume
  • analyse any reasons for changes in the relationship between costs and turnover
  • analyse any differences in the timing of your expenditure, for example by checking suppliers’ payment terms

What’s Your Destination? – How To Plan For Success

What’s Your Destination? - How To Plan For Success

Some people wait for the future to happen. Others create their futures. The former depend on the luck of the draw while the latter cut their own deal.

How do you create your own future? By forming a vision and expressing it through a mission statement. Your dream now glitters on the horizon of the future. But you are standing in the reality of the here and now. How do you close the distance? You can’t dream your way into the future. You must have a plan. You have to know where you want to go and decide how you’re going to get there. The important word is „how.” The word „if” won’t take you there. You must approach your future with a sense of certainty that your dream is achievable.

Hannibal, the great general from ancient Carthage, once asserted: „We will either find a way, or make one.” Be like Hannibal.¨A plan will establish a route to your destination. It will prevent you from drifting aimlessly through life. A good plan will have these characteristics:

  • It will specify actions. By deciding what actions you will take to bring your vision to reality, you take control of events instead of responding to them.
  • It will set a timetable. Without a specific timetable, your plan loses cohesion and never gains momentum. Nothing gets accomplished „sooner or later.” It gets accomplished at a specific time and specific place.
  • It will be flexible. You can’t anticipate every event and circumstance that might have an impact on your future, but you can allow for contingencies.

You formed your vision in the creative right side of your brain. To create a workable plan, you need to bring the logical left side of the brain into the picture. Use your left brain to pass ultimate judgment on the ideas you’ve generated, to set priorities, and to devise workable action plans. Get more information on Jayabet.

You begin the planning process by revisiting your vision and reviewing your mission statement. Assess your present circumstances and measure the gap between where you are and where you want to be. Then follow these steps:

  • Set goals.
  • Set priorities.
  • Develop strategies.

Your present circumstances establish a starting point, but they don’t determine your destination. Where you are very quickly becomes where you’ve been. So keep your eyes focused on the future and where you want to go, instead of on the past and where you’ve been.¨Have a good trip.

6 Easy Ways to Make $1,000 This Weekend

6 Easy Ways to Make $1,000 This Weekend

Forget those „make money fast” spam emails. Whether it’s for shoes or savings, here are the simple and real ways to score extra cash.

When I told my husband last summer that I wanted to throw a big weekend yard sale, he took in the news with his usual stoic resolve. He’s seen my cockamamy moneymaking schemes before: the eBay store that quickly fizzled, the „resellable” cupcake stands from our wedding that are still moldering in the garage, previous yard sales where I mostly chatted with neighbors before lugging our stuff back inside. Expectations were not high. So this time, I really worked it. I advertised ahead of time on Craigslist and in local papers, put a sign in my yard days ahead, and prepriced everything so people wouldn’t have to ask. We made $700 in two days.

“Done right, yard sales can bring in good money,” says Chris Heiska, founder of the website yardsalequeen.com, where I gleaned many of my tips. Another yard-saler, Carrie Grindle, a mom in Oregon, OH, regularly clears $500 a day at her sales. Her strategy: Any time one of her kids outgrows a piece of clothing or tires of a toy, she prices it before tossing it in a box to await the next sale.

“Everyone needs a side hustle,” says Jason White, who started the personal finance blog frugaldad.com as a hobby that now brings in cash from ads. „In this economy, it’s risky to depend on one source of income. And for most of us, it’s the best way to pay down debt.” The secret, White says, „is to cultivate a business around something you’re already good at.” Learn from these five smart-cookie readers, who found ways to make bank without a lot of extra time.

Tonya Bice, 38, Geneva, IL

BIGGEST WEEKEND HAUL: $1,831

When Tonya, a former stock trader turned stay-at-home mom of four, saw a glorious wreath at Pottery Barn eight years ago, she was bummed that it was out of her price range. „I decided if I couldn’t buy it, I’d learn how to make it ” she says. Now the craft project is her full-fledged business, Twoinspireyou, which she started two years ago when she joined etsy.com, the online marketplace for handmade goods. „I had done craft shows before, but I wasn’t great at pitching the products in person,” she says. „Etsy really catapulted me to the next level. Thousands of people saw my work, and it spoke for itself.” During one of her biggest weekends, Tonya made $1,831 after offering repeat customers free shipping. For newbies looking to cash in, Danielle Maveal, Etsy’s manager of seller education, suggests joining one of the site’s „sale teams,” where like-minded crafters can connect online to get advice from successful designers. „They’ll offer tips, such as how to tag your product so it pops up more often when people search on the site. It’s all about making it easier for shoppers to find you. Once they do, it’s like sparks flying.”

