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How was your 2020? Have you, like many small business owners, used some pockets of time between Christmas and the start of the New Year, to review 2020 and attempt to plan 2021? Did financial planning form part of that process?
The chances are that if you look at your plan from January 2020 and compare it to what your situation is now, the difference between the two would be immense.
The truth is there will ALWAYS be a difference between the plan and what happens because there are ALWAYS unforeseen challenges and opportunities. We cannot control what the outside world will throw at us or what other people will do but we do have some control over our destination and direction, and we always have control over our actions.
Many business owners I meet are absolutely great at what they do – they are great at building websites, creating fantastic portraits, helping others lead more healthy lifestyles, making sense of and using technology safely, and a myriad of other things. What they don’t normally like to think is about money. When money is mentioned they stiffen up and all the excitement from them is gone. As if money was something dirty, scary, something to avoid thinking about. I’ve heard the phrase ‘I’ll leave that to my accountant’ many times.
I like to think of money as being a different way to communicate our plans, to measure how we’re doing, to put value on what is important to us. It’s not the only way, just one of many. Money is simply a language and we can all learn a new language.
If you grew up speaking English and someone suddenly talked to you in Spanish you wouldn’t understand and may even get scared to try because it all sounds so alien. It doesn’t mean you’re ‘bad at Spanish’, simply that you’ve never heard Spanish before. This means with just a little bit of effort you can always learn. You don’t have to become fluent to be able to get by.
It’s the same with money, we don’t have to become financial advisors or chartered accountants to be able to ‘speak money’. And as with languages, it’s good to start small and to start early.
Are you the type of person who enrols in a course and buys all the books or are you one that will ‘jump in’ and work it out as you go along? It’s important to know your learning style so that you get the best results with minimal effort. The 80/20 principle comes to mind. I’m a big fan of simple and easy when it comes to money, I believe there’s no point in collecting huge amounts of data unless you are going to use it (or if it’s required for legal reasons).
Are you ready to get to grips with your finances in 2021? Both business and personal? What can you do in January that will make managing the financial side of your business and life better?
Contact me on firstname.lastname@example.org or visit www.vsfinancialcoaching.co.uk to find out more and book the complimentary session.
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What is your relationship with money? If you are like most people, you might say – I don’t have a relationship with money, why would I even want to have a relationship with money? I challenge you to re-consider.
We have a relationship with everything that affects our lives, whether it’s positive or negative. You may not like your boss but you certainly have a relationship with them and can to a certain extent control the quality of it.
Looking at it from this point of view money falls squarely into this category. Unless we live in a non-monetary community such as a tribe in the middle of a jungle, money is needed in order for us to live our lives. The better we can make that relationship work the better our lives will be.
Does it surprise you that one of the most common feelings we have about money are shame and guilt? Either shame of not having enough (translated into ‘I’m not enough’) or guilt of having too much (which is usually translated into ‘I don’t deserve all this money’). Most of us are unaware of these thoughts and subconsciously demonstrate them by overspending or being too frugal and not enjoying life.
Where do you sit? Are you friends with money or is money causing you continuous stress, anxiety and guilt?
There are many books on the subject and for some people reading an article online or watching a video will be enough. But for the majority of us we need an extra human factor – a real person to share our worries with, someone to guide us and understand our own unique situation. Here is where a financial coach comes in.
Financial coaches are not investment or pension advisers and won’t try to sell you anything. In fact, they can’t as they are not regulated. This means they have no stake in where you choose to spend or invest your money, so you can be confident that they have only your wellbeing in mind.
We all have many beliefs about money, some of which are not helpful. These would have been mostly acquired from our own families, then reinforced up by random events throughout our lives. We hardly ever question those beliefs and mistake them for facts. The most common are ‘I’m not good with money’, ‘there is never enough money’, ‘money is the greatest evil’. Where do you sit? How would it feel if instead you believed ‘I’m in control of my money’, ‘there is enough money for what I need and want’ or ‘money serves me?
Contact me either by vising vsfinancialcoaching.co.uk or via my FB page and book a free chat with me to see how I can help you improve your relationship with money.
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In Part 1 I briefly touched on the importance of having more than one source of income to increase security, this not necessarily being a passive income. Below are a few options you might want to look at.
Having more than one different job at a time.
In the present days of flexible employment and fluid careers (rather than the strict career ladder of the time of our parents) it is much easier to pursue multiple interests and passions.
You might love your job as a marketing executive but are also very fond of animals and love being outside. Could you work as a marketeer for 4 days a week and a dog walker for one?
What passions / hobbies do you have that could give you some income? You can start small and build up as you go. Starting in your spare time is a good way to 'test the waters', before you decide to ask for a 4-day week.
