Advantage Of Money Management Skills
Money management skills are the most important for everyone in life because without money management you can not increase your savings and without savings, you can't fulfill your necessity if you are students now you have a question that
How to gain money management skills
There are lot’s of way to gain money management skills but in this article, we will learn 3 best way to gain money management skills
1.Thought about your money spending path which is good and which is bad
2.Buy a product that you really need ignore the useless product
3.Save money only for your dream that should be your aim
When these three things can be your habit you can easily gain money management skills. Let's dive into the main topic
I want to start by defining some terms you’ll hear throughout today’s presentation. Cash flow is the money that you transfer in and out of your business. Revenue is money that’s generated by the sale of your products or services. An expense is money that is spent on something necessary to run your business. Profit is money that is left over after your expenses are paid. And finally, a budget is a detailed plan that outlines where and when you’ll spend your money.
The first thing that we’re going to do today is talk about the importance of establishing boundaries between your personal finances and your business finances. Meet Phoebe. We’re going to use her as an example business for today’s workshop. Phoebe has a photography business. She has one bank account and one credit card and uses them for both personal and business expenses. Phoebe does not separate her expenses, which prevents her from accurately measuring the success of her business.
As we move through the workshop, we will show you how Phoebe can improve her money management skills and get a better handle on the success of her business. To start, you should open a bank account that is dedicated just to your business. Don’t use your personal checking or savings accounts for your business profits. If you need to use a credit card for your business, have one card just for business expenses.
Don’t make the mistake of sometimes using your business accounts for personal expenses and vice versa. Keeping business and personal finances separate can help you to better keep track of the health of your business. Accounting software can be a huge help. Trust me, coming from somebody who knows. What exactly is accounting software? It’s a tool that helps you record and report all of your business finances. It helps keep those business expenses organized.
This helps you to prepare for the taxes your business will need to pay during tax season. It also helps track deductions and write-offs that you might be able to make. Using accounting software makes it easier to sync expenses from different accounts. So let’s say you have a business checking account, as well as a business credit card. It helps you to automatically categorize your expenses.
Oftentimes you’ll need to do this for your taxes. So you’ll categorize them with things like maybe subscriptions versus utilities. You’ll also be able to see where you can make adjustments and understand what sales numbers you need to hit to reach your various business goals. There are a lot of different tools available. Do some research as to what is the best option for the type of business you have and what you’re looking to do with your accounting software.
But some popular options include QuickBooks, Xero, and FreshBooks. A business structure affects how much you pay in taxes, the type of paperwork you need to file, and your own personal liability. Your business structure can also affect your ability to apply for a loan or raise money in other ways. As you can see from this slide, there are many different business structures, which I’m going to review. Ideally, you choose a business structure before you actually start your business.
Now, if you’re already in business, you should definitely talk to a financial or legal expert to be sure that you have the right structure in place and are in compliance with any state or local regulations for businesses like yours. The first one we have is a sole proprietorship. This is typically the type of ownership we’d have for only one person. Your liability is unlimited personal liability. And your taxes will be personal taxes only. A business structure where you have a partnership could mean that there are two or more people within your business.
You have unlimited personal liability unless it’s structured like the limited partnership. Your taxes would include a self-employment tax, except for limited partners, and personal taxes. A limited liability company, which many of you have probably heard of, also called an LLC, is typically made up of one or more people. This means that you would not be personally liable for things that happen within your business. You would have to pay self-employment tax or personal tax or corporate taxes.
A C corporation is also one or more people. Owners are not personally liable. And they typically pay corporate tax. An S corporation, which is also made up of one or more people but no more than 100 employees total, all of which need to be US citizens, would mean that the owner would not be liable and would pay a personal tax. A B corporation, also made up of one or more people, would mean that the owners would not be personally liable. And they would pay a corporate tax.
A nonprofit can be made up of one or more people. Owners are not personally liable. And they’re typically tax-exempt, which means they wouldn’t be paying taxes. But corporate profits can’t be distributed. If you need help understanding these different business structures and what it means to pay a personal tax or a corporate tax, like we talked about here, and what it means if you’re personally liable for the things that happen within your business or if the business is only liable, the best advice here would be to talk to a tax professional or a lawyer.