Susan Jumonville, 42, Syracuse, UT

BIGGEST WEEKEND HAUL: $1,400

When Susan heard from a neighbor that Once Upon a Child, a child-oriented consignment chain, was opening up in her town, she decided it was time to sell all her daughter’s outgrown but carefully stored clothing and toys. Over three days, she dropped off five SUV-filling loads. Susan credits her success to the state of her goods. „Take the time to wash and iron old clothes,” she suggests. „They should look like things you’d buy yourself.” Susan was surprised when the store rejected brand-name items by Ralph Lauren and Laura Ashley, only to accept stuff from Target But according to longtime consignment-shop owner Kate Holmes, whose site, howtoconsign.com, offers tips for resalers, „Store owners know their customers and what sells.” So before you lug bags and bags of stuff to your neighborhood thrift shop, stop in to see what the place usually stocks, and edit your giveaways to meet their needs.

Nanette Torres-De León, 33, Guaynabo, Puerto Rico

BIGGEST WEEKEND HAUL: $1,300

Nanette first heard about Pure Romance when a friend invited her to one of the company’s Tupperware-style sex-toy parties at the end of 2009. „I immediately knew this was something I wanted to do. As a rep, you have to be confident in yourself and manage people’s inhibitions toward sex. When I talk to a customer, I try to figure out what this person needs but is too mortified to admit,” says Nanette, who works as an actuarial analyst during the week. Her initial box of supplies arrived in January 2010, and over the course of several parties she hosted the weekend before Valentine’s Day, she pocketed $1,300. (Pure Romance spokesperson Genine Fallon says reps usually take home between 30 and 60 percent of their sales.) „It’s never just about making a sale,” says Nanette, who keeps meticulous notes on her customers, including their birthdays and anniversaries. „I call them up and say, ‚Congratulations!’ and they always end up asking, ‚Got anything new?’” If you’re turning red just reading this, visit the Direct Selling Association at directselling411.com for loads of much tamer goods — from cosmetics to kitchenware — that you can sell simply by having a party.

Crystal Senter Brown, 36, Chicopee, MA

BIGGEST WEEKEND HAUL: $600

Crystal, who works for the American Cancer Society during the week, decided to become the marrying kind 10 years ago, when, as a Baptist marrying a Jehovah’s Witness, she had trouble finding a justice of the peace, or JP, to perform her own wedding. „It was harder than I expected to find someone who would honor both of our beliefs,” she says. So afterward she applied for a JP license, which cost $75 and required six letters of recommendation. States need only so many JPs, but Crystal lucked out because a JP in her town was retiring, and local officials accepted her application to take his spot. To date, she’s officiated at nearly 300 weddings, at roughly $150 a pop, including one couple who asked her to climb a mountain with them so they could get hitched at its peak. Brown’s best weekend of back-to-back weddings brought in $600. She’s also built a relationship with a wedding venue in her town, and now, she says, „I’m booked solid for the next five months.”

Christina Auer, 47, Lake Worth, FL

BIGGEST WEEKEND HAUL: $1,500

It’s the mother of all big-fish stories: In 2008, a friend of Christina’s told her about a new and different fantasy sports league, FLW Fantasy Fishing, in which participants guess the winners of 10 weekend fishing tournaments over a season. It’s free to enter, and the prizes, paid by sponsors, are big and plentiful: from $100,000 for winning the whole thing down to a $10 Walmart gift card for 50th place. Christina and her husband, leisure-time anglers who often took their then-13-year-old twin boys fishing, decided to try it. „My husband got into studying the players and looking up their stats. He was online for hours,” says Christina, a makeup artist by day. „I came in third in a tournament without doing any real research! One guy was competing on his home lake and had come in third the year before. I figured he’d really want to win this time, so I picked him to come in first.” The lucky guess netted her $1,500. Christina admits it was a fluke, but adds, „Anybody can do this, so just have fun with it.”

10 Things Rich People Know That You Don’t

10 Things Rich People Know That You Don’t

As a financial adviser, I have occasionally found myself feeling envious of certain clients. Not because of their wealth — but because they were disciplined and determined enough to do all the right things that enabled them to accumulate their wealth and, in many cases, retire early. Despite my expertise, I, like a lot of people, sometimes struggle not to do the wrong things that make being rich, let alone retiring at all, a pipe dream.

