Financial Autonomy

I’ve known Nish for over 25 years.  He was there when I started my first job out of school, and over the years our careers and lives intersected. These days, as well as being a friend, Nish and his family are also clients.  For many years Nish was a financial planner, even running his own firm for a period.  To have someone with that professional skill and background decide to engage me and my firm to act as their financial planner is to me, one of the greatest professional compliments you can receive. Today I’m really excited to share with you a little bit of Nish’s hugely successful transition from the corporate world to running his own photography business – Nish Photography.  But it doesn’t just stop there.  Because Nish and his incredibly supportive wife Janine made a second transition a few years later by making a sea-change.  Leaving the big smoke with its big mortgage and hecticness, and moving the family to a small seaside community about an hour out of Melbourne.  Nish and his family have never been happier.  I asked Nish how these two major transitions came about, and I think there is absolute gold in what he was able to share.  So let’s dive in and take a look at this real life example of someone who has achieved choices in life, true financial autonomy. So far in Financial Autonomy – the audio blog, we’ve looked at different transitions that you might make in your life – moving from being an employee to starting your own business, reinventing yourself after a redundancy, or rebuilding after a divorce.  In future episodes we’ll be exploring many more, like planning financially for starting a family, making a career change, and retirement. Today though I’m really fortunate to be able share with you a real life experience of someone who has successfully achieved not one but two major transitions. In preparing for this piece I interviewed Nish to gain a better understanding of how his move from the corporate financial world to running a photography business unfolded, and then how he and his family subsequently made the transition from inner city life to a small seaside community. I started by asking why he decided to make the initial move from the finance world, where he had worked in various roles for around 20 years, into photography. He attributed the initial steps in that direction to a discussion he had with a psychologist who encouraged him to spend more time and energy doing the things he loved.  His two great passions beyond his family were music and photography. So he took some singing lessons and picked up some small gigs playing his guitar and performing.  Now that’s no small thing.  First you need to acquire the skill of singing (he already knew how to play the guitar), then you need to have the courage to get up and perform in front of real people, and then you need to find venues and convince them to let you play, ideally with you receiving some money for the effort. He did it. Next came photography.  Nish told me he’d essentially missed the transition in photography from film to digital, so as with the singing lessons in pursuing his musical interests, there was a financial and time investment to be made in bringing his skills and equipment up to the level required.   He recognised that the singing wasn’t likely to be a viable alternative to his current career, but saw that photography presented the possibility of building a business and giving him an option to escape corporate cubicle captivity. So he launched his photography business as a side project, working on weekends.  His initial focus was family portraits and weddings.  He built his web site, and promoted himself through word of mouth.  He gained valuable experience and knowledge.  He operated this way, working his normal job, and developing his photography business on the side for roughly 12 months.  This is a great strategy to progress towards a transition, and one you certainly should consider if this is your financial autonomy goal. Eventually, and after a significant nudge from Janine, his wife, he quit his job and devoted himself full time to his photography business.  I asked Nish what steps they took financially to make this huge step possible.  The key things were:

1. Janine always monitored their family budget, and so had a good sense of how much income the household needed to keep afloat. She was therefore confident that they could manage on her wage alone for a period.
2. They changed their mortgage to interest only to reduce the loan repayments.
3. They approached the change as a 5 year plan, with the understanding that Janine’s income would be the primary income to the household during this period, and then at the end of that 5 year period, Janine could potentially pursue her own transition, perhaps working fewer hours, and Nish’s business would by then be at a level where his income could be the primary support for the household.

In addition to these financial planning steps, through Nish operating the business as a side project for a year, he had already identified that the relationship management skills he had learnt through his corporate career, were applicable to building his new business. He’d also started to get some corporate photography work, and shortly after moving into photography full time he pivoted the business entirely towards this corporate work, which has been a key to the success of his transition from employee to self-employed. So let’s break things down.  Nish’s successful transition to self-employment entailed:

1. A low risk trial for 12 months. Any money he made was reinvested back into the business.  This period wasn’t about making a fortune. The gain here though was knowledge and experience, not least of which was finding that his initial target market was wrong – family portraits and weddings, and that he was better suited to corporate work.  This is right out of the Lean Start-up approach of a minimum viable product.  Put your idea out to market with the lowest investment possible, and then get market feedback as to whether your idea, your concept is right.  Then use that feedback to change or improve your offering.
2. They had a survival strategy, as I explained in episode 1, mapped out. They had a household budget and knew their numbers.  They knew that with the mortgage repayment reduced to interest only, they could survive on Janine’s wage alone while Nish built up the business.  This knowledge was empowering to them both.  Without this knowledge, the stress levels would have been enormous.
3. They were realistic about the time it would take to build this new business – a 5 year plan. Nish and Janine embarked on this adventure, not with the expectation that the new business was going to be an instant success, but with a realistic time frame that enabled Nish to develop his skills and the relationships essential for the business in a sustainable, long term way.  Nish told me that it wasn’t until year 3 that he started to make a reasonable income.  I wonder how many people in a similar position, with less planning, would have quit after 12 or 18 months?

As inspiring as that story is though, as mentioned in the intro, Nish and Janine didn’t stop there.  About a year ago they made a second transition, moving from inner city Melbourne to a small seaside community about an hour out of Melbourne. Financial Autonomy is about gaining choice, and this move was in very large part, motivated by that desire.  Nish and Janine had always wanted to live by the beach, and indeed when in Melbourne, they were within range of the beach.  But beyond that, city property prices are expensive, and that means a big mortgage.  They wanted to have more flexibility around when and how much they worked.  Part of their 5 year plan was to be in a position where Janine could reduce her hours.  This sea change was an important step in making that possible. Once again, Janine’s handle on the family budget empowered them to know what was possible.  They were able to determine how much they could afford to spend in the new town, and then look around to see if the type of house this budget would allow, was suitable for their family. Pleasingly they found a home that fitted all their requirements, and Nish tells me that the whole family has just never been happier.  Like all parents, he worried about the kids moving schools and making new friends.  Well it took less than a day for his girls to settle in, and their happiness in this new seaside life has been a core ingredient on the overall success of the move.   I finished up my discussion with Nish by asking what advice he would give others who dream of gaining choices in life.  He offered four suggestions that I think are absolute gold:

1. Love what you do. Pursue your passions.  You’ll look back and think “why didn’t I make this change years ago?”
2. Talk to your partner and approach your transition to Financial Autonomy as a team. Nish freely admits that there is no way he could have achieved what he has without the support of his wife Janine.  She both gave him permission to have a go, and the nudge needed to take the plunge.
3. Don’t listen to nay-sayers. For both the career change and the sea change, Nish had plenty of people tell him he’s crazy. He relayed the story of some friends who were absolutely convinced the sea change was a terrible idea,