But you can also go to SBA.gov or score.org. Both websites have information about different business structures. They can point you to experts in your local area who can give you a little bit more advice. Now that we’ve addressed some important first steps — separating business and personal finances, selecting accounting software, and establishing a business structure — it’s time to setup our budget. Phoebe’s photography business is starting to grow. As the business expands, Phoebe needs more space and would like to rent a studio.
But she needs to make sure that she can actually afford that monthly rental expense. So how exactly can Phoebe figure that out? She needs to start tracking all of her expenses. And she needs to create a budget. Let’s talk about how to do that. A budget is a plan that outlines how much money you expect to come in and go out every month. It also helps you to document expenses that don’t happen on a regular basis and prepare for future expenses. Maybe you’ve done budgets for yourself in the past.
Maybe you’ve done a personal budget where you can decide how much money that you can spend on things like going out to eat or groceries or your rent. Most businesses don’t have the same amount of money flowing in and out every month. It’s really going to depend on your sales and the variable expenses that you have. But a budget can help you to forecast your finances so you have a better idea of what to expect. It also tracks the actual amount of money earned and spent.
This can help you to spot trends and know how much money you need to save to pay expenses during the slower times. You can create a budget with accounting software. Or you can use tools like Google Sheets and even just a pen and paper. Like we said earlier, though, using accounting software tools can make this a lot easier. But if you use pen and paper, anything is better than nothing.
Your budget will help you to plan for expenses. Expenses are those things that you spend money on that are absolutely necessary to keep your business rolling. Some expenses, like a piece of equipment, are a one-time expense. For example, Phoebe might need to buy a camera. These only appear once in your budget or maybe once every few years. Other expenses, like payroll, rent, and utilities, are recurring. We typically see those on a monthly basis. This means that the expenses are part of the budget on a regular, predictable basis. But expenses are not always the same.
A fixed expense costs the same every month. Rent is a great example of a fixed expense. Typically, you know exactly what it’s going to be and how much you’re going to have to spend on it. A variable expense can be different each time. For example, you might have a recurring utility bill. But the cost is going to vary a lot depending on whether it’s summer or winter. All expenses should be part of your budget.
Since you can’t know the exact amount of variable expenses, you should forecast the expenses based on past costs. A great example of doing this for a utility cost — if you lived in the same place or you had the same business address last year, you might look at what you spent in utilities for the same month the previous year. It’s likely going to be similar based on the same month this year. If you haven’t started your business yet, estimating expenses can be a little bit more difficult.
Again, you can visit SBA.gov or score.org for more information. Here’s a fun challenge. Take a look at the expenses listed here on the left, things like rent, new computer, electricity bill, health insurance, supplies, and taxes. Consider each expense. Is it a recurring or a one-time expense? So just a reminder, recurring would be something that you would have to pay every month — so something like your rent or your utilities or a subscription or your internet. A one-time would be typically equipment-based.
Maybe you’re paying for a new computer. Or maybe you need to pay for a copy machine or printer at your office. And we also want to understand, is it a fixed or variable cost? A fixed cost would be a cost that’s the same every month, a subscription or rent, something that has a set cost. A variable expense would vary month over month, so things like office supplies. You might need ink one month and not need it the next month. Maybe the next month, you don’t have a lot of supplies that you have to purchase.
Or things like utilities, where it might be based on how much energy you use. Take the next two minutes and think about and write down your answers for each one of these. You’re going to write down if these expenses are recurring or one-time and if they’re fixed or variable. If you finish early, start writing down some of your expenses and what kind they are. This will get you started creating your business budget.
How did that go? Let’s review the answers to this challenge. Let’s talk about rent first. I used this as an example a couple of different times. We know that rent is typically a recurring expense. This is something that we typically have due the 1st of every month. We also know that this is usually fixed. Your rent usually doesn’t vary month over month. You usually sign a lease. And you know exactly how much that expense is going to be every month.
