Moneywise24 Personal Finance

As I am an expat myself and always interested in culturally focused articles, I stumbled upon an article about the Dutch culture on Fluent In 3 Months.

You can read the article here.

Being Dutch myself, I very much enjoyed reading the article. One thing, that especially caught my attention is was a paragraph about the Dutch very much following an agenda, leaving little room for spontaneous meetups or undertakings.

If I look at myself, I think I am living by an agenda too. But to be honest, it didn’t use to be like that.

When I was much younger, I was much more spontaneous. I used to meet up with friends regularly, and it usually was enough to give my friend a call an hour before meeting up. When I was in high-school and in university, me and my friends were rarely using fully packed agendas to keep our lives organized. Perhaps with the exception of a few hours a week for sports training.

As soon as I started working full-time, my agenda started growing. Everything needed to be planned, because free time started becoming scarce. Sporting events have to be planned. Cinema has to be planned. My regular martial arts trainings have a recurring event in my calendar. Parties need to be planned. Read the rest of this entry →

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I have to admit: on several occasions I have really thought about starting my own business. And in fact, most people I know have had the same thoughts. The thought alone made me do some investigations about what to do in the initial stages, and how to approach setting up a company. And one topic I have consistently encountered is the business plan; a good business plan is absolutely mandatory prior to setting up a successfull business. Writing an excellent business plan serves two main purposes for the upcoming entrepreneur:

1. The business plan forces upcoming entrepreneurs to think over each and every aspect of their future busines; it forces entrepreneurs to dig into every detail of their idea, from the basic concept to the market and market developments, the name of the company, legal issues, financing, competion, personnel, and to put them on paper. A great amount of new businesses actually go bankrupt because of flaws in the business plan, or the complete inexistence of it.
2. The business plan is an important tool for convincing third parties to do business with you, be it banks, venture capitalists, friends and family, or investors. It is a marketing and presentation document, without which any company or person is unlikely to do business with you or lend you money.

The form of the business plan is quite irrelevant, it may be made using Excel, a word processing program, or another program specifically designed for creating business plans. Whichever method you choose, each business plan should be clearly structured, and should contain the following information:

The Management Summary

The Management Summary is the final summary of your business plan. It is usually at the very front of the plan, and it is intended to sum up the most important information for managers, who may not have the time to read through the entire document. The Management Summary is usually written at the end, when the rest of the document has been completed, and should contain the most important key facts of the business plan. Additionally, the Management Summary should convince the reader why the business will be so successful based on these key facts.

Business Concept

The business concept should provide the opportunity, that you have thought over all the aspects of your idea, its products and services, suppliers, and the market. What is it exactly what you want to sell? What makes it unique, or why is it going to be successful? How or where did you get the idea, and why are you so passionate about it? Explain the idea as detailed as you can.

Have you already identified your market? Who will be your customers? Where do they live, what are their living habits, and which age do they typically have? Are they individuals or corporations? And last but not least, how is your product going to serve your customers, what benefits will they have, and how will it make their life easier? Why should these people actually buy your product?

Additionally, find out who will be your suppliers, and include it also in the business plan. At what price will you be buying goods and equipment, where are the suppliers located? Will you be using only one supplier or multiple suppliers?

Company / Organisation

A company can have different legal structures. What will the legal entity of your company? For example, in the U.S. a Limited Company (Ltd.) is a legal entity, so is a sole trader. Legal entities differ strongly per country, the best source of information is your local chamber of commerce. What are the pro’s and con’s of that legal entity?

Also describe the future workflow in your future company. If you need personnel, how much do you need, and what tasks will there be for them? Who will be reporting to whom? Will they be full-time or part-time employees?

Location

Your business will need a location, and often the location makes the difference between earnings or losses. Explain thoroughly why you have decided for a particular location. By doing so you should take into account the infrastructure, costs for telecommunication, heat, water, average salaries and wages, taxes, buying power, etc. Gather as much information as possible. Perhaps you have access to databases, which are able to provide this information.

Competition

Researching competition can be quite time consuming. As with the rest of the plan, be as specific as you can: who will be your competitors, and which are the most important ones? What is the market share of these competitors? What is their pricing policy, and their method for distribution? How will your competition probably respond to your market entry, and what differentiates you from your competitors, i.e. what do you intend to offer what they can not?

Employees

This section is a more detailed elaboration of the requirements of the future employees. What tasks will they be having, who will reporting to whom, and where will you get your employees? Additionally, which qualities do you find important, and which salaries will you pay to which employee? How about taxes? Where will you find your employees? Will you advertise in the local newspapers or perhaps online? How much do such advertisements cost?

Advertising

How do you intend to make your potential customers aware of your product? Will you advertise, and if yes, where? How much does this cost? Be as specific as you can, you may even already design your future advertising campaign and attach it to the business plan. This will show others that you have truly thought about your concept in the greatest detail, and that you are serious about executing your plan.

Opportunities & Threats

Opportunities and threats are aspects of the business which are ‘out of control’ of the entrepreneur, and should not be confused with ‘strengths and weaknesses’. An opportunity of threat might be a specific trend, governmental developments, changes in buying power or tax, specific actions of your potential competition… anything that you can not control directly, but which should still be taken into account. A well written opportunities and threats analysis demonstrates that you are focussing long-term , and you are taking each and every possibility into account.

Goals

Here you can define the goals of your business. Where do you want to go after setting up the business? Where will you be in 1 year, in 3 years, 5 years and 10 years? Try to quantify your goals as much as you can, for example by stating:

In 5 years time, the business should have a market share of xx%

In 3 years time, the annual revenue should be xx US Dollars.

