Budgeting

The number one reason small businesses go under is lack of budgeting. People put all their money into getting the business started and they have not put anything aside to keep the business running or to cover the costs if something goes wrong. Home owners do the same thing. They scape together everything they can to make the down payment on the house, then, to take an example that is close to home, they are in a terrible bind when the water heater goes out the month after they move in.

When I was in high school and then again in college, we all had to take a personal finance class. With the budget cuts and the focus on standardized tests, I have heard that most schools have eliminated these classes. This is a shame. I am always amazed that we hire people to manage millions of dollars worth of business and they can't even balance their own check book or they are FedExing their check to American Express to get it there on time. I have worked with a lot of really smart people over the years, much smarter than me, but many of them didn't understand that paying the minimum on their credit card will take 20 years to pay it off, or how much they could afford to pay for rent. I always feel really old when I do this, but if someone asks me a financial question, I like to get them to work out a simple budget and most of them are amazed to learn they are way over extended. Usually I can help them work out a plan to get them out of debit and saving some money within one year. Attached is my simple starter budget to see what your monthly costs are versus your income.

Once you've done this, you need to think about big one-time costs, like property taxes, etc. and make sure you are saving money to cover them. I also like to take out my weekly "allowance" in cash. If you take out a standard amount every Monday to cover lunch, coffee, drinks, etc., you'll know if you can get out on Saturday night or not by what's left in your pocket. A little discipline goes a long way.