Pursuing more than one career over a course of a lifetime
Re-training and acquiring new skills is usually involved, which in turn makes a person more resilient to a downturn in a specific industry. An engineer becoming a teacher perhaps? I know of an IT consultant who decided a few years ago to pursue his passion for plants and opened a garden design business.
There are plenty of jobs that are obviously highly seasonal and some that are seasonal but it’s not obvious at first sight.
Traditionally when people are talking about seasonal work they have in mind agriculture in the summer, retail and hospitality in the run up to Christmas or holiday reps on the beach in the summer and on the slopes in the winter.
What are the not-so-obvious options? Is your job affected by seasonality? Is there a chance to negotiate with your employer to work let’s say 9 months a year in your ‘main’ job and then do something else for the other 3 months? Or if your finances are structured that way, take a time off for the 3 months?
Pension (or other passive income) topped up with part time work.
More and more people these days do not want to retire fully when the time comes but equally they don’t want to work full time either – for many this will be around the age 67. Is there a half-way house?
Can we access our pensions before the state retiring age, at a reduced rate and top it up with part time work? We’ll have time to enjoy ourselves while still healthy and keep contributing by working. This arrangement is good for our mental health too, especially if we enjoy what we do – it gives us a sense of usefulness, helps keep up our social connections and gives a structure to our week
Why do this?
The advantages are numerous:
What about the drawbacks?
A portfolio career is not for everyone. There are many points that need to be considered before you make big leaps:
Now that you’ve spent more time at home, away from a normal routine, are you thinking of modifying the way you earn money? There are as many possible combinations as there are people. The earlier you start thinking about this the more options you will have. I’m here to help you do just that. Contact me on email@example.com to book a free 30 min exploratory call.
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Personal finances – are you better or worse off right now?
It is safe to say that there are very few people whose finances have not been affected by COVID-19.
People that carried on working from home or where the employer topped up government payments may find themselves financially better off - by not going out, not commuting, not buying lunches...
On the other hand those that lost their jobs or who’s businesses were forced to shut are encountering losses and are likely to be worried about the future.
What about you? Where do you fall? Is this the first time in your life when you are saving money? Paying off the credit card bill? Or have your finances been squeezed to the point when you can’t sleep at night?... Do you even know?
Then there is another angle to explore. Some people (re)discovered that they like spending more time with their families, don’t miss the commute and are wondering if there is something they could do to bring more balance to their lives. Does this ring true with you too? How can you restructure your finances (income) so that you don’t have to go back to the office full time? And how to make your income more safe?
Regardless of which camp you’re in, the dependency on the one source of income may have taken you by surprise. What can be done now to improve the situation and make you more resilient in future?
More than one source.
When it comes to income protection, the established wisdom is diversification. This may sound complicated but it simply means ‘not all eggs in one basket’. Normally this term is used when talking about passive, investment income - the type that most of us aim for as we get older and move towards retirement. It will include income from pensions, royalties, rental property, stocks & shares. The term ‘passive’ describes how it works – you do nothing and still get paid.
However….. as a society we can’t live solely off passive income all at the same time. If we tried, nothing would be produced and nothing would be done. We’ll have money but nothing to buy and no-one to sell it to us. There has to be another way.
How about having a variety of ‘active’ income – income from more than one employment, from a hobby that you have turned into a small earner, from regular de-cluttering? With bits of passive income thrown in. What would your life look like?
As with many walks of life, the answer to the best combination will vary from one person to another. Someone’s ideal situation is another person’s hell. I will explore the various mixes of incomes in Part 2 of the series. In the meantime, if you have any questions or comments, drop me a line on firstname.lastname@example.org
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The term Financial Wellbeing has recently appeared in many articles and blogs, especially now, when our world has been turned upside down. There are very few people out there whose finances have not been affected by recent events one way or another.
What exactly is Financial Wellbeing?
I believe financial wellbeing is an integral part of overall wellbeing, as important as health and social connections. I expect some readers will immediately think: ‘No-way, health is much more important than money’. Please let me explain. When I’m talking about Financial Wellbeing I’m not talking about how much or little people have. Financial Wellbeing is more than that. It means security, it means control, it means we are at peace with the concept of money.
So yes, Financial Wellbeing is as important as health because without at least a basic level of financial wellbeing we would not remain healthy for long. The stress that the lack of financial security brings will sooner or later take its toll on our health and overall wellbeing.
There are a few facets of financial wellbeing, all interlinked with each other. These are: Assets (things that you own), Income (what monies you receive each month), Spending (self-explanatory) and Debt (what you owe to someone else). All of these will impact on how secure you feel should something negative and unexpected happen.
Level of your financial wellbeing.