Finances

Last but not least, you will need to write down the projected initial investments, operative costs, and projected reveneues and taxes as detailed as possible. There are many factors to be considered here, and there are many templates available on the internet which you can download for free. Additionally, perhaps the best first point of contact would be your local chamber of commerce; they might have templates available which are specifically customized for your market, or they might know where to obtain such templates.

Writing a good business plan of high quality will take up much time, but it is essential for your future business to succeed. Perhaps, the business plan will in the end even demonstrate that your initial idea is not feasible at all, or that the company would not make any profits. In that case, be happy that you found out during the planning phase and that you had a chance to abort, rather than setting up the company without a plan.

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I was thinking a few things over last night, amont others how my financial situation would look if everything crashed: stocks plummet and I would lose my job due to a financial crisis. In my case, this wouldn’t look good at all.

Currently I keep 3 different bank accounts:

• a checking account, where my employer transfers my monthly income, and which I use for day-to-day expenses.
• a short-term savings account, which I use to park money which I do not need immediately. I use this money for clothes, a new computer, furniture, etc.
• an investment account, which I use to buy shares and make other long-term investments.

I figured, one thing is missing. What happens when I would lose my job, and my investments would plummet? Or if my house is burnt down and I need money immediately in order to start up again with having nothing? It came to me, that having an emergency account is actually of great importance. For me, an emergency account would ideally be an account which has virtually no risk of the money being lost. Probably, the best solution is a savings account, with a potentially low interest, where the money is ‘parked’, but always readily available, for situations when I would need money fast.

The Bank

Different banks have different policies. We may assume, that each bank will invest our money and our savings into some form of investment, share, or fund, and in exchange we receive an interest. My biggest concern when selecting a bank, is the amount which I am guaranteed to have when things go heavily wrong with the economy. We have probably all heard about the Iceland banks and its account holders, who lost all its money since the bank did not have enough reserves available when shares plummeted with the financial crisis in 2008. Myself, I am Dutch, and I know that my bank guarantees reserves of at least 25,000 Euros per account holder; the governement is thinking about raising this amount to 100,000 by law. Surely for those having some million Euros on their bank accounts, it poses a great risk. But for my purposes, it will definitely do.

Availability

The second criteria is that my money is always readily available when I need it. Firstly, this means that the account type itself is not locked for a specific number of years, and I am allowed to transfer money from that account to my checking account when necessary. Second, it means that the bank should have an online banking system available, which operates in real-time, and that transfers are conducted immediately. I currently have accounts at two different banks; one of them, for example, would withdraw the transfer amount from my account but keep it for a couple of days before transfering it where I want it. This means that the money which I might need in an emergency situation is not available for a few days; not good.

Interest

I do not want my money to sit around without any interest being paid. Since I will not be investing this money anywhere, I will look at the best interest deals available, within the frame of the two previous points mentioned. As such, my money can grow over time.

Amount

The amount, which should sit on the account, should be enough to either be able to live off it for a period of 6 month in case I have no income, or it should be enough to build a new existence from nothing. The exact amount, which someone needs should be determined on a case-by-case basis, but below is the calculation I made for myself:

• My monthly living expenses are approximately 1,200 Euros per month. These are only necessary expenses, which I will have in any case, and does not include clothing, excursions, or anything which I do not need to get by. 1,200 Euros over a period of 6 months is 7,200 Euros.
• Looking at the 7,200 Euros above, this is also quite sufficient to build up something new; initial costs for renting a new apartments, costs for moving existing furniture to the new place, or buying new furniture.

The biggest trick, ofcourse, is not to touch this money whatever happens. If I do not badly need it, it should simply rest on my account. Should I not have needed the money until my retirement, I can then use it as a small retirement bonus.

By the way: if I leave this 7,200 Euros sit on the account for 30 years at an annual interest rate of 3.0%, it will be worth 17,476 Euros by the time I retire; that is a really nice trip around the world.

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I have a few questions for you: Do you know your monthly net wage? Do you know how much money you spent on groceries last week? If you consolidate all of your accounts, including checking accounts, credit cards, and investments, how did your assets and liabilities develop per month during the past 6 months?  

These may seem some tricky questions perhaps, but how can you maintain a grip on your finances if you are not able to see how your finances develop over time, or if you can’t match your budget with your actual expenses? Making your finances transparent and visible is perhaps one of the first essential steps in gaining financial control.

 Doing your very personal bookkeeping means making your finances transparent. Bookkeeping does not need to be as boring as many people imagine it to be. Actually, it can be great fun, since you are actually seeing how, for example, specific changes in purchasing behaviour have a direct impact on your financial strength. Generally, Bookkeeping requires nothing more than a piece of paper (or a pre-printed book of household accounts) and a pencil. You will require separate columns for the following information: 

• Date of the transaction
• Credit amount, or the amount you received
• Debit amount, or the amount you spent
• Transaction category (e.g. groceries, real estate, living, automotive. You can define your own categories as you see fit).
• Payee
• Description / further comments

Alternatively, you can use a programme such as Microsoft Excel. Microsoft Excel offers the benefit, that you are able to set filters easily and create statistics. For example, if you would like to gain an insight on how much money you spent on automotive last month, you can set the appropriate filters and Excel will calculate this information.

If you are looking for an all-round solution, which allows you not only to do your daily bookkeeping, but also assist you in evaluating the results, you may want to consider purchasing a product such as Microsoft Money or Quicken. These programmes are specifically designed for personal finance purposes. They allow you to create multiple accounts, categories, budgets, and to enter all your transactions. In the background the programme will evaluate the data, and the programme may supply you with all the information you need.  Additionally, such programmes often allow its users to do research on companies and shares, and to plan possible future scenarios.

 The benefit of using personal finance software is tremendous; if administered regularly and precisely, you will know exactly where your money is coming from and where it is going to. Once you have your finances visible, it will allow you to make changes to how you handle money and the success over time.

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