Financially responsible and successful people don’t build their wealth by accident — or overnight. Becoming rich takes serious willpower and long-term vision. You have to be able to keep your eye on the prize of financial freedom, be willing to sacrifice your present wants for the sake of your future and develop good habits to win. Here are 10 habits you can start putting into practice now.

As the old saying goes: The early bird catches the worm…or, in this case, gets to retire in style. The sooner you put your money to work, the more time it has to grow. Earning a paycheck, whether you are self-employed or work for a company, means the opportunity to contribute to an IRA, which you should seize ASAP. If you’re fortunate enough to get a job with a company that offers a matching contribution to their retirement plan, you need to make it a priority to enroll in the plan as soon as you are eligible. It can be the difference between retiring early and never retiring.

Think about this: If you invested $10,000 and left it to grow for 40 years, assuming an average return per year of 8%, you would end up with over $217,000. But if you waited 10 years and invested $20,000 — twice as much — you would only end up with just over $200,000.

Whatever your situation might be, saving and investing money today is better than waiting until tomorrow. Start now.

Automate

You can be your own worst enemy when it comes to financial success. It’s all too easy to procrastinate and neglect what needs to be done and, meanwhile, give in to temptation and spend more than you should. It’s the perfect recipe for not becoming rich.

The best way to protect yourself from yourself is to automate your savings. That means setting up recurring transfers on a regular basis from your checking account to your savings and investment accounts (or setting up auto deduction from your paycheck to your employer-sponsored retirement plan). This way, you force yourself to avoid bad money habits and save what you would likely otherwise spend. If you haven’t already, set aside 15 minutes on your calendar now to do it. Not later, now. Your rich future self will thank you. Check out other tips on Cosmodomino.

Maximize contributions

When it comes to retirement account contributions, you’ve probably been told to start small and then try to increase the amount by at least 1% every year until you max out. If you’ve been procrastinating, then yes, even a small starting contribution is better than none. The problem is that small efforts can lead to small results. If you want to be rich, you have to save like you mean it. And that means contributing the max amount allowed from the get-go (and at least as much as your employer will match in your 401(k) plan).

This is especially true if you are starting to save later in life and need to play catch up. You might worry that maxing out your contributions will squeeze your cash flow too tightly, but it is easier to get in the habit of spending less if you don’t have that extra to money to spend in the first place. It’s much harder to increasingly scale back your budget year after year to accommodate for increasing contributions.

Never carry credit card balances

Revolving, high-interest debt is one of the biggest threats to your financial freedom. It can seriously drag you down, costing you thousands in unnecessary fees and interest charges — and prevent you from saving more. If you ever want to be rich, you have to ditch the bad habit of carrying credit card balances, along with the minimum payment mentality.

Instead, you need to learn how to use credit wisely, rather than as a crutch, and commit to paying off your balances in full each month. Smart credit card holders know and practice the tricks to maximize rewards, points, discounts and monthly cash flow without getting in over their head. Of course, living within your means is key to your success.

Live like you’re poor

Have you ever met someone who is unassuming and modest and then were surprised to later learn that they are actually rolling in dough? I had an older client who was stuck in 1983: he wore ugly brown suits and running shoes, drove a beat-up baby blue Volvo station wagon and lived in the same modest house he bought 40 years ago. Turns out, this man was an uber-successful entrepreneur and multimillionaire — and even richer because of his humble habits.

Millionaires are all around us, and many of them are probably not who you would think. This is because they smartly live below their means and save their money rather than showcase it. Of course, it’s easy to live below your means when you have millions, but even if you have far less, getting into the habit of spending minimally now will help you have a lot more later. The trick is adopting a “less is more” mentality and sticking with it, even when your income and net worth increase in the future.

Avoid temptation

The temptation to live large and beyond our means is all around us: TV, magazines, friends, family, colleagues, “the Joneses.” It is nearly impossible to escape the pressure to spend, spend and then spend some more. The problem is that overspending often leads to debt accumulation, undersaving and long-term financial insecurity.

Force yourself to avoid negative financial influences as much as possible. That means going cold turkey: Avoid malls, unsubscribe from all those retail emails and don’t sign up for new ones and say “no” to invitations that you know will cost you.

Then, replace these temptations with things that motivate you.

