They say money makes the world go round, and as a business owner you might be inclined to agree. It may come as a shock that in Australia, 1 in 3 adult men and 1 in 2 adult women do not understand key financial literacy concepts. That's around 8.5 million Australian adults!
Unless you have parents who have worked in finance or you studied it at university, chances are you never learnt the fundamentals of finance and setting, managing and achieving your personal and business financial goals - and you're not the only one! Many Australians have fallen into the trap of assuming that finance isn't of much concern to them.
Financial Literacy; it's not as daunting as it sounds!
At a fundamental level, financial literacy describes your ability to understand and apply financial skills, which includes an understanding of budgeting, cash flow, interest rates and debt management.
It's being able to allocate your income towards your various financial goals such as savings (maybe you're saving for a house deposit, a once in a lifetime holiday or a new business venture), debt repayment, ongoing expenses and a rainy-day fund too.
Yet it goes further than that, with financial literacy playing an important part in a range of outcomes including wealth accumulation and planning for retirement, superannuation savings, and womens economic empowerment. The 5 key components of financial literacy are:
- Keeping track of your finances
- Planning ahead
- Choosing financial products
- Staying informed
- Having financial control
So how can we make the right financial decisions on credit cards, business loans, equipment finance and savings when many of us don't understand the basic principles?
Make achieving your personal money goals easy
Does your stomach drop when you think about money? Have you ever looked at your bank account and wondered where that last $50 went? You aren't alone!
With 18 years as a finance broker, I've seen a great deal of people concerned, confused and overwhelmed when it came to managing and saving their money. Maybe you just don't know where to start, weren't taught the right fundamentals at school; and/or think you don't have the time or resources to learn to manage your money.
What if I told you it was as simple as learning a few basic principles and having the right tools? As a basic foundation to set yourself up for success in both your personal and business life, you really need to know:
- What your financial goals are
- How to create a budget (and stick to it!)
- What cash flow is and how you can track it
- How to hold yourself accountable when it comes to creating positive spending habits
Creating a successful and profitable business you can be proud of
When it comes to business it's simple really - if you want to make money (who doesn't?!) you need to know how money works. Research has shown there is a direct correlation between financial literacy and business success.
If you don't understand your business' financial position, you risk not only shattering your own dreams but also sending yourself broke. As you know, running your own business is extremely rewarding. You get the freedom of working for yourself, providing for your family, choosing your own hours and building something you can be proud of. But it also comes with many responsibilities - one of which is managing the financial side of your business.
If you want to avoid sleepless nights and a great deal of stress (that is if you aren't experiencing this already!), it's something you really can't afford to ignore.
In business, financial literacy isn't only about knowing where the money comes from and where it goes. It's about understanding how money works. Imagine being able to see how to spend money to make money, and knowing how your decisions are likely to affect profitability.
Having a good understanding of the fundamentals of finance as a business owner will help you to:
- Understand how you make it, spend it and invest it to improve your financial position
- Make better business decisions and speed up business growth
- Understand how to build a budget for your business
- Help you sleep at night better by reducing stress related to running your business
- Learn to manage your business' cashflow
While the finance side of business leaves many of us overwhelmed, uninspired and even yawning, it's one of the most important things you'll ever do for yourself and your business. The good news is you don't need to get a finance degree! You just need to have a good grasp and understanding of the basic fundamentals of finance.
My Top 10 Tips to get you started on your financial literacy journey
1. Read your bank statements and check for transactions that aren't yours.
2. Make 10% of your income, your 'rainy day' buffer and put into a separate bank account you have limited access to as soon as you get paid.
3. Have a separate bank account for savings - try to only put money in and not draw any out, even if this means putting in smaller amounts consistently.
4. Use a cash flow tracker to understand what you spend and on what, and how much money is left at the end of each pay cycle.
5. Use a budget to create a 'spend control' - only spend within your budget estimates - and exclude the 10% in your 'rainy day' account when you set the levels.
6. Cancel any subscriptions you are not using - like the gym, or netflix.
7. Annually review your service providers like utilities and phone companies to ensure you have the most cost-effective plan for your needs. You can use a tool like SFE Loans Connect.
8. Use your credit card only for emergencies and avoid after pay services (use your budget and spend within).
9. Stop buying food that you don't eat and throw out - plan your meals for the week and buy accordingly. This can help with your health as well.
10. Write a shopping list for groceries, personal care and clothing, and only buy what's on the list - ditch impulse shopping. Get the endorphin hit from a quick walk or 20 push ups instead!
If you're looking to take action now and upskill on your financial literacy in order to reach your personal and business money goals, I've created a podcast called "Financial FOFU" that covers a range of important financial topics based on my own experiences and what I've learnt within the financial services industry.
I also have online money intelligence courses designed to teach you how to budget, track and achieve your money goals. Investing in your financial literacy should be a no-brainer!
Business Strategist and Accountability Coach at Helix Planning