What about a new computer? Typically, a new computer is going to be a one-time expense. Yes, you might have to buy another new computer at some point, but usually not within the same year. And this is usually a fixed cost. It’s going to be one-time. So you’re not having any variables there. You know exactly how much it’s going to cost. And you’ll only have that expense once. Now, electricity bill is recurring, like our rent. But typically, an electricity bill is based on how much energy you use.
So that’s going to be a variable. Your electricity might be higher, for instance, in the dead of summer. Health insurance — this is one of those recurring costs we usually have due every month. But typically, we know exactly what our premium is going to be when we actually sign up for that insurance. So you’ll know that that insurance is going to be a fixed cost.
What about supplies? Typically, supplies are recurring, even if the same types of supplies are recurring. This is what we mean when we talk about categories. So for instance, printer paper versus printer ink — you’re probably not going to need ink every single month. But it’s still considered a recurring expense because it falls into the category of supplies. One month, you might buy ink. The next month, you might buy new pens and paper for your office. Those are both considered supplies, even though they’re different types of items. So they would be part of a recurring cost.
And they’d be variable. You’ll probably spend more on printer ink than you would on pen and paper. And lastly, taxes. Taxes — they come around every year. We have to pay them. So we can consider those recurring expenses. You might also be paying your taxes on a monthly basis or on a quarterly basis if you’re prepaying for some of your taxes. Also, these are variable. Typically, our taxes are going to be based on how much money our business makes every year. So we cannot consider that a fixed cost.
It would be variable. So how did you do? Did you figure all these out? Does this help you to start thinking about creating your own business budget and outlining those different expenses into both recurring and one-time expenses or fixed and variable expenses? Now let’s go back to Phoebe and her photography business. After listening to today’s workshop, let’s say that Phoebe decides to use Google Sheets to track expenses and start creating her budget. Depending on what she learns, she might decide that it’s time to invest in a new camera.
Before using Google Sheets, Phoebe needs a Google account. That’s true for most of Google’s products. She needs to set up a free Google account first. A Google account provides a single sign-in, username and password, that lets her access all the connected Google products. That’s what you can see on this slide, the web page where you sign into Google or you create your new account. If Phoebe signs directly into Gmail, which is automatically a Google account, she does not need to sign in again to access Google Sheets. It’s all connected.
And everything will be saved directly in her Drive. Now, if Phoebe doesn’t use Gmail, she can register another email address, like a business address, as a Google account by visiting accounts.google.com/signup. Once Phoebe signs into her Google account, she can access Google Sheets. That’s the name of Google’s spreadsheet tool. Google Sheets offer several financial spreadsheet templates as well. The image on the screen shows how to access these templates on a laptop. Phoebe would select New, then Google Sheets, then From a Template.
The templates make things simple. She’ll just fill in the numbers without creating the formatting formulas. This slide shows a Google Sheets annual business budget template on a laptop. Phoebe will access this template in the exact same way that we mentioned in the previous slide. This budget template can help her to track her business income and plan for expenses for the entire year. This is a great alternative if you don’t want to invest in accounting software.
You can use Google Sheets and several of the different template types within Google Sheets to track your earnings and your expenses all within a spreadsheet that will save automatically in your Google Drive and be accessible from anywhere. This slide shows an example of the Google financial statements template. Phoebe would like to use this template to maybe enter transactions, money going in and out of her business. The template also includes an editable list of categories for common expenses.
Typically, we will need these categories to give to our accountant if we are having an accountant do our taxes for us. Or if we’re doing our taxes ourselves, we’re typically have to categorize each of our expense types into things like supplies or equipment or utilities. Based on the data, the template automatically calculates several different financial reports for Phoebe.
Take a look at the Google Sheets template gallery to explore the available templates. The slide shows a preview of other templates available, things like invoices and time sheets. Before we wrap up, here’s a Google Sheets pro tip. If you want to make entering data into a spreadsheet faster and more consistent, try using the Data Validation feature.
