When it comes to keeping on top of your personal finances, it can be easy to overthink your approach and get overwhelmed. But although there are lots of things that you could worry about, it doesn't mean you should.
Easier said than done, we know.Beware information overload
With our 24-hour news cycle, it can be hard to avoid the seemingly unending stream of things to add to our list of financial woes.
What's going to happen with property prices?
Are we on the brink of the next global finance crisis?
What's Trump going to do next?
But while these are all legitimate things to be thinking about, the key to managing your money effectively is to spend more time and energy concentrating on the things you can control about your finances.
And the best way to get in control (and stay there) is to keep it simple and, if in doubt, focus on two things:
Systems are your friend
I've written previously about using an effective cash management system and how this can help you run your personal finances like you would your practice finances. To date, we've implemented this system for over 50 clients with excellent results.
For most, this is the first time they have a true picture of what is happening with their income, expenditure and thus their surplus cash flow. We're so excited about this as a business, as it allows the forward planning we do to help clients with their financial decision making to be far more accurate.
The other piece of the puzzle
Tracking your finances and understanding what you're spending your money on is all well and good, but the next step is making sure you do something with that information. And that means being in control of what you spend.
I've found that for a lot of clients, once we start tracking their expenditure, this automatically results in them thinking a bit more about how they spend their money. But I firmly believe that to be fully in control you need to go one step further.
Here's what you need to do:
This is a system that I have been running for some time, and have also helped many clients implement, and I can honestly say it works!
If you need support getting in control of your money, we're here to help. Like most people need a personal trainer to get fit and stay fit, the same can be said about finance, so it's worth investing in professionals to help you get on track and stay there.
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The banking royal commission has all but been and gone, but it's left us wondering what would happen if there was a royal commission into accountants?
Great accountants operate 100% in their clients' best interests, through a pure fee-for-service model, meaning they only charge and get paid for services that their clients actually need.
As with any industry, however, not all accountants are created equal, so If there was to be a an accounting royal commission, one of the major issues I believe would be in the spotlight is unnecessary complexity.
Where accountants would potentially come unstuck in a royal commission is for advising and servicing complex and unnecessary business and investment structures. Generally speaking, the more complexity involved, the more money that can be charged to manage it, so it makes sense that this is an area that's open to manipulation.
If you're dealing with an accountant that's not on the up and up, and are out to increase their bottom line at any cost, you could be the victim of being sold over-complicated and unnecessarily involved setups that you don't need.
The starting point for any accountant should be to act in their clients' best interests at all times, however, further to this, it should ultimately be a focus to steer clients towards the simplest option available to them.
This isn't always easy.
The psychology of complexity is interesting - some people are sceptical of solutions that are too simple, often demanding the solution with all the bells and whistles, even when a simpler (and cheaper) solution will achieve the same result.
It's critical that you can rely on your accountant to give you honest, impartial advice when it comes to your finances, and not put you into arrangements that are costly to administer and provide no added value.
Bottom line is, if your accountant is telling you you don't need to spend more money on a more complicated solution, you should listen!
Before you get yourself locked in to a large, complex accounting structure, it's important to make sure you're working with an accountant that understands the value of simplicity and is most interested in offering you the least complicated proposal there is, with the best return.
Take the time to make sure you're comfortable with any proposed course of action before you get started. It can take a number of years and cost significant sums in tax to undo overly complex arrangements, and, often, structures that hold a large asset or business can cost more to unravel than it would cost to simply keep going until you're ready to exit, accountants fees and all.
So, if you find yourself in a complex setup and you're not sure of the benefits, ask your accountant why they've advised the strategy detailed in their proposal.
Better to take your time to scope out your requirements before you set up than race into a new structure that might hurt you in the long run.
Get in touch to learn more and find out how we can help you with your accounting needs.
|Posted in: Tax||0 Comments|
Like many I have been saddened to hear the Royal Commission have, again, uncovered a number of systemic "cloudy" advice practices where an advisers "best interests duty" requires something a little purer.
This simple truth reminds me of why we chose to engage with clients the way we do 10 years ago, with annual opt in and flat dollar fees invoiced directly to clients.
As I set about writing a blog on a subject that many advisers find difficult, a valued client reminded me of why we do what we do. I think these words are more insightful than anything I can write and, I hope, demonstrates what a pure advice relationship should look like.
"I'm confirming I'd like to continue with your ongoing services. In the current context of the Royal Commission into banking highlighting the dangers of hidden percentage based fees for investments and self-managed super, your open, fixed fee service shines as an example of how it should be done!" Ben - Cardiologist
|Posted in: News Wealth Creation Financial planning||0 Comments|
And just like taxes, deep down we know that administration is essential for keeping things running properly. Having said that, there are lots of good reasons for driving down admin costs as much as possible. And with the modern boom in apps and add-ons, there are plenty of tools to help you achieve that.
Many accounting software companies are having their annual roadshows at the moment, showing off the features of the new versions of their software, and add-ons that connect to existing programs.These events can be a bit like religious gatherings, and the mantra is that using their product will increase productivity and efficiency, and therefore make everyone's life better.
But despite all the new functionality this software offers, one thing has remained the same: if you input junk information, you'll get back junk insights.One way to improve the accuracy of the information going into your accounting software is to automate as many of the inputs as possible.
Often what we would find is people would only enter the most basic data into the system the date and amount of each transaction for example. This meant when you tried to analyse the data for tax reporting and business decision making, you had no idea who was paid or whether GST was processed correctly or a host of other important facts. Junk in junk out.This all changed with the introduction of bank data feeds into accounting software. Not only would all your bank data magically appear in your accounting ledger, you could program the software to automatically categorise recurring transactions. This new technology was as ground-breaking as the mobile phone (for accountants at least)
In our next blog we'll dive into the detail of just how powerful automating your financial records can be.
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There are only really three factors that contribute to achievement of your financial goals: what you earn, what you spend and what you do with the rest.
If you've completed your training your income should be reasonably stable and if you're getting professional financial advice what happens to "the rest" will be determined by a plan that may focus on investment, debt reduction or a combination of both.
That leaves what you spend.
Having helped doctors with their finances for nearly 15 years, what I too often see is a habit of overspending that starts as incomes increase. This combined with not knowing where all the extra income is going has far reaching consequences.
Firstly, the sooner you start investing, the sooner you get what Albert Einstein called "the most powerful force in the universe" compounding returns on investments. And secondly, if you create a lifestyle that uses all of your income it will be impossible to reach financial independence.
Understanding what your fixed expenses are along with what you are spending on discretionary items is a good place to start. Importantly, this also provides a clear view of how much money will be left over each month that can be put to work through investment.
Exporting online bank statements into a spreadsheet provides a starting point for checking where your money goes. The problem with this method is that it's time intensive and doesn't easily track activity moving forward.
Once you have an idea of what you have spent by category, the next step is to have a plan of what you intend to spend going forward.
Most practices use accounting platforms like Xero to track income, expenditure, assets and liabilities. If you have a good practice manager and the right tools they can easily tell you your practice's financial position in heartbeat. It's the only way to know your practice is running the way it should.
There's no reason why you can't run your personal finances the same way. Very soon Medical Financial will begin offering access to a platform that provides the same kind of insights as Xero, but for personal finances.
It will allow you to track your expenditure, understand where it's going and produce regular personal profit and loss statements. It can even track your change in net wealth via a personal balance sheet. And you will be pleased to know, that once set up, the time taken to keep on top of things will be around an hour a month. Armed with timely, relevant information about your finances you can start taking greater control.
|Posted in: Wealth Creation Financial planning Planning Investment Financial independence||0 Comments|
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