Be goal-oriented

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Goals inspire us, motivate us and give us purpose. Many of us have common goals, such as paying off debt, buying a house and retiring by a certain age. Maybe you have another goal of starting your own business or buying a second home. Unfortunately, goals are easily overshadowed by the daily stresses of life and all too often forgotten and neglected. When goals are just fleeting thoughts in your mind, they lose their meaning and influence over your behavior. This leads to bad financial habits, and your dream of becoming rich stays just that — a dream.

To make it a reality, stay focused on your goals by committing the time to think about them, prioritize them and assign a target saving amount to each of them if possible. Then you should display your goals in places where you can be reminded on a regular basis, which will keep you accountable and help you stay on track.

Get educated

Successful investors take the time to study key financial concepts, learn the dos and don’ts and stay abreast of current trends. They take advantage of opportunities to strengthen and expand their understanding and expose themselves to financial information on a daily basis. Take a cue from them and subscribe to The Wall Street Journal NWS, +0.00%  , watch CNBC CMCSA, +1.51%  , pick up Fortune TIME, +1.87%  instead of a gossip magazine and follow financial experts on Twitter TWTR, -0.43%  . Become a devoted student of money, and you can master the science of getting rich.

Be careful not to overwhelm yourself, and only follow advice from credible sources, so you don’t fall victim to progress paralysis or unsuitable and potentially dangerous investments.

Diversify your portfolio

Successful investors also know not to put all of their money eggs in one basket—or two baskets, for that matter. They spread their wealth across a variety of investments, from stocks, mutual funds, ETFs and bonds, to real estate, collectibles and startups. A diversified portfolio means that you can potentially take advantage of multiple sources of growth and protect yourself from financial ruin if one of your investments bombs.

An easy way to achieve diversification is to invest in an asset-allocation fund, such as a target-date fund or “life strategy” fund that is based on your risk tolerance. And if you don’t have the means to buy property outright, you can explore investing in real estate mutual funds, ETFs or investment trusts (REITs), which can even offer steady income in some cases. Learn more about crowdfunding, which now gives the average investor the ability to support startup companies. Just be careful not to concentrate your money too heavily in any one investment.

Spend money to make money

Warren Buffett

It’s true that there’s a price to pay for wealth, but unless you’re Warren Buffett, it is not gambling — and losing — on stock picking. Impulse, naiveté, and emotions, particularly greed and fear, can seriously hinder your chances of being rich if you let them. The best way to protect yourself and get a step up on your financial goals is to first invest in a team of financial professionals. This means hiring a qualified and experienced financial adviser, accountant and in complex cases, an estate planner. Yes, working with pros will cost you, and you can still do some DIY investing, but their objectivity, expertise, personalized guidance and ongoing monitoring can be well worth it (and relieve you of the huge burden of figuring it all out on your own).

Make sure that you interview several candidates so you can find pros you trust, feel comfortable with and whose approach is a good fit for your situation. And even if you work with an adviser, make sure that you’re still involved and aware of where your money is going — and why.

The Boring Secret to Getting Rich

The Boring Secret to Getting Rich

It’s boring, but that doesn’t mean it’s easy.

The media likes to paint a certain picture of what it means to be rich — huge mansions, expensive cars, high-powered Wall Street or tech-startup-type jobs. If you buy into that image, being rich may feel like an impossible dream.

But the truth is that most “rich” people live very normal lives. You probably wouldn’t even know they were rich if you saw them because they don’t fit the stereotype. Most rich people are a lot like you and me. They just know a secret that, while incredibly effective, isn’t very sexy.

The secret to getting rich

The secret to getting rich is as powerful as it is unexciting: live below your means.

That’s it. The bigger the difference between what you earn and what you spend, the sooner you’ll find yourself with enough money to do what you want with your life.

Now, I realize that “live below your means” may sound obvious or trite. That doesn’t make it easy. It’s actually much harder than it sounds. Many of the people you see with big houses and fancy cars are up to their eyeballs in debt, which means they’re violating this basic principle. They aren’t rich at all. They’re in debt.

The challenge is recognizing that you can’t amass real wealth if you try to keep up with such people. Real wealth comes from spending less than you earn, again and again, month after month, year after year. It’s a slow and steady process. It isn’t particularly exciting. But it is the surest way to reach your biggest financial goals.

Practical ways to live below your means

So if the key is living below your means, does that mean holding onto your ratty old futon from college rather than buying a comfy couch? That kind of thing is certainly an option. But here are some more practical steps to could consider:

Ditch your big monthly bills. Switch to a low-cost cellphone company. Or get rid of cable. Technology is allowing us to do more for less, and you can take advantage.

