This post was originally published as Chapter 12 in my book Keep More Money. While the book is about finding the perfect accountant for you and your business, this chapter focuses on personal finance and tips for saving money. Enjoy!
I hope I've shown you how having an accountant is not really expensive when you think of the value you receive for what you pay. If you're still feeling like you can't afford to have an accountant, I hope that some of the money-saving strategies in this chapter will help you find the money to be able to hire yourself an accountant that you can work with to reach your business and financial goals.
A great starting point is to take a look at the previous three months worth of expenses. Do this separately for your business and for your personal finances. This will give you a clearer picture as to where you can find the money to hire an accountant. Get your last three months' credit card statements and bank statements, and start categorizing everything on those statements. You can even download the transactions to a program like Excel, and use the program to help sort the transactions. Examples of spending categories are meals, entertainment, groceries, and vehicle expenses. The more detailed you can make the categories, the more it will give you a better idea of where you're spending your money.
For example, for vehicle expenses, you could break that down into insurance, oil and fuel, repairs and maintenance. That will give you a good idea of how much you’re spending in each category every month. Don't forget, you're doing this for three months of statements for all your bank and credit card accounts. This is to give you a good idea of what an average month’s expenses are. Once you have all the categories totaled up, you're going to divide the numbers for each category by three so that you get your monthly spending amount in each category. Then you need to do an adjustment for any annual expenses you have. These are things that you only pay once a year and you want to make sure those are included in your monthly expenses. Some common examples are house insurance, property taxes, annual vacations, and even expenses for Christmas.
When it comes to annual expenses, don't forget to factor in things like the holidays. Even though this isn't really a payment that you have to make, you likely need money to spend on gifts, special food, and parties. It's a lot easier if you can plan for this spending throughout the year and save a little bit every month instead of trying to come up with a lump sum payment in November or December or charging amounts on your credit card.
Figure out how much those annual expenses are and divide this number by twelve to figure out what your monthly costs for those expenses are going to be. Make sure you add those costs to the expenses you categorized from your bank and credit card statements. Now you should have all of your expenses for an average month categorized by type of expense.
Next, take a look at how much income you have coming in every month. This can be difficult for anybody who's self-employed because your income can fluctuate from month to month. You can take an average by looking at last year’s income and dividing by twelve or, if you want to be conservative, pick a low-income month and choose that amount for your monthly income.
Now compare your income and your expenses. If your expenses are larger than your income that means you're putting a lot of things on credit and not paying that off every month. Look at your expenses and see if there are places where you can cut back so that your income and expenses are either equal or, ideally, your income is more than your expenses.
You want to have more income than expenses because this gives you room to put some money into savings, pay down debt, or use for other expenses like accounting fees. Remember, you have categorized your expenses and income separately for your business and personal finances so if things are tight in your business, look at your personal finances and see if you can find some room there.
When you're looking at what expenses to cut, start with the largest numbers first. Do these expenses need to be that large? If it's a mortgage payment, then there may not be anything you can do to decrease that payment. If your mortgage hasn't been renewed in a while, you might be able to negotiate for a lower interest rate when you renew, which will decrease your payment.
When you find a category that you want to decrease, it's really up to you how much to decrease it by. If it's something you feel like you've gone way overboard on and spent way too much per month (for me it was meals out before I had kids) then start by trying to cut it in half. You don't want to completely cut out anything that's fun because if you're too restrictive with yourself, you're not going to follow the plan. In this case, there's an increased chance that you're going to end up going back to your old habits and spending more money anyway, so make sure you leave yourself a little room to still have some fun with your money.
If you feel like things are really tight and you just can't cut anything, start with a percentage. You can start small. Try reducing certain expenses by just 5% then, maybe each month, try increasing that percentage a bit more. Before you know it, you'll have cut things by up to 25% or 50% in some categories. Another way to cut expenses is by looking at the categories that surprised you. Maybe you spent a lot of money in a month on one certain category, and you're actually shocked to find out how much you were spending in that category. That's a really good place to start cutting. You can set a limit for yourself. Maybe, if it's entertainment, for example, you could try and limit yourself to spending $200 per month in that category.
