How To Run Your Money - The Simple Guide To Financial Control

July 23, 2006 by Nicola Cairncross
Filed under: Wealth Coach Diaries 

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The following system for controlling your money will work for either people wanting to get started on their wealth creation journey OR for someone just starting out in business and wanting to keep a grip on their cashflow.

One of the first thing I get our Money Gym clients to do is to start thinking of their personal finances like a business - you would be amazed how many folks run their business finances well but their personal finances like a nightmare!

And how many small businesses don’t run their finances at all!

Then wonder why they go bust! My business bank manager, Mike Murray from Nat West in Worthing, says that he’s seen many a profitable business go under from lack of cashflow management.

The challenge I have found, as a small (and now larger) business owner is the lack of information on which to make financial decisions, the retrospective nature of most book-keeping and the opacity of most book-keeping software.

This method below works a treat for both business and personal finances and can be run on a very simple spreadsheet….

….. It is not meant to replace a book-keeper or accountant, but to bring the person into touch with reality, on a weekly basis, with their finances. If you are VAT registered there is a couple of other tips which you will see at the end.

The Wealth Coach’s Guide To Financial Control - in just two hours a week!

1. The first step is to look back over the last three to six months bank statements and create a REAL budget of what they spend.

2. Then create an 18 month cashflow projection, based on expenditure over the last 3-6 months (and factoring in whether those three months included "big spend" months like holidays or christmas.

3. This cashflow is projected out on a WEEKLY basis not monthly, as it’s easier to correct bad trends in spending if you catch them earlier.

4. Then you move all the expenditure forecasted forward one week (or even two!). There are several reasons for this, but the most important is that it gives you a week’s cushion and if there is a financial disaster of some kind (like a client not paying exactly when you think they will) you have a week to do something about it.

5. Then it’s reconciled to your bank statement (printed off from the internet) weekly. We reconcile ours to Sunday night at 12.00 midnight.

6. Anything that actually happened in the bank is made bold, and anything that didn’t happen is adjusted or moved along to the next week.

7. Your weekly carried forward amount should be the same on the spreadsheet as on the bank account

8. Repeat each week and adjust accordingly.

VAT: this is all run inclusive of VAT. Have a line in your outgoings for VAT Provision and, weekly, move the appropriate amount of VAT into a deposit account and show it going out in that line on the spreadsheet. Then, when you pay a large item that has VAT on it, move that VAT element back, and show it coming in as a credit on that line.

CREDIT CARDS: Every time you spend something on a credit card, enter it in the week that your credit card debit payment is made. Next expenditure, add it on to the first amount. Then, when your statement arrives, enter the actual amount paid off the card into that box, and move the rest of the balance along to the next month, and add to that any further expenditure during the week. Works wonders for making you aware of what you are really spending.

Hope this helps anyone just getting started with their book-keeping and accounts!

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