Automate saving by transferring money out of checking and into savings at the beginning of every month. This forces you to live on less.

Increase your savings rate by 1% every six months. Set a calendar reminder to help you remember. You’ll hardly notice the difference, and it will really add up over time.

Put 50% of all raises towards savings. You still get to increase your lifestyle, but you do it in a sustainable way.

Redefining rich

Central to all of this is redefining what it means to be rich. If you need a huge home and an expensive car to “feel” rich, then this advice won’t work for you. But if you define affluence as the ability to spend time with friends and family, to travel, to do work you love and to stop worrying about money, then living below your means is all it takes.

Real freedom is the ability to make life choices that make you happy. Frugality puts money in your pocket so you can do just that.

6 Ways to Keep Your Dream Retirement on Track

6 Ways to Keep Your Dream Retirement on Track

Are you a retirement “do-it-yourselfer,” convinced you can plan for your own retirement without paying for a financial adviser? That’s all well and good, but given that money managers work with people in a variety of financial situations, their experiences with the problems that prevent people from retiring can offer insights into how to overcome those challenges.

I spoke to a few experts to find out how they handle that difficult situation: a client who wants to retire but whose financial picture suggests she shouldn’t yet do so.

But sometimes people don’t show up at the adviser’s office until they’re eager to leave the workforce for good. In those cases, she said, advisers sometimes are forced to deliver bad news.

“We just had that situation with an individual and his wife,” Skeans said. “He’s thinking about retiring in two to three years. It was very obvious to me when I looked at his balance sheet, coupled with what I backed out as to their spending, that if they retired immediately they would put themselves into a precarious situation.”

One red flag was that this couple hadn’t accounted for their retirement tax bill. “All of their assets were in tax-deferred accounts,” Skeans said. “Every dollar they spend is going to be a dollar plus the taxes. That means, if you’re trying to support a standard of living after tax, you’re going to have to gross that money up.”

So, one lesson is to remember that the government is going to take a bite out of your retirement account. Here are more lessons financial advisers say they’ve been forced to teach new clients:

  1. Be disciplined about a budget

In 2008, Skeans said, a client who was about 64 years old was laid off. “He decided he wasn’t going to look for other work,” she said. “We ran the projection. Obviously, at that point in time the portfolios were down because of the market and I was deeply concerned.

“Fortunately the guy was a finance guy, a controller for a small company. He heard us loud and clear that the biggest thing he and his wife needed to do was stay within a budget,” she said.

At the time, Skeans talked with the couple about how to stabilize their finances through reduced spending. “He was very adamant he did not want to go back to work,” she said. “We were able to help him and his wife structure a budget and they have stuck to it and continue to do so.”

And now? “Eight years later, their portfolio is just slightly below where it was eight years ago,” Skeans said.

  1. Take a practice run

People sometimes underestimate what they’ll spend in retirement, especially in the early years when they suddenly find themselves with plenty of free time and energy, said Tripp Yates, a wealth strategist at Waddell & Associates in Memphis, Tenn.

“I’ve seen it where people do a budget for retirement and they tell me, ‘OK, we’ve done all the numbers and we can live off $50,000 a year,’” Yates said. Too often, that’s a bare-bones budget that doesn’t take into account travel and other activities. “The first five to 10 years of retirement, people are probably going to spend more rather than less, because they’re in fairly good health and want to enjoy that time,” he said.

One way to get a good handle on your spending is to test-run your retirement budget, he said. In one recent conversation with a couple, he told them: “Maybe one spouse who really wants to retire can. The other spouse continues working and maybe we take six months to a year and try to live on that budget, practice, see if it’s actually doable before both husband and wife call it retirement,” Yates said.

  1. Don’t focus on the market

Given the media’s attention on the market’s every move, it’s no surprise that people seeking help from an adviser often fret about what happen next. That’s the wrong focus, said Robert Klein, president of the Retirement Income Center in Newport Beach, Calif. (Klein is also a writer for MarketWatch’s RetireMentor section.)

“People read so much in the media about performance and that’s naturally their focus until you show them on paper it’s all about your goals and planning for those and controlling what you can control,” he said. While investors must make sure their investments are diversified, there’s no way of knowing when the market might take another steep plunge.

“You have to control what you can control and develop prudent strategies that are going to work no matter what the market does,” Klein said.

