Becoming financially independent is the gateway to generational success, but the journey to get there can be very difficult. Josh spoke to Bryan Worn about how to achieve financial independence with your business and what it takes to get there.
Bryan is one of Australia’s most experienced and respected business and professional services practice mentors. He is on a mission to help business owners be commercially successful and achieve financial independence, whilst still enjoying the personal life they want.
What is a Financially Healthy Business?
A financially healthy business is one where people don’t have to talk about money unless they want to. We spend so much time worrying about money, how to make it, and what to do with it. A financially sound business pays its bills on time, and it just flows. It has a system, and it pays itself a reasonable salary so that they treat the business with respect. They don’t borrow money from the business, as one of the problems with borrowing is that we can forget to pay it back. The biggest fear of any business owner is not being able to pay the wages. Having a good financially sound business means you never have to worry about that.
The FIRE Movement
The FIRE movement is about giving people options. The plan is pretty simple for most of them: pay off the mortgage first, build up investments, and then develop a passive income stream. The big switch in business to be financially independent is to move from active income, that’s income we work for, to passive income that comes from investments. And that income can be coming from property investments, shares, bonds, whatever. The FIRE movement is really good. When I look at it, it’s the quality of life you have, not the quantity of money you have, that is really the deciding factor in success.
I think Brian Tracy summed it up great when he said that it’s the quantity of time at home and the quality of time at work that determines success. I remember talking to one client who was building up a business, an accounting practice, and he was working 12-16 hours a day, even on weekends. I said to him one day, “So you’re building up this practice so you can give half of it away in a divorce.” He was gobsmacked. But two years later, that’s exactly what happened
What Do You Make Money For?
It’s important to understand at the end of the day, what is the money for? If you’re in a salary job where you earn a wage or salary every week or every fortnight, you manage the money, you pay your bills, and hopefully there’s something left to spend time with the family. When you get into business, it’s different because the money is more flexible and volatile. Ultimately, for most businesses, there’s no ceiling on your income, but the opposite of that is there’s no floor either. You have to be careful and create reserves so that when tough times come, you can survive.
Watch Your Expenditure
For me, one of the turning points in all this was when a large number of people with no training in money started earning money. They become subject to Parkinson’s Law, that when it comes to work, it expands to meet the time available.
Expenditure expands to meet the money available. It’s the same principle. When credit cards came in about 25-30 years ago, they were actually charge cards, so you had to pay them off every month. But they decided to make it easy for us, so we only had to pay 3% of the balance. So many people who had no training in money ended up with this thing. They don’t look at how much money they have in the bank. They look at how much credit they have available. You will see people stick cards into ATMs, not looking to see how much money they have, but to see how much they can spend. So that only made the money habits worse.
I’ve had situations where someone asked me, “what can I do about this?” They refuse to cut up their cards, so I think that is the reason people grew up with poor habits or no habits.
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The Connection Between Money Habits and Weight Habits
Money habits and weight habits have a couple of things in common, and one of them is it’s a lot easier to put on weight than to take it off, and it’s a lot easier to take on debt than to pay it off. This whole idea. And if you have a look at the FIRE movement, they talk a lot about delayed gratification. So, it’s about saying yourself, I won’t have that extra $10,000 in the car, but I’ll make the $10,000 payments and save the money. And then in ten year’s time, I’ll have $20,000, I can buy whatever car I want. I believe when we take on good habits, they apply in all areas of our life.
By developing good financial habits, you’re setting yourself up for success in other areas of your life as well. It’s important to be mindful of your spending, and think about the long-term consequences of your decisions. Delayed gratification can lead to a more secure financial future and help you achieve your goals.
Know Your Goals
Knowing your goals and having a plan to achieve them is essential in making smart financial decisions. This will help you determine whether taking on debt is a good or bad decision, based on the potential return on investment and its impact on your overall financial health.
It’s all about being informed, disciplined, and having a clear vision of where you want to be financially. By practicing good financial habits and being mindful of the decisions you make, you’ll be well on your way to a more secure and prosperous future.
Turn IT into a utility to save time and money! Ask a dork how you can take advantage of technology in business.
The Marshmallow Test
When you’re in control of your money and you know you’re in control of the money, you feel a lot better about yourself. And that thing of delayed gratification is instilled in us. From an early age, there was a famous test called a marshmallow test, where Walter Mischel got these little kids in. Then they came into a room and the researcher put a marshmallow on the plate and they said, no, I want you to leave that marshmallow there. And if you leave it there, I’ll give you a second marshmallow. But if you eat that marshmallow, you don’t get the second marshmallow. And they videoed these kids and all sniffing it, and some of them just couldn’t have them. But what they actually did, they tracked those kids into later life. Oh, yeah. Yes. And they found that the ones that had resisted eating the first marshmallow were far more disciplined in all sorts of ways later on in life.
If you have been the marshmallow kid, what you can do about it is learn. Tony Robbins says that we don’t change until the pain of changing is less than the pain of not changing. So, when you constantly want stuff, you have to learn that. You go out and you buy something, but two weeks later, you’re fed up with the item you bought. So, we have to learn what it is that a good money manager does. But you have to have a desire to have a life that’s free of money hassles.
Governments approach everything from what I call the macro level, it’s from above, but we change on a micro level. We see what it is we want.
If You Own a Business, Pay Yourself
It’s common for self-employed people to rarely make superannuation contributions. They only get that if they employ themselves through a company, so they actually become an employee of their own business. What they’ve got to do is pay themselves. They’ve got to think on these lines. They’ve got to pay themselves the superannuation that they would get if they’re working in a job.
So, for example, if their work or job is worth $100,000 if they’re employed, they should put $12,000 a year into superannuation. That’s the first thing. The second thing they’ve got to understand is that the business is worth nothing. Now, most people are horrified when I say that. But if you assume your business is worth nothing, and then when you come to the age where you want to get out of it, you can just turn the key in the door and walk away or sell the property or give the key back to the landlord. By having that in mind, you tend to make your business very profitable because you got to pay yourself.
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Different Money Values
We all have different money values. Your money values will come from the things you observe in your siblings, your school friends, when you went to uni, when you started work. And your partners values could be completely different.
Some issues you’re going to face as a couple dealing with money are private school fees versus public school. Are you going to buy a car when the kid gets to 18 or are you not going to buy the car? All those things come up. But in a business, we must remember to not mix personal and business money. If you take the business money and spend it personally, you’re really steal from the business. You’re stealing your future.
Retirement Calculator
I’m going to give you my personal and simple rule of thumb. If you want an income in retirement of $100,000 a year, you need $2 million. That’s worked on calculating on an interest rate of 5%. So, 5% of $2 million is $100,000. If you want to only have $50,000, it’s half that, or if you can get a higher rate of return. But if we’re going to be ultra conservative, 5% for me is the way to calculate it. If we say I want $100,000 a year and I’m only going to get 5%, that’s $2 million. Also add on, I’m going to change my car once or twice. If you want a new caravan, for example, whatever it might be for any of those big sums, you just add it on. Then you work out. You can just use an Excel spreadsheet, or the Money Smart website has got calculators there. But that’s my simple rule of thumb.
The Money System
I created the Money System Program for all Australian businesses owners, and I’m going to give all of Josh’s readers free access. Go to my website and you’ll get two or three emails with more information so they further develop their financial skills about the business.
