One of the biggest problems for small business owners is budgeting. There is always an unexpected expense, and when tax or GST time comes, the pot is often getting a bit empty!
The best budgeting system that I have discovered, was the one that a German solo mum used just after WW2. Her paypacket was not always the same amount, but the minute she got it, she parcelled out the contents among several envelopes. One was for rent, one for groceries, one for heating and light, one for clothing….. I’m sure you get the idea! She put a set percentage of her pay aside into each of these envelopes, not a dollar value. Then she sealed the envelope until she needed the money. For example, if she had had a good pay and money was left in the rent envelope, she left it there to accumulate against a week when she had short pay. As a result, she always had the money she absolutely had to have to live and feed her family.
I use a similar system, but using bank accounts instead of envelopes. 35% of every payment I receive goes into my Tax and ACC account, to cover end of year tax, ACC and GST. I also have other accounts, for fixed expenses, for savings, for annual expenses. Again, a set percentage goes into each of these accounts, each time a client pays me. Even for my personal income, I use the same system. That way, I can see what we have available for any expense, whether it’s weekly, monthly, annually or discretionary spending, such as holidays, medical expenses or entertainment.
Who said you should have only one cheque account and one savings account? These days, with internet banking, separate your money out into categories, and keep each in a separate account. I have tried doing the same thing on paper, but with only one bank account. It may work well for a little while, or for super-organised people, but for most of us it’s a chore that soon gets forgotten. When your money is separated into different accounts, it’s much harder to spend it carelessly.
Make putting money aside easier – use a system of separate accounts for separate purposes. In fact, if you really want to make it harder to take money from a tax or savings account – put it in a different bank!