Accountants can be very smart when it comes to working on their company's or a client's accounting. If you are dealing with financial statements all day then you ought to know that the balance sheet and income statement are crucial to understanding how a business is really doing. Well, it's no different for individuals either, or at least it shouldn't be. With the knowledge and skills you've developed as an accountant, you can apply much of that to your own life and set yourself up similar to a successful business.
Here are 6 things every accountant should be doing with their own finances to help achieve financial success:
1) Tracking net worth and cash flow - What would happen to a business if they didn't have accounting? They would probably fail because how do they know if they are making money or not? Just seeing a bank account balance rise does not mean your making money if you are subsequently racking up debt. Likewise, just because you earn $100k a year doesn't mean much if you are spending $150k a year. You will forever be in the red. So how do you really know what you are spending? If you aren't tracking it, then you won't know. There are several free online financial management tools such as Mint.com and PersonalCapital.com that provide a ton of useful features for tracking cash flow and much more.
2) Eliminating wasteful spending - If there is one things all accountants should absolutely hate, it should be WASTE. Accountants can easily spot waste in a business entity or especially a governmental agency. Waste leads to inefficiency, less profitability, and is just not good business. Being able to identify waste within your own spending is the easiest way to save more money as you can automatically increase the bottom line of your finances. What kind of waste might be in your finances?
- Cable bill - Do you really need over 100 channels? How many of those do you actually watch? Most things on TV are total crap anyway so you shouldn't be wasting your valuable time. I haven't had a cable bill since about 2009 and I've mainly been using Netflix at $8/month. This is quite possibly the easiest way to save money instantly.
- Banking fees/credit card late fees - I can't even remember the last time I paid a bank fee for my checking account or a late fee on one of my 24+ credit cards I've had. Sign up for an online bank such as Capital One 360 (refer-a-friend link) and pay no fees and earn a sweet bonus for signing up and meeting some requirements. I've been using Capital One 360 (formerly ING Direct) since 2007 and love them! By implementing Step 1 above, these unnecessary fees should be easy to avoid by linking your bank accounts.
- Excess spending on dining out - All throughout my working history, I probably packed a lunch about 85% of the time. Eating out to lunch every day is costly especially with many places charging $7 or more for a meal. Bring leftovers from last night's dinner and you have almost an instant meal ready for your lunch.
- Magazines - The only magazine I subscribe to is Entrepreneur. And the reason I did so was because I paid for it with airline miles to keep my American Airlines miles from expiring due to inactivity. I don't often read it though because I can easily read the Entrepreneur Blog for free on my phone and without any ads. A great way to follow online content for free is by signing up for a Feedly account and adding blogs or websites.
You get the idea here. It's easier to focus on the low hanging fruit first and then attack the big items. It's all the small items that add up and they really aren't adding VALUE to your life so eliminate it. If you can free up an extra $100 or so every month how would that make you feel?
3) Automating as much as possible - Technology is making everything so much easier but when it comes to personal finance, I'm not seeing enough people automating their finances to make life easier. Businesses automate tasks to make them more efficient to save time and money. You should be doing the same with your own finances. This means:
- Direct Deposit your paycheck - If it's common for you to wait in a bank line to deposit a paycheck or even drive to an ATM to deposit it, then there's a problem. If you direct deposit your paycheck, not only do you have access to your funds earlier than a paper check but you can avoid waiting in a long line and save on gas. Plus you avoid having your cash in hand which can lead to it burning a hole in your wallet and you spending it as you get it.
- Online Bill Pay - I've designed my financial affairs to be as paperless as possible and opt to receive bill notifications via email. Instead of waiting to get a paper bill in the mail, I get an alert and pay online. Most good banks, vendors, and credit card companies should have this. So save yourself from having to use stamps and lick nasty tasting envelopes and pay people and businesses the easy way.
- 401(k) contributions - It's a no brainer to at least set your work 401k contribution to get the maximum employer match. It's FREE money and the great thing about setting it and forgetting it on your paycheck is that after awhile you will be building wealth on autopilot.
- Email alerts for bank accounts - Wouldn't you like to be notified about something before it becomes a problem? This is about being proactive and with many banks you can opt to receive email alerts for activities such as low balances, transactions over a certain dollar amount, new bank statements, and so on. Getting notifications helps save time by not having to manually check accounts, and staying on top of your banking activity.
- Monitor your credit score - Sign up for a FREE CreditKarma.com account today and get access to your credit score. I've never paid for credit monitoring and don't see the need when a service like this is available. Knowing your credit score and being alerted when changes happen can help save you money and stress especially if you experiences identity theft.
4) Saving more than 10% of your income - Mainstream financial media suggests to save 10% of your income. I say that's BS. If you are only saving 10% then you will be working for a long long time. If you are saving 10%, then I'd say that's great but you can be doing better. In 2014, I managed to save about 40% of my income after taxes AND I didn't feel like I was sacrificing anything. Accountants make good money so they should be saving a good amount as well.
5) Building up a Freedom Fund - Now that we've established you should be saving 10% at a minimum, what do you do with all that excess cash you'll be hoarding? Blow it on a new car? Hell no! Put that money to work for you, not the other way around. Most people call it retirement accounts but in reality, you should be saving up for your Freedom Fund. Building up your investments will pay you dividends and grow over time. One day, if you choose to, you may not have to work because your Freedom Fund will pay you, not an employer. Some ideas for building up a Freedom Fund include:
- Dividend Investing with Loyal3
- Signing up for a Betterment.com account for super easy and diversified investing on autopilot
- Putting your money in low cost index exchange traded funds such as SCHB (what I do) or VTI
6) Investing in yourself - Last but not least, if you are doing all of the above you should be able to find some excess cash available and invest in your most important asset: Yourself! More so than investing in stocks, bonds, gold, real estate, etc., the most valuable asset is yourself because of the earnings you will make over your lifetime. It would be silly to dump all your savings in financial products without considering that you have the potential for a great ROI. Some ways you can invest in yourself are:
- Getting your CPA license (duh!)
- Paying down debt/student loans (See Andrew from the The Bean Counter's story here)
- Buying business books and reading every day: Two of my personal favorites How to Win Friends and Influence People by Dale Carnegie and The 7 Habits of Highly Effective People by Stephen R. Covey.
- Learning new money making skills such as investing, selling products, or even credit card arbitrage
- Buying equipment that's going to help you be more efficient at working
- Taking trips and gaining exposure to other cultures
- Starting a side hustle (See: RichmondSavers.com, TheBeanCounter.com, PTMoney.com and CPAonFire.com for inspiring accountants who've created side hustles that have even turned into successful businesses.)
It's just like flight attendants say when you are flying on an airplane "In the event of an emergency, please put on your oxygen mask before assisting others." In order to be great accountants to businesses, it's important not to forget that you need to take care of yourself first. Taking care of your personal finances it a great place to start and once you do that, other areas of your life will miraculously improve as well. I want to see my fellow accountants achieve their ideal lifestyle!