You’re determined to live your best financial life! You’re going to have your bookkeeping up to date every month, stay on top of your numbers, and finally start paying yourself. This year is going to be your best financial year yet, you just have to figure out HOW to make that happen.
That’s where money habits come in. There are five core money habits that every small business owner should adopt. If you keep up with these habits you’ll totally have your financial dream life.
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Do Your Bookkeeping Weekly (0:50)
Doing your bookkeeping weekly is the most important money habit you can adopt. It’ll only take 30 – 60 minutes of your time each week and has a HUGE impact. Doing your bookkeeping weekly means logging and categorizing all your financial transactions in your business.
It keeps your books up to date.
You won’t have to scramble during tax season trying to get your numbers together because you’ll always have access to reliable numbers. When your numbers are organized, it’s easier to collect and analyze them whenever you need to. Financial situations like applying for a mortgage pre-approval are 100 times easier when you have all your bookkeeping ready.
It makes your bookkeeping less horrible.
When you stay consistent with your bookkeeping, there’s WAY less work to do each time. Think of it this way: would you rather do your bookkeeping once a week for 20 minutes or once every 3 months for 4 hours? And don’t even think about how long it would take to cover an entire fiscal year!
You’ll build up your bookkeeping tolerance.
I also call this the bookkeeping muscle, which takes a while to build up its strength. In the beginning, your tolerance will be very low. When you first get started, you’ll be donezo after 30 minutes. As time goes on, though, your muscle will get stronger and you’ll be able to “work out” longer.
You’ll get better at your bookkeeping.
Since exercising the bookkeeping muscle is like building up muscle, you have to work at it consistently to build strength. Before you know it, things that took you 40 minutes to finish take you 20 minutes and you’ve got some sweet bookkeeping guns to show off.
You’ll catch errors early on.
Bookkeeping builds off of itself. If you notice a problem week one, it’ll be much easier work backyards and figure out what wrong than it would be at week 10. Going back through weeks, and months, of bookkeeping mistakes, wastes time and energy and is stressful.
How to Get Started
Choose a day and time you can commit to your bookkeeping every week. The trick is to choose a day and time that will work for you. Don’t choose a time when you’re distracted or burned out.
If you’re feeling down, overwhelmed, or tired, then you’re DEF not going to want to do your bookkeeping! It’s all about creating a habit and setting yourself up for success to keep this money habit going.
Stick With It
Create a recurring appointment for your bookkeeping and keep it. Treat your finances like a client! You’re going to meet with them every week on a consistent basis. You’re going to prioritize your finances just like you would the most important meeting of your week.
Review your numbers monthly (8:40)
This money habit is all about running a Profit and Loss report every month. I like to compare the previous month’s report to the current month’s report. When you do the comparison, you start to think critically about your business finances. Here’s what you’re looking at:
Review your total revenue, which is everything you earned that month. Then compare it to your previous month’s revenue. Ask yourself:
- Did I earn more or less?
- What income streams earned more?
- What income streams earned less?
- Why do I think that happened? (think critically about why your revenue was up or down)
Then move on to your total spending for the month and compare it to the previous month. Ask yourself:
- Did I spend more or less than last month?
- What categories were my top spending categories?
- Why were they higher/lower than last month?
- Is there anything I can change to spend less in my business?
You can look at your numbers here and determine if you need to make any cuts or if you have wiggle room to add on another necessary expense. It can also help you note whether or not you’re emotionally spending.
Next, look at your net income, which is everything that’s left over after you subtract your expenses from your income. Ask yourself:
- Is my net income enough to cover my owner pay, tax savings, general savings, and debt payoff? (basically anything you put your profits towards)
- Is my net income higher or lower than last month?
- Why was it higher or lower?
You stay on top of your numbers.
This is another way of saying that you know exactly what’s going on in your financial system, which helps you spot any glaring problems in your business. You’re actively thinking about your finances every month.
It connects your actions to your money.
Reviewing your numbers consistently trains you to think about your money beyond just numbers on the screen. When you’re engaged with your finances, you fine-tune your strategies for making more money.
How to Get Started
Learn how to run a Profit & Loss report. The very first step is understanding how to run a Profit and Loss report in your bookkeeping program. You can do this in Quickbooks Online, Xero, and Wave. Familiarize yourself with whatever software you use. It’s easy to get frustrated and bail out on reviewing your numbers!
Stick With It
Add reviewing your Profit & Loss report to your bookkeeping task list. Run your report in the first week of the month, since you’ll need to finish your bookkeeping for the previous month to get accurate numbers. Make sure you add this tasks to your financial task list so you don’t forget about it!