Starting a family is a huge step in a great many of our lives.  Bringing a new little human into the world.   So much hope.  Scary too!  Completely life changing. Financial Autonomy is about you taking control of your finances, and not being controlled by your finances.  The focus of this audio blog is to think through the financial implications of taking this big leap, and what you can do to prepare for this major transition in your life. Also, if you’re reading or listening to this during the pregnancy phase, and are anything like my household was prior to the birth of our first child, you’ve probably read enough books like What to Expect When Your Expecting, and Up the Duff.  I promise there will be no references to what pregnancy will do to your body, or any of the seemingly infinite ways we can be a terrible parent and ruin our child’s life. My name’s Paul Benson, and thanks for listening to Financial Autonomy, the audio blog.  Let’s dive into today’s episode, how to be financial ready to start a family. How to be financially ready to start a family could easily be rephrased as “How to survive on less income and with more expenses”. The stereotypical scenario is that dad continues to work full time after junior’s arrival, whilst mum stays at home and try’s to maintain her sanity.  Of course there are all sorts of permutations and combinations of how different families make things work, but almost inevitably, there will be less money coming into the household than there used to be.  On top of this, you now have an extra person in the household, who maybe doesn’t eat that much (yet!), but goes through nappies like it’s an Olympic event, and for whom every little cough is diagnosed by the new parents as likely bird-flu, requiring your next month’s wages to be donated to the local chemist. So financially, starting a family is a very big deal.  But with some planning, it needn’t be stressful.  Sleep deprivation will be stressful enough. So where to start?  You need to understand your cash flow.  How much money comes into the household, how much goes out, and where does it go? The cash coming in is fairly straight forward assuming you are an employee.  Possibly less so if you are self-employed, though hopefully you have a good sense of the normal cycles of your business and can forecast your income with a reasonable level of certainty.  If one of you runs a business and the other is currently an employee, there may be scope to split income after the baby arrives.  It’s a bit of a curiosity with the tax system, but two people each earnings $40,000 will end up with more money in their pocket after tax, than a couple where one person earns $90,000 and the other nothing.  This may also point you to a solution of each parent working reduced hours, instead of the more typical one at home and the other working full time.  Something to consider at the very least. So in terms of being financially ready to start a family, you’ve got a clear picture of what the income piece will look like once bubs arrives.  What about the expenses? Hopefully you’ve got a budget.  If not, visit the resources page on the financialautonomy.com.au web site and download our template.  Look up your bank statements via your internet banking, fill in the figures, and away you go. It is important to understand where your money is currently going and then think through how that will change once your family moves from 2 to 3 people (or maybe more if you’re really efficient!).  Maybe public transport fares will drop.  You may spend less on eating out.  But of course you will now have the cost of nappies and all the other bits and pieces a new born demands. Once you have your head around the numbers, it may be valuable to adjust to living on one wage before the baby arrives, assuming your plan is the most typical scenario of one parent at home and the other in the workforce.  If you can demonstrate that your household can manage on that one income, you can have a high confidence that you are indeed financially ready to start a family. Another approach that I have seen is where the couple assumes and focuses on mum staying at home for 1 year.  The solution they are trying to find therefore is not necessarily the long term plan, but rather just a one year solution.  Sometimes they approach it that way because planning further ahead is just too daunting.  Alternatively that approach might be adopted to recognise that there is a lot of uncertainty in this phase of a couple’s life.  Perhaps the member of the couple staying at home might hate it and want to return to the paid workforce full time as soon as possible, or at the other extreme, couldn’t imagine leaving bubs with a carer and wants to remain a full time stay at home parent beyond maternity leave.  Options around returning to work part time are not always known 12+ months out too, so sometimes, just focusing on the one year makes a lot of sense. So if you are focusing in on a one year solution to being financially ready to start a family, items like any maternity leave and perhaps annual leave entitlements might provide a significant portion of the solution.  I know of some couples who have arranged to take leave entitlements at half pay to extend the duration that they continue to have income coming into the household. The government’s Parental Leave scheme might also provide some very useful assistance.  This is paid at $672.60 per week for 18 weeks.  Eligibility is fairly generous.  Check out the link to see all the criteria. And whilst the Baby Bonus is now gone, you may still be eligible for its replacement, the Newborn Payment. In developing your plan to be financially ready to start a family, on-going government payments may well be an important element. The primary form of government assistance for young families is the Family Tax Benefit and the Department of Social Services web site explains the support available like this: Family Tax Benefit (FTB) is a payment that helps eligible families with the cost of raising children. It is made up of two parts:

• FTB Part A – is paid per-child and the amount paid is based on the family’s circumstances.
• FTB Part B – is paid per-family and gives extra help to single parents and families with one main income.

Family Tax Benefit – Part A. If household income is less than $51,904, you will receive the maximum entitlement.  Beyond that, your entitlement depends on the number of children that you have and their ages. As mentioned in the summary above, this is a payment paid per-child. For those about to have their first child, you would cease to be eligible for Family Tax Benefit - Part A once household income reaches approximately $100,000.  The link provided shows a table to explain how this works. If you qualify for the maximum payment, for a new born you would receive $182.84 per fortnight currently (April 2017).  This is certainly a handy amount and well worth incorporating into your cash flow plans. There is also a Family Tax Benefit – Part B. This is potentially another $155.54 per fortnight.  As per the summary mentioned earlier, Part B is a per-family payment and focuses on households with one income.  It is therefore often relevant for couples starting a family.   Where one member of the couple is at home full time, you will receive the maximum Family Tax Benefit - Part B, if you’re working partner’s income is less than $100,000. There are also supplement payments added to both Part A & B at the end of the year in some cases, which can act as a handy lump sum. The various means of government support are certainly not easy to get your head around, but for those eligible they can be very helpful in making the household budget work, so take some time to look at the various links and aim to arrive at an estimate as to what you might receive.  To summarise, there are 3 likely sources of recurring payments:

• Parental leave scheme – 18 weeks
• Family Tax Benefit Part A – a per child benefit
• Family Tax Benefit Part B – target at single income households

  Child care is another likely new expense that may need to come into the family budget.  Whether it’s to enable you to return to some paid employment, or just to get a sanity break and a few things done in peace, childcare is often a meaningful expense in a family’s household budget. The cost of child care is subsidised by the government via the Child Care Rebate.  This will cover 50% of the cost of childcare up to certain limits.  A day of childcare at a child care centre is likely to cost around $100 per day, or $50 after the child care rebate.  This varies quite a bit depending on where you live though, and there are solutions like family day care that in some cases are cheaper.   Whilst not something that you need to immediately factor into your household budget once bubs arrives, a final tip that has been really he

One fantastic and I find often overlooked way to achieve financial autonomy is to buy an existing business.  In comparison to starting your own business where cash flow starts at zero and you need to support yourself whilst the business becomes self-sustaining (refer episode 1), when you buy an existing business, you have cash flow and customers from day one. Buying a business is something I can talk about with quite a bit of experience.  I’ve bought two businesses, and for a couple years I was a licensed Business Broker as a side line to my financial planning practice.  The thinking at the time was that my business owner financial planning clients would need to sell their businesses when they retired, and so perhaps offering business broking services was a sensible expansion.  I ended up concluding that the two services weren’t especially complementary, but I picked up some great learnings that make me a better advisor for my business owning financial planning clients, and for those seeking financial autonomy through buying a business. Just as an aside, something that I believe really strongly about business endeavours, but also life more broadly, is that we can’t be afraid to try.  I heard someone trying to sell business coaching recently and their tag line was 98% of business fail within 10 years. What a ridiculous statement. I assume their definition of failure is that the business isn’t around 10 years from when it started. So? Does that equate to failure? I operated as a part time business broker for 2 years and then made the decision it wasn’t sensible for me to continue to devote time and effort into that area.  At the end of that period I had $35,000 sitting in my Business Broking bank account, and had learned an enormous amount.  In fact even if there was no money in the bank account from that business, I’d still say it was a success because I learnt so much. So if you hear people trying to convince you that your plan or idea will never work because most businesses fail – don’t believe it. People start businesses, and people wind up businesses.  Their lives change, new opportunities come up, industries change.  Sometimes people just come to the conclusions that they could make more money doing something else. That’s not failure – that’s having a go and then having the intelligence to reflect and chose a new path.  In Silicon Valley jargon, that’s a “pivot”. Anyhow, sorry for the rant but that’s just something I feel strongly about – you can’t live your life being afraid to try.   So when you look at buying a business, here’s the process: You search the various web sites such as businessforsale.com.au and find a business that looks interesting.  You submit an enquiry to the broker.  The broker will send you a Confidentiality Agreement which you need to sign and send back – most business owners that are selling want to keep it quiet.  They don’t want their customers and staff to know that they are looking to exit. The broker will then send through to you an Information Memorandum (IM).  The level of detail in here will vary depending on the scale of the business and it’s complexity, but the IM will give you some good information about the business, it’s history, and some figures around how revenue and profit have been tracking. Having read through the IM you should be able to determine whether this is a business you really want to look into in a serious way.  Expect to look at quite a few IM’s in your hunt for a business.  They cost you nothing and it’s always useful to see the figures for different businesses. So let’s say you’ve found a business that looks like it may fit your needs.  The next step will be to get the detailed financials – at least 3 years worth.  So what to look for? The Profit and Loss is the most important. First of all, is the business making a consistent profit?  This will be the number at the bottom of the Profit and Loss.  If it’s losing money it’s tough to see how it’s worth anything, so let’s assume it is showing a profit. Is that profit after the owner has received a wage? There should be a wages or salaries item in the Expenses section, and often in the financials there will be an explanation of what this is made up of.  