I'm just using these numbers as examples because the dollar amounts are going to vary depending on where you live and what your income is. Things can be more expensive in different areas and also depending on what you like to do. Just take an honest look at what you're spending your money on and see where you can make some changes. It will be worth it for the financial health of your business to cut some costs in order to get some help from an advisor who knows what they’re doing.
Your “latte factor”
Another thing I find really helpful when saving money is looking at your “latte factor”. I first heard about the latte factor when I read David Bach's book, Automatic Millionaire. David's books are very good if you're looking for an easy financial read with lots of helpful tips. The latte factor in David's example is just that. It's a latte. David makes the point that if you buy a special coffee every day from Starbucks that costs $5, and you do that every day of the workweek, you’re spending $25 per week and $100 per month on coffee. You could save a lot of money by making coffee at home or at the office. You don't have to completely cut out fancy coffees that you enjoy, but if you can cut back, you will save some money. Instead of buying one five days a week, aim for only two or three days a week.
The latte factor is any amount you're spending on something that's a habit. You don't really need it, but you enjoy it. For me, this used to be eating out and buying books. I didn't need to eat out so often, and my husband and I realized we were eating out way too much, so we cut back and ended up saving ourselves a couple hundred dollars every month. Books are another area where I like to spend money. I love to collect books and to see them on my bookshelf, but I can get the books at my library for free and save a lot of money. I can save the spending for books that aren’t available at the library.
Some other examples of things that would fall into the latte factor category are spending money on makeup, candy, or chocolate bars. I used to do this also. I'd buy gum every week. It's not even really that good for you, so I stopped doing that, and I did save a few bucks every week. Think about whether or not you have a habit that you could cut back on and potentially save some money by doing so.
Other money-saving strategies
Another way to save money is by negotiating the interest rates on your loans or even consolidating some loans. This is time consuming but worth it and has two benefits. Number one, by decreasing your interest rate, you can decrease your payment and put the amount you're saving into a savings account to use towards something else. Number two, if you decide to keep your payment the same and your interest rate is lowered, then you will actually pay off those loans faster than if you made the lower payment and continued on the amortization schedule suggested by the bank.
You can also phone credit card companies and negotiate a lower interest rate with them if you carry a balance every month. It’s best if you can pay your credit cards off every month but sometimes that’s just not possible. A lot of credit card companies will also have promotional rates where they’ll allow you to transfer a balance from one card to another and pay zero interest for a set amount of time. That helps when you can continue making a payment because then you're actually paying down the principal balance and decreasing the amount you owe.
These are just a few money-saving strategies that can help you save the money you need in order to invest in working with an advisor. That way you can be working toward your goals, and even saving more money. Get creative and see if there are other ways you can save money.
If you're still feeling like you don't have the money to hire an accountant and none of these money-saving strategies have been helpful, think about some ways you can earn more money in your business. For example, how much would you need to increase the gross revenue in your business in order to hire an accountant? There's a very good chance the accountant will be able to help you find that revenue to pay for their services. You can also look for ways to increase money in your personal life such as selling items you don’t need.
RECAP: Here are some questions you can ask yourself when trying to find some extra money to hire an accountant:
Are there some expenses (either personal or business-related) that you can reduce?
Do you have any expensive habits you could reduce in order to save you money each month?
Are you making payments on high-interest credit cards that could be paid off by a lower interest rate loan?
Can you negotiate for a lower interest rate on any credit cards?
Would it make sense to negotiate for a lower interest rate on your mortgage?
Can you increase your prices to earn some extra revenue to pay for an accountant?
Do you have anything you don’t need that you could sell to make some extra money?
By now you have a ton of ideas as to what to ask an accountant you’re interviewing but what do you do when you find someone you want to work with? In Chapter 13, I’ll discuss some final ways you can make sure you hire the right accountant for you and your business.