Save for your taxes monthly (17:51)
This is my favorite money habit but it’s also the one that people groan at the most! Saving for taxes means putting a percentage of your profits aside for taxes. You do this so that you have money available to cover your estimated tax payments
To save for your taxes transfer 30% of your monthly net income (not your gross income!) to your tax savings account every month.
Net Income x 0.30 = Monthly Tax Savings
People think saving for their taxes is very complicated. It’s actually a very, very simple process.
It’s easier for your cash flow.
It makes paying your estimated taxes way more doable because you’re putting small amounts of money away at a time rather than pulling huge chunks of cash out of your business all at once.
It ensures that you pay your estimated taxes.
You’re less likely to pay your estimated taxes if you don’t have the money available. This is the reason most small business owners don’t make their tax payments. It isn’t because they don’t want to, but rather because they don’t have the money to do it.
If you have the money stashed away, then you’ll have no excuse for not making your estimated tax payments.
It protects you from a big tax bill.
Estimated taxes are prepayments on your final tax bill. You won’t know what that final bill is going to be until you file your taxes. These are estimated guesses about how much you’ll owe at the end of the year.
Once you file your taxes and get your tax bill, the payments you’ve made will be applied to the bill. For example, if you’re told that you owe $15,000 at the end of the year, but you already paid $14,000 throughout the year, you’re only going to owe another $1,000.
How to Get Started
Open a tax savings account. Think ahead on this one! If you want to start your tax savings right, then you need to get a savings account now. It’ll be there when you’re ready to implement this money habit.
Stick With It
Add savings for your taxes to your weekly bookkeeping task list. Again, this is one of those tasks that you’ll do the first week of the month and save for your taxes for the previous month. You can group this money habit with running and reviewing your Profit & Loss Report.
Pay yourself every month (23:19)
Instead of pulling money out of your business whenever you need it, pay yourself a set amount once or twice per month. You should do this every single month- which is why it’s a money habit!
It stabilizes your cash flow.
This money habit stabilizes your cash flow because your business anticipates the withdraw. It’s difficult on a businesses cash flow to just yank money away from it. We forget to pay certain bills or your laptop breaks and your business needs money available to cover
When you take money out randomly, it’ll be difficult for you to plan for recurring bills or unexpected expenses.
It creates spending boundaries.
When you pay yourself the same amount of money each month, it’s easier to anticipate personal and business expenses. Lots of business owners neglect paying themselves because they’d rather spend money on their business.
On the flip side, other business owners pay themselves too much, and then they don’t have enough to cover business expenses or their personal spending shoots through the roof!
How to Get Started
Decide how much you’ll pay yourself and how often. Check out my post on owner’s pay if you want to learn more about this process. The first step is to determine how much you’ll pay yourself. Then you’ll decide how often you’ll pay yourself and when.
Be honest with yourself about what’s gonna work for you in terms of successfully managing your personal finances. Make these decisions before you start this habit so you’re not sidetracked.
Stick With It
Create an automatic transfer for your owner pay. If you love automation, then an automatic transfer is going to be your new BFF. If you’re not comfortable with that, set up reminders in your calendar or phone and add it to your bookkeeping task list.
Clean up your spending every year (30:03)
Just like material clutter, we can have financial clutter! Decluttering your spending is really important. At the end of every year, you should perform an in-depth spending audit.
If you don’t make a conscious effort to carefully go through your transactions, you’ll keep wasting money for another year. Like material clutter, you need to determine what you’re going to keep and what you’re going to toss.
You’ll stop wasting money.
When you clean up your spending, you’re spending less money! Which leaves you with more money to pay yourself with, save for your taxes or invest in your business.
You can reflect on your spending habits.
It can be very, very difficult to reflect on your spending habits, but it can also be one of the best things that you’ll do. Ultimately, it’ll help you learn more about yourself. From here, you can work on setting goals for yourself or setting up new boundaries.
Review my blog post on how to do a spending audit Before you perform a spending audit, there are some materials you’ll need before you get started. Check out my previous blog post on how to perform a spending audit.
Set aside 2-3 hours for your spending audit. Block out the time on your calendar and commit to the spending audit. It may seem like a lot of time, but if your spending audit means you save $100 per month- that’s $1,200 a year.
Stick With It
Make your spending audit time a recurring yearly appointment. This one is a little different since it isn’t a weekly or monthly task. When you set it up in your calendar this very first time, make it recurring so that you’re reminded of the spending audit.
If you’re ready to start your new year with healthy money habits, download my free healthy financial habits cheatsheet. It’s the perfect cheatsheet to help you get on the path to healthy money habits for your business so you can wave goodbye to bookkeeping overwhelm.