Data Validation lets you create a dropdown menu of items in a cell. That gives you the ability to determine what data can appear in certain sections of the spreadsheet, making your data more consistent. In this example of a Google Sheet shown on a laptop, the sheet is set up to have a dropdown menu where the user can select if an expense is variable or fixed.
You could also use this for the different types of categories that you have for your expenses, maybe the different bank accounts you have for your business and where that money is coming from. It makes using spreadsheets just a little bit easier. So here’s exactly how we set up Data Validation. First, select the cells that you want the data to appear in. You can also select an entire row or an entire column. Go to the top of the screen and select Data. Then select Data Validation.
Then a pop-up labeled Data Validation appears with open fields and options, as shown on the screen. Under Criteria, make sure that you select List of Items if you’re going to list out the different items that you want to appear in that dropdown. Then type the words that you want to be those options. Put a comma in between the words that you want as options. In the example on the screen, we typed “fixed comma variable.” So in our dropdown menu, when you click on the dropdown menu, you’ll only see those two words. Then select Save.
The first thing that we want to do is open a separate personal and business account to make sure that those two accounts are separate. A lot of times, we might have our business expenses flowing through our personal accounts or personal credit cards. But it’s really important to keep all of those accounts completely separate. Next, you want to choose accounting software. Take a look at the options available and choose the tool that best fits your needs. If you don’t want to use accounting software, you also have the option of using templates within Google Sheets. Create a budget and then track expenses. You can also explore Google Sheets financial templates. Lastly, make sure that you work with an expert if you need help.
Sometimes you may need to consult with a lawyer or a tax professional. Or you can visit SBA.gov or score.org to get connected with volunteers in your area who can give you some free business mentoring. Keep an eye out for some of the common mistakes and try to avoid them. Do not combine business and personal accounts, including your credit cards. Trust me. From someone who knows and someone who has their own business, it can get really sticky come tax time when you have a lot of your different expenses in different places, especially mixed within your personal expenses. Don’t invest too much in your business too soon.
Make sure that you’re building up that revenue in the beginning and you’re focusing on things that you really need. And it can be really eye-opening to make a budget for yourself and understand what you’re spending money on and how much money is flowing into the business before you start making some of your bigger investments. Also, be careful not to overestimate future sales. We want to be realistic. As much as we want to be hopeful and think positively, it’s best to look at small growth on what we’ve made in the past. If you’re a new business owner, make predictions on a really conservative basis. Make sure that you also avoid poor cash flow management. You need to have a good understanding of when money is coming in and when it will go out again for things like expenses.
You should also be prepared for unexpected expenses. For example, if you’re a service-based business where people pay you 50% upfront and 50% when the job is done, you need to keep that in mind with your cash flow. How much do you need to spend on this actual client or on this service? How much of that money coming in, in the beginning, is going to go towards expenses? If you know you’re going to have more expenses than what’s coming in initially from a customer, then you need to plan to have some money set aside until the second half of that money comes in.
This is cash flow. We might mark a sale as such. But we need to know when the actual cash is coming into the business. Also, try to avoid skipping the accounting software. You don’t have to use it. But it will make managing your money much easier in almost every respect. Especially if you’re using a tax professional to help you with your taxes, it’s much easier just to send them reports from your accounting software so that you don’t have to do a lot of the work on the front end of doing your taxes. Also, don’t make business decisions based on gut instincts.
Always use the data. If you have information on how much you spent in expenses last year, it’s probably going to be similar to what you’ll spend this year, same with your earnings. So look at that data from the past of your business or maybe what other businesses are doing like yours. And make smart business decisions based on that. Let me share a few additional resources to help you grow your business.
You want to sharpen your business and marketing school — skills. If you want to sharpen your business and marketing skills, check out Primer. This is a free app that you can download from your phone. It has a series of short, fun lessons, all less than five minutes each.
So you can do it while you’re taking the dog out for a walk or you’re cooking a quick meal. And they’re really fun and easy and interactive. Another great resource is our Quick Help videos. Get answers and learn how to make the most of Google’s tools in just a few minutes.
