FUTUREPROOF YOUR FINANCES with Lia Loewenthal
Hello, today’s focus is on future-proofing your finances, particularly for small business owners like most of you here. As business owners, managing both personal and business finances can sometimes feel like a daunting task, especially when you lack sufficient information and support. The goal of this session is to introduce you to tools and strategies that can boost your confidence in handling your finances.
We all have unique money stories shaped by our backgrounds and experiences, leading to different views on money and how we manage it. Currently, we face an unprecedented level of financial uncertainty with personal and business debts, increased spending patterns, inflation, and the emergence of cryptocurrencies.
The aim of this master class is to address your specific needs as small business owners. Whether you’re trying to overcome debts, looking to invest in properties, or starting your investment journey for both personal and business finance, we will explore practical solutions to help you gain control over your financial situation.
THE FIVE FOUNDATIONS OF FINANCIAL INDEPENDENCE
Let’s start with the first foundation of financial independence: debt. Debt can be a scary and emotional topic, and many of us have experienced various feelings like shame, guilt, or fear around it. Personally, I understand this firsthand, as I accumulated a significant credit card debt of £27,000 when I started my entrepreneurial journey 15 years ago. It took me a decade to pay it off, so I can empathize with the challenges of being in debt.
During the pandemic, I had to pivot my business, and I faced the need to take out a mini loan, which triggered old worries about debt. It’s essential to recognize that you’re not alone in dealing with debt. In 2020, 63% of UK adults had personal debt, excluding mortgages.
THE CRUCIAL DIFFERENCE BETWEEN GOOD AND BAD DEBT
Now, let’s explore the concept of good and bad debt. Good debt is generally considered an investment that will leave you better off in the long run and can be paid back realistically. On the other hand, bad debt is debt that is not affordable to repay, lacks a realistic plan for repayment, and doesn’t offer future investment opportunities.
Remember that it’s okay not to be debt-free immediately. The goal is to have a plan and seek support if needed. Take some time to reflect on your feelings about debt and write down an action step to address it.
Moving on, the next foundation is spending. Spending can feel out of control, especially for me, as I tend to avoid looking at my bank account when I know I’ve spent too much. As business owners, irregular income can make budgeting challenging. To start, consider creating a personal survival budget—identifying the essential expenses to cover your bills, savings goals, insurance, childcare fees, and other necessities.
It’s crucial to understand the close connection between your personal and business finances as a small business owner. Mastering personal finances will influence your business decisions. So, become familiar with your budget and try to control spending in alignment with your goals.
Let’s move on to the next foundation: investing. While many people might think of investing as complicated or risky, it’s essential for building wealth over time.
Investing doesn’t solely mean stocks and shares; it can encompass various areas, such as business, health, cryptocurrency, or property. Educate yourself, join groups, and have conversations to learn about different investment options. Understand the risks and be consistent in your investment approach. Invest in areas you’re passionate about to sustain your interest and commitment. Consider exploring different investment options to make your money work for you.
The fourth foundation is earning. As a business owner, your income might fluctuate, making it vital to focus on increasing your earning potential. Explore ways to grow your business, enhance your skills, or diversify your income streams.
Lastly, we’ll discuss protecting, which involves safeguarding yourself, your business, and your assets through insurance and other risk management strategies. Identify potential risks and take steps to protect what you’ve worked hard to build.
Throughout this journey, remember that it’s okay to seek support and guidance from financial professionals or trusted mentors. Let’s use today’s session to gain clarity on these foundations and take actionable steps towards financial independence.
HOW TO ACHIEVE GUILT-FREE SPENDING
As a financial coach, I believe that understanding your costs, both in your business and personal life, is essential. Allocating money for guilt-free spending can also be beneficial to avoid feeling guilty about your expenses. For example, one of my clients sets aside a fixed amount each month for her Amazon spending, ensuring guilt-free enjoyment.
