How to Set Your Financial Goals [1 Template]
Staying on top of your finances is definitely one of the hardest parts of being an entrepreneur.
Not only do you need to continually crunch numbers, but you also need to remember to put money aside as well as to meet deadlines.
You will learn here how much money you need to make every month and how to monitor your progress.
I'm sure you'll find this guide useful, but I highly recommend to talk to a tax accountant. A professional like that can give you peace of mind and help you make sure you’re ticking all the right boxes.
Setting your financial goals
Whether this is your first or tenth year running your own business as an entrepreneur, it’s crucial to set clear financial goals.
If you don’t do that, you’re gonna fail.
Setting clear financial goals can help you:
- Set the prices for your products or services.
- Determine how many clients you need to bring on.
- Plan a good marketing strategy.
- Develop ways to put money aside for taxes and pension contributions.
Determine a monthly budget estimate
One of the first things you need to do is getting a sound understanding of your spending habits.
I use this spreadsheet to keep track of my various expenses. You can copy the spreadsheet (click on “File” > “Make a copy”) and start using it straightaway.
Note: I’m planning to make a video on how to use the spreadsheet. When it’s ready, I’ll share that in the newsletter. Sign up to the newsletter here.
Your monthly budget estimate should be divided into 2 macro categories:
- Personal expenses: Rent, utility costs, groceries and takeaway food, social events, clothing and shopping, sport, home internet etc.
- Business expenses: Equipment costs, software, office supplies, business travel expenses, work internet etc.
Then, when you finally have a monthly figure, multiply that by 12 to have a good idea of how much you need to earn per year.
How to factor in taxes
When you have your own business, you’re responsible for setting money aside for taxes and pension contributions, which in Australia is called superannuation.
What’s superannuation? Superannuation, or “super”, is money put aside by your employer (or you as an entrepreneur) over your working life for you to live on when you retire from work.
How do you figure out how much money you need to make every month and every year to live comfortably and pay your taxes?
Start from the official tax bracket chart by the ATO. In this guide we are assuming that you operate as a sole trader.
These are the Individual income tax rates:
You can also use the simple tax calculator by the ATO to run some scenarios.
After you do your numbers, you want to add the amount you need for taxes on top of the annual amount you want to make and divide that by 12.
From now on, that is your north star. That’s the average monthly amount you need to make for the next 12 months.
As a fresh entrepreneur, that amount might fluctuate over time, but having that average in mind will help you make sure you’re on the right track.
Opening a Business Bank Account
Depending on where you live, opening a business bank account may or may not be required by law when you operate as an entrepreneur.
For example, in Australia, establishing a separate business bank account is optional. However, I highly recommend opening one so you can start tracking your expenses the right way.
Business bank accounts are incredibly useful for entrepreneurs. They are usually free to set up, and can help you manage all the payments coming from your clients, business expenses and tax payments.
A business bank account is a big part of setting your financial goals.
Now, assuming that your business bank account is up and running, let’s take a look at how you can start tracking your business expenses. This is one of the most important parts of managing your business.
Setting up a good tracking process will help you save money and avoid big headaches when it comes time to pay taxes.
Rules to Follow When Claiming Business Expenses
Here are some basics of what can and can’t be claimed as a business expense.
However, as I said earlier, it’s always a good idea to speak with a tax accountant and review the official ATO website regarding deductions and expenses.
Generally speaking, the rules to follow are these:
- The expense must be directly related to running the business; not for personal use.
- If the expense is for both business and personal use, you can only claim the portion of the cost that is used for running your business.
You must keep records to prove these costs are associated with your business. Keep receipts, invoices etc. However, there are exceptions to this rule for vehicles, home office costs, uniform expenses and more. See this page to learn more about deductions.
Examples of costs that CAN be claimed as an expense:
- Computer equipment and/or computer repairs
- Home office equipment
- % of phone bill used for business purposes
- % of internet used for business purposes
- Work-related travel costs
- Insurance premiums
- Vehicle repairs
- Fuel costs used for work
- Marketing costs
- Accounting fees
- Software subscription
- Hosting costs
Examples of costs that CANNOT be claimed as an expense:
- Personal travel expenses
- Childcare costs
- Entertainment costs
- Generic personal expenses
- Cost of running an unrelated business
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