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Are you managing…?

During 14 years of working in the financial services industry, I have noticed a fundamental underlying principle that seems to be true. How a person does one thing is most often how they do everything. So whether you succeed or fail may lie simply, just in how well you manage your success or failure.

In life, it seems that if we want something to go well, we must learn good management of it. So the topic I’d like to cover this month is management and hopefully in the process, impart some greater management into you! ☺

Firstly, let’s look at the definition of Management:

‘The organising of inputs and processes to attain outputs’

It’s easy to see that just by knowing more about what goes into the management of anything, you can improve significantly the outcomes you achieve from it.

As an example, I was actually a mechanic in my first few years out of school (and an accounting student at night!) As a mechanic I learned about the management of a car. If I look back now for some principles I learnt on ‘how to manage a car’, I would put them under three headings:

Inputs (Allowing me to start towards the goal)

Fuel, oil, coolant, water, tires, tire pressures etc.

Processing (Making the goal a reality)

Treatment or driving, scheduled maintenance, safety limits of the vehicle. 

Outputs (Goal)

How the car operates in future is always the result of the inputs and processes.

It’s easy to see how if I give the car the inputs it needs and know the boundaries the car has, I can protect the car from unnecessary damage and ensure it always gives me a good output – a pleasant drive that gets me to where I want to go!

On the other hand someone who is not so good at managing a car, would not check the gauges; the oil, coolant, water, tire pressures etc. They may for example, run their car almost dry of fuel regularly, which is very unhealthy for the engine. The inputs to the car would be less than what is required to keep it running well. Also they might corner too fast, brake too late, not park carefully, leave junk in the car to soak into the interior and the more often these things occur, eventually they have a car that diminishes dramatically in both value and workability – I am sure you may have been in someone’s car that is like this ☹. Now if that person knew the above fully, by being told by a good mechanic, do you think they’d still have managed the car like that?

I have found that when I have had a good manager they have always checked the essential inputs, ensured those responsible understood the processes and tasks at hand and as a result got a good outcome.  

I am sure you can see from this that if you want good outcomes, proper management is essential! So if we apply this concept to some of the more common wealth creation issues, we can probably free you up from some of the problems we as advisers see all the time.

As financial coaches we often see people who have run into trouble with money. The reasons for this are not the topic of this article, but the way to get a solution to those problems lies simply in management. As explained above, in order to manage anything well, it pays to know the subject. So as an exercise, take a look at the questions below to ask yourself how to improve your results with money.

Inputs (Allowing me to start towards the goal – improving income to allow surplus)

What job are you currently doing compared to what you are qualified for or capable of?  Could you take on more responsibility to get more income? Could you “upskill” to enable you to earn more?.

For an employee or business owner, could you improve your relationships at work?  (A US Gallup study I read said that a person’s relationship with their direct manager is the most critical “make or break” factor in their tenure with a company.)

For an employee, are you doing more than what you are paid for that could make you more valuable and worthy of a raise in pay? If not, could you increase productivity? If so, why not do it. ☺

For a property investor, are your rents fair for the tenants or are they too cheap? Could you increase the income from any investments you have? – Time for a rent review?

For a business owner, is what you’re paying your staff aligned with what your staff actually do to encourage expansion? – If not, it’ll pay you to work on changing that!

Processing (Making the goal a reality – good money usage)

What is the minimum amount you can earn and still live comfortably? We’ve found that knowing your annual budget is the most important factor to stopping wasting money. (A great budget tool is available from the government’s Money Smart website (https://www.moneysmart.gov.au/tools-and-resources/calculators-and-tools/budget-planner) You can download this planner in order to do an annual budget so you can look at your money more closely – if you don’t have a budget, this will help make you aware of yours.

What restrictions do you have in place to stop you wasting money? i.e. is money we want to keep, held in a separate place from our spending account? Do credit cards tempt you to spend? – If so, restricting access to them can help to stop them affecting you. 

Do you have any short term debts that are high cost? If so, can you consolidate them to lower cost debt and then form a regular payment plan to rid yourself of them? – If not, pick the highest cost one and pay it off at the highest repayment amount affordable.

Is saving for the future a fixed ‘expense’ in your budget? – One thing that is clear, the savers always seem to attract more money than the spenders. It is always encouraging when you ‘always save something’, even if it is a small amount. Start saving just a couple of hundred dollars a month and work up from there, it’s amazing how quickly it all adds up. ☺

If you receive more income than you expect/need, do you save it or spend it? When receiving a bonus, a tax return or an unexpected income such as an inheritance, it pays to plan out its use and move it to the most beneficial place. If not, it may lead to impulsive decisions and wasting the opportunities the money presents.  

Outputs (Improving outcomes – having a workable plan makes it easier)

A well drafted plan provides the motivation to ensure your inputs and processes concerning money are top of mind, and therefore well maintained. Finding a good adviser (financial coach) to help keep you accountable is critical to ensuring your long term financial future is a high priority.

Our relationship with money is the direct result of our the inputs and processes we apply to money. Reviewing the areas we can improve helps us into maintain good habits and in the end improves long term outcomes.

I hope this has provided some value to you.

Until next month, happy investing…..

For more articles on money management, please see our blog.

 

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