STRATEGIZING BUSINESS SPENDING: ALLOCATION AND SHORT-TERM GOALS
Now, let’s consider what areas you’d like to allocate more money to within your business. Reflect on the aspects where additional funding could be helpful. Take a moment to jot down your action step for spending, focusing on short-term goals. How can you allocate your spending to achieve those goals?
MASTERING SAVINGS: PERSONAL AND BUSINESS PERSPECTIVES
Saving wasn’t a priority for me when I started my business, and it became evident during the pandemic that an emergency fund was crucial. Personal savings can be divided into four categories: a freedom fund for emergencies, short-term savings for immediate goals, long-term savings, and lifetime savings or pensions.
Similarly, for business savings, having an emergency fund is essential to ensure cash flow during challenging times. Consider setting aside money for short and long-term business goals and prepare for taxes. When determining the percentages for saving, it varies depending on your needs, so find a plan that works for you and start small.
HOW TO BUILD YOUR EMERGENCY FUND
Building an emergency fund is a great initial goal for savings. Calculate your monthly expenses for both personal and business needs, decide on your desired risk threshold (e.g., 3, 6, or 12 months of security), and then determine your savings goal. Aim to consistently save until you reach that amount and maintain it.
Remember, having specific savings goals can help you stay motivated and achieve them. Savings should be honored and cherished as it represents the part of your income that you retain. You don’t have to save large amounts initially; starting small and being consistent can yield substantial results over time.
DEFINING INCOME: A REFLECTION ON WORTH AND GOALS
Now, let’s talk about income. The concept of worth can be tied to various factors, such as net worth, achievements, success in business, social media following, qualifications, or how you compare to others. As a financial coach, I won’t tell you how much you should strive to earn; it’s about finding the income that meets your needs and goals.
Reflect on how you measure your self-worth and what factors influence your perception. There’s no right or wrong answer, and it’s essential to recognize and appreciate your value regardless of external factors. Remember that your income should align with your goals and needs, and there’s no fixed formula for determining worth. Focus on building a fulfilling business that sustains you and aligns with your values.
SHUTTING DOWN IMPOSTER SYNDROME
Imposter syndrome can hugely affect our confidence in setting prices for our products, services, or advice. We may question our qualifications or feel the need to have specific credentials. It’s essential to strike a balance between formal qualifications and life experience to determine our worth. Don’t undersell yourself because you feel you’re not qualified. Chances are, your life experience is worth much more than you think!
HOW TO DISTINGUISH NEED FROM WANTS WHEN CRAFTING INCOME GOALS
Now, let’s consider needs versus wants when it comes to our income. Understanding our necessary earnings to cover expenses is crucial. Then, we can explore what additional income we desire to achieve our desired lifestyle and business goals.
STRIKING THE RIGHT PRICE: FINDING YOUR PRICING SWEET SPOT
Next, let’s talk about finding our pricing sweet spot. This applies to service-based industries but can also be adapted for products. Determine the amount you want to make each month and how much you want to work. Divide these to find your ideal rate. Remember, your worth is determined by what you’re willing to accept, not what others say they’ll pay you. Be brave and comfortable with your pricing.
BALANCING MOTIVATION AND DISCIPLINE TO CREATE SUSTAINABLE HABITS
We mistakenly think we always need to be motivated, but the key is to balance motivation and discipline. When motivation wanes, discipline steps in to help us stay on track. Consistently doing small tasks over time is more effective than cramming everything in at once. For instance, instead of waiting until the last minute to deal with taxes, we can develop healthy financial habits by reviewing our finances monthly, leading to better long-term decisions.
I want your financial journey to continue beyond this session. You can follow us on Instagram at get comfy with money for more insights. We also have a monthly community group session called Finance and Chill, where we tackle our finances together. It’s a great way to stay accountable and get tasks done. If you have questions or need support, you can join the group or book one-on-one sessions with me for a business alignment audit. Additionally, there’s a mentoring program with available slots.
I hope you’ve found this session enjoyable and beneficial.