People often mistake Financial Wellbeing with being ‘rich’. To me the balance between income and spending and the alignment of both to life’s priorities is much more important than a specific size of number on a bank statement. Some ‘rich’ people may have a very low level of Financial Wellbeing because they have an unhealthy relationship with money or their wealth is all tied up in one place with a very high risk of losing it all. On the other hand, some ‘poor’ people have a high level of Financial Wellbeing because they have enough money for the things they truly want out of life. Their income comes from various sources and their financial security is increased by the strength of their social connections.
So how do we achieve the right level of Financial Wellbeing? That, as always depends, on what we want out of life and how risk averse we are. Where do you sit at the moment? Where would you be if something unexpected happened? How long could you keep your current lifestyle going (or indeed a reduced one) if you suddenly lost your income?
First Step - How much do you already have?
It is always good to know where you stand. Try the following exercise, it’s very simple but you may be surprised by the outcome:
Take a piece of paper and list down the items that you own. These will be items of high value and will include: your house, car, any investments (shares, bonds, property), pensions and monies in savings accounts. Try to be prudent and not overestimate the value of your home or the car. The aim of this exercise it to get a realistic picture.
Then list anything you owe to anyone else – mortgage, car loan, consumer loans, credit card balances, anything you owe to friends and family. You should include the total sums owed, not what you pay each month.
Subtract the debts from what you own and you will end up with a figure that represents your net worth. Many people, after doing this exercise, realise that they are better off than they thought but may also find that their 'wealth' is inaccessible.
What about the day to day?
Now compare how much you receive each month with how much you spend. If self-employed with large seasonal differences in income you could look at yearly sums.
On a sheet of paper list all income from all sources. Include your salary, self-employed income, dividends and interest from your investments, rental income if you own a property and any other regular income.
Have a look at your last bank and credit card statements and list how much is leaving your accounts – mortgage, loan repayments, everything. At this point you are interested in the total rather than any categories. Understanding spending patterns and ways to reduce spending/increase income are areas deserving separate articles.
Once you know the ins and outs, what is the final sum? Are you living within your means and enjoying the things you spend your money on? Or are you accumulating debt and relying on the occasional windfall from somewhere to keep out of trouble? Just talking to your partner or friends may be sufficient to take the right action to bring balance to your finances but to some extent there is still a taboo here in the UK when talking about money. This is where a Financial Planner or a Financial Coach may come in handy?
There is another very important question to ask and that is how secure is your income. The more sources of income you have as a family the more resilient you are should something go wrong with any of them and the more financial wellbeing you will feel. The old ‘eggs in one basket’ proverb comes to mind.
Your emotions and your relationship with money – an integral part of financial wellbeing
When you think about money, what emotions does it produce? Do you start sweating with stress by just thinking about money? Is there a sigh of relief at the end of the month when you get paid? Or is everything fine?
If the thought of money is producing a lot of stress, I strongly suggest you speak to someone who can help, such as a counsellor or a financial coach or if you’re in debt a Citizens Advice Bureau is a good starting point. There is a clear link between debt and mental health so please don’t suffer in silence.
Where are you on the financial wellbeing scale? Let me know your thoughts at email@example.com
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The dilemma between time & money is as old as society. Both are in essence two sides of the same coin. We exchange time for money by going to work/running our businesses, and we exchange money for time by buying a washing machine for example.
Both time and money are very similar on many levels. Even the language we use when talking about them is similar. We talk about spending, saving, wasting and less often investing time & money.
What we do with both time and money should always reflect our values, beliefs and desires. If it does we tend to be happy, if it doesn’t it leaves us with a feeling of ‘something’s missing’.
It’s all in the balance
We all want to strike a balance between time and money. We may not realise this because the importance of the balance tends to come to life precisely when that balance missing. Plenty of time and not enough money for our basic needs, we get into debt and trouble. Plenty of money and no time to enjoy it, we end up miserable.
The power of choice
People often tell me: ‘But I can’t work less, I have a big mortgage to pay’. Yes, on the face of it this is a statement that rings true. Is there anything we can do to change it though? Here in the UK the vast majority of us are very lucky in that we have at least some degree of CHOICE. Everything in life is a choice. We do things because we want the results, or we don't want the pain. I don’t have to pay the mortgage, I do it because I don’t want to lose the house I’ve chosen to live in. I don’t have to pay taxes, I pay them because I don’t want to end up in jail.
Realising and accepting that we have a choice in most of what we do helps us recognise that we have control over much more in life than it seems at first. This realisation enables us to take action.
Now is a good time
How are you choosing to use your time/money? Is it in line with your values? A time of big changes (right now!) is exactly the right time to look at your spending/saving/investing/wasting of time and money, to ask the hard question of what’s important and to look at your spending. Here are a few pointers to start off with:
As it’s been said before, we all have 24 hours in the day, every day. Remember, it’s in your power to choose how to use them. Get in touch here.