đ 12 Days of B&W Finance - Day 11 & 12đ
So, youâve read dozens of self-help finance books, listened to audiobooks on the train, been to Jordan Belfortâs seminars on smart investing and now youâre ready to take on the world!
At least, you think you are right?
You understand this isnât anything like the monopoly board game you got for Christmas all those years ago.
Your friends tell you stories, whispers in the wind on what they THINK you should do with your money, everyone always has an opinion on how they think you should lead YOUR life, but truth be told theyâve left out some major points and probably havenât given you the big picture.
While they all have their merits and offer some amazing takeaways, today we want to share our own nuggets of wisdom. Weâre joining days 11 & 12 and about to run through the insider scoop on managing your cash flow and why living expenses are so important to lenders in todayâs 12 days of Black & White Finance.
"On the twelfth day of Christmas, Black and White Finance gave to me: Twelve blogs for Christmas,
- Eleven cashflow tricks,
- Ten repayment tips,
- Nine ways to save,
- Eight specialist loans,
- Seven tips for auction,
- Six low deposits,
- Five lenders lending,
- Four guarantors,
- Three construction loans,
- Two different rate options,
- And a head start on my first home"
Pass Go & Collect $$$
First things first, if you want to manage your money effectively for the empire you build yourself, your family or your business, you need to stay on top of your objectives!
If youâre a business owner, you should get into the habit of sending your invoices as soon as you are able to, subject to the service you are providing of course. This could be seen as your basic 101 on how you operate, consider also asking for a deposit upfront depending on your line of work as well.
Once youâve gotten this crucial step down pat, itâs time to get into the bread and butter on managing your cash flow;
Be a shrewd diplomat â You donât want to be too lenient with your customers as they may take advantage of your good nature. You may have a great invoicing strategy but it will all be for nothing if you donât capitalise on your accounts receivable. So stay on top of your trade and have cheeky little reminders for yourself if youâre unable to have it automated.
Keep your personal spending and your business spending separate â If you mix the two together you wonât get an accurate reflection on business spending habits. Putting aside money to invest in your business as well as money you spend on yourself will allow you to properly budget for the future of your business and pay yourself accordingly.
Make yourself a substantial cash reserve for specific purposes, such as tax and GST in particular â Having a cash reserve is a crucial step in managing your funds as you never know when you may be subjected to unforeseen circumstances. If you have money set aside you can have peace of mind in knowing your taxes and GST are taken care of. Some of our Black & White Finance customers keep 30-40% of their monthly revenue in an offset (see day 9) linked to the home loan readily available to meet any tax or GST expenses all while reducing the interest they owe on their home loan.
Organise your accounting or get a good accountant on board â Need to purchase inventory but arenât sure how much to buy? How about purchasing assets for your business such as tools or a company vehicle? What about a property in the future? These are the questions you can answer with confidence if your accountant is on the ball. Many businesses miss out on massive growth opportunities by letting this one step get out of hand, donât be one of them!
These are the basic steps to being money savvy and while it may not get you on the front cover of Forbes, youâll at least be miles ahead of your competition.
Donât take a CHANCE, create your own monopoly of investment properties!
By managing your cash flow, not only as a business but as an individual too, youâll set yourself up and indirectly affect how lenders see you when applying for various loans.
The one thing they care about on an individual level is living expenses!
All the different lenders categorise your spending habits into two sub-categories;
Basic living expenses â These include your groceries, clothing you purchase, personal care, transport, & any owner-occupied rates and utilities you use.
Discretionary living expenses â These are childcare costs, education costs, insurance, medical/health costs, telephone, internet & everyoneâs favourite â recreational expenses (these are the costs of a night out on the town).
The lenders are checking your bank statements to see if there are any inconsistencies between what weâve told them we spend, versus what we actually spend.
Understanding how your living expenses affect your lending power can make or break your borrowing goals.The banks are looking to see if there are consistencies with spending which they believe could be apparent each month, for the rest of the loan term. So understanding this is crucial in putting yourself in a prime position to best portray your circumstances to the banks.
Free Parking? Thereâs nothing free about it!
So what does this mean for me and how do I increase my borrowing capacity?
Well, we now know the adequate steps and measures to take in order to effectively manage your cash-flow on a basic level and that the various lenders look at your spending habits to ensure you are a model customer who can meet serviceability.
Is there anything else?
How do the two tie in with one another?
If a Christmas tree falls in the woods and nobody is there to hear it does it make a sound?
In short, if that tree applied for a loan it can rest assured the bank would hear about everything it does.
There are a few ways you, as a potential borrower, can ensure all your bases are covered whilst setting yourself up for future success;
Ensure your living expenses are consistent for at least 1 month, knowing that some banks will look at 3 months of bank statements â Many different lenders have varying requirements on the period of statements they require, some need 1 whereas others need 2 and even 3, by having at least 3 you not only cover yourself but also give lenders no reason to knock you back provided you havenât spent absurd amounts on discretionary living expenses.
Keep a stable and positive credit score â While itâs obvious that paying your credit cards on time with no defaults is beneficial to you, did you know that there are also other factors which impact your so-called âcredit scoreâ. An example is moving house multiple times, which creates a negative outlook as does having multiple credit inquiries. Try your best to minimise the amount of credit you apply for, the last thing you want is to be deemed as having an âappetite for creditâ by the lender.
Minimise the amount of termed contracts you enter â When you sign up to one of the many internet service providers or having the latest mobile phone you may be acting in your best interests at the time, however, these all add up on your credit score and can be detrimental. Remember, higher credit score = higher lending probability!
There is always a lot that goes on behind the scenes, but basically put, the banks now know if youâve been repaying your personal loan, credit card or home loan on time. They know when you applied for a credit card and what facilities are open or closed. They see you when youâre sleeping and know when youâre awake (well maybe not to that extent but you get the picture).
You can get a copy of your credit file using mycreditfile.com.
Making a conscious effort to understand our spending habits and what your credit file could look like is essential to ensuring your own lending success. Understanding your spending habits and any prior commitments/repayments you may have are essential to ensuring your own lending success.
Final Thoughts
The final thoughts for these particular topics need no outro, instead, Iâd like to write a little bit about my experience with this 12 days of finance initiative.
Having only been with Black & White Finance for 2 months now, the team here has been nothing short of supportive of me in all my endeavors and when I suggested we do our own take on the classic Christmas song in a blog format everyone backed me 100%.
Writing on all these topics has been an amazing experience and really gave me an opportunity to experiment with different writing styles to create bite-sized, easy to digest information that could be accessed by all in a black and white fashion.
If you read along with us and kept up to date throughout the journey I thank you, thanks for putting up with the cheesy jokes and bad puns, thanks for the great feedback you provided as each blog came out, and thanks for helping to inspire some of these topics.
Itâs with your support and business that we can continue to grow and I look forward to continuing to write our future monthly blog posts.
There will be one final blog post at the end of this week to wrap up the year.
-Angelo
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