Goals and Planning

Posted on Posted in Financial Planning

small-changes-big-differenceIt’s a new year, and you’ve probably already seen heaps of well intentioned articles discussing New Years Resolutions – what they should be or how to make them stick. One notable article, How Should You Manage Your Money? And Keep it Short, discusses simple, straightforward financial advice that’s short enough to fit on a 4-by-6 notecard. In the spirit of that…We’re offering some short financial advice focused on freelancers and small businesses that have international clients. The advice in a nutshell is – know where you’ve been, where you are, and have a plan for where you want to be.

Take Stock and Evaluate

Obviously, one of the first things any business would want to do is compare their revenue, net income, etc. to the previous year. That will enable you to drill down and see why there was an increase or decrease – the answers may be unexpected. Maybe the increase is the result of good old fashioned elbow grease – more clients or working longer hours. In my case, events outside our control attributed to a substantial portion of the increase. Specifically, the exchange rate played a sizable role in our revenue increase from 2014 – 2015, because most of our revenue was earned in US dollars. This chart shows just how much the euro has dropped vs. the dollar from January 2014 through January 2016:

From http://www.xe.com/currencycharts/?from=EUR&to=USD&view=2Y
From http://www.xe.com/currencycharts/?from=EUR&to=USD&view=2Y

Right now, if you’re charging in another currency that’s dropped in value like the euro has, your goods and services are now more affordable. In the short term, you could reevaluate where you want your clients to be, knowing that it may be more advantageous to work with them than it was in the past. Or if you’re like me – based in Europe but being paid in USD, it’s a good idea to recognize where some of this good fortune is coming from to help justify building up your rainy day fund. Since currency values oscillate wildly, try to squirrel away some of these gains you’ve received to help even out the bumps you’ll eventually encounter when the dollar isn’t as strong.*

Set Money Goals – Play the long game

After you’ve evaluated how your business has done, you can focus on the future. For me, setting financial goals is necessary – I want to have them lingering in the back of my brain, keeping me focused on the improvements that are most important to our business.

Setting goals is easy. Start by sorting them into three categories, then list what your plans are and estimate costs for each:

  • Short term: 1 year
  • Medium term: 2 – 5 years
  • Long term: 5 + years

Once you’ve spent money on one of your goals, revisit and update them with the actual expenses. If something was more expensive then anticipated, then readjust how much you’re willing to spend on your other goals in that category. If it was cheaper – that’s great! You’ve saved your business some expense that can be allocated to another goal if necessary.

*I’m not talking about forecasting currency – that’s a risky business. This is a strategy to help even out the bumps that will occur when you are paid in one currency and live on another.

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