  1. Be clear about your goals

Retirement planning is about more than “just having X dollars in income,” Klein said. Figure out what you want retirement to look like, and then work from that. “It’s about a lifestyle in retirement. What are they going to be doing day-to-day in retirement?” he said. “Then you can focus on the finances: ‘What is it going to take so I can do that?’”

For some people, a hard look at a retirement lifestyle leads them to choose to work longer, Klein said. “A lot of people are better off working longer even if they can afford to retire. They just don’t have the hobbies. It’s a whole different routine when you retire,” he said. “Phased retirement is really good for a lot of those people, so they can take baby steps into retirement,” he added.

  1. Use software that provides a picture

If you’re planning your own retirement, are you using financial software that will create projections as a chart? “Most people don’t communicate with numbers, they communicate pictorially,” said Kimberly Foss, founder of Empyrion Wealth Management Inc. in Roseville, Calif.

Foss said she shows clients a simple chart depicting how long their money is likely to last if they retire now. In some cases, she might produce a second chart that shows how spending less might make their outlook improve, and then talk with the client about options, such as downsizing the house or refinancing, working longer or delaying the purchase of a new car.

For one couple, seeing those pictures and having that discussion made all the difference, Foss said. They wanted to spend the same amount of money in retirement that they’d been spending while they worked, but the size of their savings account didn’t support that goal. So, they switched from the country club to a lower-cost health club, refinanced into a cheaper mortgage and started cooking at home more rather than eating out. Check out other tips and tricks on Neotangkas.

Reducing those costs and others preserved their portfolio for the long haul. Said Foss: “It created the income so that they could retire.”

  1. Get real with your adult children

In some cases, people retire but unforeseen expenses put their financial security at risk. Skeans said one client unexpectedly found herself supporting her adult daughter and grandson, who live in her home, even as she herself recently entered a care facility.

“She’s taken out enormous amounts of money to help her daughter and grandson,” Skeans said. “She’s supporting their household and she’s paying the cost of assisted living. I said, ‘If you continue at this pace, this portfolio is going to be gone in five years.’”

Skeans said if the client sells her home—that is, asks her daughter to find her own place—that money would bolster her finances. “She should be able to make it and still leave something to this daughter in the end,” Skeans said. “She said, ‘I’m going to talk to my daughter about that.’”

The Single Most Effective Way to Get Rich

The Single Most Effective Way to Get Rich

Contrary to popular belief, you don’t have to be an expert about personal finance to get rich.

You don’t need to use fancy economic jargon or know this year’s „hottest stock.” You don’t have to come from an affluent family, and you don’t even have to earn a massive paycheck.

For most people, it all boils down to one thing: investing.

“On average, millionaires invest 20% of their household income each year. Their wealth isn’t measured by the amount they make each year, but by how they’ve saved and invested over time,” writes Ramit Sethi in his New York Times bestseller, „I Will Teach You To Be Rich.”

“In other words, a project manager could earn $50,000 per year and be richer than a doctor earning $250,000 per year — if the project manager has a higher net worth by saving and investing more over time.”

Sethi gives an example of the power of investing just $10 per week:

After five years (assuming an average 8% return), you would have $3,295, and after 10 years, you would have $8,136. And that comes from simply setting aside a little over a dollar a day.

Putting away $50 a week would result in $16,473 after five years and $40,678 after 10 years. Imagine how much money would accumulate if you set aside a bit more each week, and did that for several years.

The earlier you start, the better.

This chart from JP Morgan Asset Management, which shows the power of taking advantage of compound interest from an early age, explains why it’s so important to get started now and invest consistently, even if you think you don’t have enough money to make a difference:

You don’t need to be rich to invest, yet so many of us fail to get started managing our money because we’re intimidated or don’t know where to start. Fear of losing money is also a common concern: „That’s fair,” writes Sethi, „Especially after market losses during the global financial crisis, but you need to take a long-term view. Despite wild rides in the stock market, with a long term perspective, the best thing you can do is start investing early.”

Investing is not as complicated or daunting as we make it out to be. The simplest starting point is to invest in your employer’s 401(k) plan; make sure to take full advantage of your company’s 401(k) match if they offer one.

Next, consider contributing money towards a Roth IRA or traditional IRA, individual retirement accounts with different contribution limits and tax structures (which one you can use depends on your income). If you still have money left over and are hungry to continue investing, you can research low-cost index funds, which Warren Buffett recommends, and look into the online investment platforms known as „robo-advisers.”