5 Principles for Financial Success

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5 Principles for Financial Success
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• Over the past 15 years we have worked with
  businesses from a huge range of industries. The
  decision makers within these businesses also come
  from a vast background of financial experience
  and literacy, but regardless of their background
  or industry, there are some common factors that
  appear to be shared by all successful businesses.
  For the purpose of this article, I am defining a
  successful business as one where the business
  owner is not financially stressed, so they can
  focus all of their attention into building the
  best possible business.

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• Principle 1 Spend Less Than You Earn
• Whilst it sounds pretty straight forward, this
  can become a bit more complicated in reality when
  payment terms vary between your customers and
  suppliers. Depending on your industry this
  varies. In most hospitality, your suppliers
  require payment up front and youll also receive
  immediate payment from your patrons. In retail,
  this requires good bookkeeping to track the
  actual cost of your purchases and assigning them
  to each sale as it is made down the track.

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• You should be striving for this over any period
  of time as long as or longer than a single pay
  period. It should be true over a pay period, a
  month, a quarter, a year, a decade no matter
  how you slice it, you should be spending less
  than youre earning.

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• Now, this is tricky to actually pull off and
  almost no one is perfect at it, but I will say
  that whenever you fall short on that principle,
  theres almost always a financial problem lurking
  there that you can solve. It might be a problem
  of inadequate planning or a problem of too much
  impulsive spending or a problem of inadequate
  emergency preparation. Even if you do come across
  a problem, the more you do this, the better you
  will become at planning.

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• Principle 2 Paying Down Debt is Never a Bad
  Idea
• It is never a mistake to pay off debt. If you are
  unsure as to your next financial move, paying off
  debt is always at least a good move. It may or
  may not be the absolute best thing you can do,
  but its always a worthwhile choice.

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• When you pay off debt, youre reducing the future
  interest youll have to pay on that debt. This
  has a snowball effect on improving your cashflow
  as it reduces your monthly obligations. When a
  debt is gone, you no longer have that bill coming
  in the mail and you have the freedom that comes
  with less money that you have to spend each
  month. This gives you options with that money, a
  power of choice that you didnt have before.

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• Principle 3 Try To Avoid New Debt
• While paying off a debt is always a good thing,
  actually taking on a debt is often not a good
  thing. The reasons for this mirror the reasoning
  above.
• First of all, it means that youre saddling
  yourself with a new required regular bill. This
  means that even more of your income is tied up in
  required spending than before, which means that a
  higher level of income is required from you just
  to keep the bills paid. If you want to be tied to
  your job, the best way to do it is by pulling out
  the ropes of debt. Your lifes flexibility is
  reduced.

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• Second, almost all debts come with interest,
  which means that youre going to be paying back
  more money than you borrowed. Thats not a good
  financial choice, as over the long run it comes
  down to overpaying for something.

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• Principle 4 Prepare Early for Future Expenses
• If your business is making a profit, then youll
  be up for income taxes in the not too distant
  future. If you can find the discipline to put
  away some funds early on, you can earn some
  interest and it wont even be a stress down the
  track when its time to pay.
• You know youre going to have to replace that car
  in a few years. Start saving for it now so that
  you can just pay cash for it rather than taking
  on a car loan.

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• You know youre going to pay for at least a part
  of your childrens college education. Start
  saving for it now so that you can just pay cash
  for some portion of it rather than taking out on
  a loan.
• You know youre going to need to pay for
  insurance at some point, property taxes at some
  point, and so on. Again, save for those things
  now so that theyre not even a slight concern
  later on.

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• Principle 5 Help Your Future Self
• Many adults, particularly younger adults but a
  surprising number of older adults, assume that
  theyll just take care of some issue down the
  road instead of worrying about it now. My future
  self will handle retirement savings. My future
  self will handle that car repair. My future
  self will actually do some professional
  development.

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• Heres the truth. Your future self is going to
  be you. Just older. Theyre going to have less
  energy than you do. Theyre likely to have
  experienced some kind of misfortune. Theyre
  going to look back at the most wasteful moves in
  their life with regret.
• Right now, your life is quite likely in a better
  state than it will be for your future self.
  Rather than adding even more burdens to your
  already tired future shoulders, choose to
  shoulder some of those burdens now when youre
  young and can handle it.

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• Principle 6 Get a Good Bookkeeper
• (I know the title says 5) but none of the 5
  principles are possible without a good bookkeeper
  who keeps you informed every step of the way. A
  good bookkeeper gives you the confidence to have
  a pulse of your business. They will help you make
  better financial decisions wether it is prepare
  provisions or debt related decisions or on how to
  manage your expenses.

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• A good bookkeeper is difference between financial
  success and failure!
• A business mentor once told me that if you have a
  good bookkeeper, then your business will be able
  to weather anything that it is faced with.
• This counts in personal finances as well. I
  strongly encourage business leaders to get a good
  bookkeeper.