5 Ways to Be Incredibly Shrewd With Your Finances
Kristina Pilmer is a Wealth Tutor, one of the first in Australia. She coaches entrepreneurs, families and individuals to effectively manage their finances and teach them how to reset their mindset to build wealth.
As an entrepreneur, Pilmer has been through a journey herself. At one point, she was $30k in debt and learnt key strategies that turned her business and life around. Pilmer repaid her debts within 24 months, traveled around Africa for a year and went on to build investments worth $1.5 million.
Pilmer knows better than anybody the importance of knowing your numbers. When Kelsey Humphreys from ‘The Pursuit’ interviewed Anthony Robbins, he said that entrepreneurs are artists and 96% of businesses disappear within ten years.
Robbins says that entrepreneurs sabotage their business in 3 ways:
- A lack of business knowledge
- No understanding of financials
- Unable to manage their psychology
Pilmer shares these 5 key strategies to help your become a shrewd CFO.
1. Cash Flow Is King
The biggest mistake entrepreneurs make is overlooking cash flow for long-term profitability.
Pilmer tells us that 95% of businesses fail within the first 1 to 3 years, 70% of those businesses are profitable. The problem therein lies with the fact they fail to have the cash flow to maintain the business.
As an entrepreneur, it is crucial to understand lag time. Lag time is the time between paying your operating expenses and receipt of income. As CFO, your role is to ensure that you have sufficient cash flow to cover your operating expenses.
Monitoring your cash flow daily, trains you to be laser focused and helps reset your mindset.
- Check your accounts daily, check your statements and monitor automatic payments.
- Keep track of your exact numbers to the cent in your business and personal life. Record all of your income and expenses.
2. Focal Points
Entrepreneurs are blessed with a million one great ideas and the danger is wanting to implement everything at once. Overloading yourself is a sure-fire step to failure.
Master your number one key strength before moving on. Ensure it’s operating smoothly before diverting your attention elsewhere.
Pilmer suggests that entrepreneurs have no more than 3 focal points daily:
- Business Development i.e. marketing, client meetings, staff development
- Solving problems i.e. clients, systems
3. Plan For The Unexpected
Life doesn’t always go to plan, adhering to a budget may be simple when times are good however there will always be unexpected events that occur which may completely impede your budget, business and life.
Pilmer says that everyone can plan for the unexpected, the sad fact is the majority of people don’t. To counter this, set up a separate account to cover life’s unexpected events. This sole purpose of this account is to cover damage to a body –
- Physical body i.e. health issues for yourself, partner or child
- Your home
- Business or personal vehicles
In terms of how much to set aside it depends on variables such as: how many people you are responsible for, the number of investments you have, and vehicles you possess.
Pilmer knows all too well what can happen unexpectedly in one year. Fortunately, she had set aside $10k as a buffer. In one year she spent $7k to cover her health expenses.
4. Know What Is Yours
Too many people mistakenly believe the bank’s money is their money to spend.
Firstly, realize it is not your money to spend. Understand that your mortgage, credit cards and personal or business loans are not your money. That is the amount you owe the bank.
Why do you think that banks make sure your available funds is in big bold writing when you log onto your online banking credit accounts?
Look at the money you owe in a credit account rather than your available funds.
Another example is government incentives for businesses at the beginning of the financial year. For example: Businesses can spend $20K on their business and it would be an instant tax write off. So people get excited and get themselves into more debt by focusing on the instant gratification.
To create the wealth mindset, adopt the strategies of those who have made between $1 to 5 million, they have:
- A steady and stable approach, they won’t spend money that is allocated elsewhere.
- Build your discretionary funds for wealth creation.
- Eliminate instant gratification and focus on delayed gratification.
- Know that a long-term view gains far outweighs short-term.
- Fancy cars and clothes are bought on the condition that excess funds are available. Above and beyond what is required in terms of cash flow and for the future.
5. What Makes You Happy?
Within society, people constantly spend money on what society believes they should spend it on such as the latest iPad, iPhone, smart TV, fancy car and designer clothes.
As we know, materialistic items give you excitement for an exceptionally short period of time. Then you are back to where you started, searching for the next consumer item to make you feel good.
Unfortunately, this mindset is what keeps you poor.
Pilmer suggests you work out what gives you the highest emotional return in terms of experiences or items to purchase.
Decide what makes you deliriously happy, what gives you pure joy that lasts for days if not months or years?
Knowing your numbers is similar to learning a different language. Once you learn to fully appreciate and understand your numbers, it is at this time that you create your own story behind the numbers.
Whether your financial goal is to help your children go to university, retire early, save or change someone else’s life or purchase your own home. Implement these 5 steps to create your own story.