If it’s not completely clear, go back to the broker and ask for a breakdown of what the wage’s expenses are. It is very common in a small business for the owner not to take a wage, and just live off the profit. Consider this example.  One business you look at shows a profit of $30,000 last year.  The other a profit of $90,000.  At first blush the second business looks more attractive.  But you dig a bit deeper.  You find in business one that in fact the business owner has paid himself a wage of $80,000, and also paid super of $25,000.  In business two however, you learn that the business has paid nothing to the owner, and in fact in this case the husband works on the business 6 days a week and his wife does the book work one day a week.  $90,000 rewards for all that effort is starting to sound less attractive. So you need to get an understanding of what is the actual return to the owner. It wouldn’t be unusual to find the business owner running his car through the business.  I’ve seen instances where the entire families’ mobile phones all go through the business.  So go through the expenses, ask lots of questions, and get to a point where you know how much the current owner is actually making out of this business. So as an example you might find a business that made: $30,000 profit $80,000 in owners wages $25,000 in owners super contributions $15,000 in owners vehicle expenses that aren’t essential to the operation of the business $5,000 in other expenses related to the owner. So add this all up and the total return to the owner for this business is $155,000. There may also be depreciation in the expenses.  This is a non-cash item reflecting the value of equipment wearing out.  You may want to add this amount to the return the owner receives as well. This is less clear cut because at some point that equipment will need to be replaced.  If depreciation is a large amount, you’ll need to dig a bit deeper into this and it may be something to discuss with your accountant. However you decide to best treat depreciation, you will have arrived at a total return to the owner in the most recent year. Now run this same calculation across the previous year’s financials so you can see how stable this is.  Was last years $155,000 earnings a typical year, or abnormally high or low? You won’t get it from the financials, but once you understand the total return to the owner, ask the broker how many hours the owner is putting into the business.  Earning $155,000 might be acceptable to you if she’s putting in 40 hours per week, but perhaps, if to earn this, the owner is working 7 days a week and 12 hours a day, maybe that return isn’t so attractive.  In reverse you might come across a business that only returns $30,000 to the owner each year, but if it only takes up 2 hours a week of the owners time, maybe that’s a really good business. Okay, so you’ve now got a good sense of what the current owner is making from this business, and how stable that is.  The next thing I’d go to is trends. Start with the total revenue and total expenses items.  I’d put them in a spreadsheet myself but it’s up to you.  You’ve got 3, maybe more years of data.  What is the trend?  Now we’d all like to see a trend of rising revenue.  In my experience though, business owners are just like elite sports people – rarely do they get out at the top.  So don’t be surprised if you see declining our plateauing sales.  Whatever the trend, you need to understand what is going on as this will definitely have an impact on whether you want to buy this business, and how much you would be prepared to pay. Often at the revenue level income will be broken up into several sub-categories – what is that telling you?  Is one area of the business dying?  Perhaps another is growing. Similarly at the expenses level.  What is happening there?  Have input costs or wages been rising faster than revenue? Having gone through the process you should have a whole bunch of really intelligent and insightful questions to ask the owner.  You also have a good basis upon which to talk price. You could ask all your questions to the broker, but I would suggest you ask for a meeting with the owner at this point so you can get the answers straight from the horse’s mouth.  A direct discussion is likely to give you far more detail, plus you can gain a lot in the non-verbal cues. On price, don’t be surprised if, having gone through the financials, you struggle to make sense of the price being asked.  For many business owners their business represents their life’s work and in their mind it is a gold mine worth millions.  Do your own numbers, determine what you as the owner could make out of this business, and from that what is a sensible price for you to pay.  Typically that will be 1 to 3 times what the business will make for you each year depending on the trend of revenues and profits, and the industry.  If you come up with a price that makes sense to you of say $300,000, and the owner is asking $900,000, don’t be afraid to tell the broker that based on the numbers and information provided, it only makes sense to you to pay $300,000.  Don’t throw in a ridiculous low ball offer just to play games, because that will just piss people off, but if you s

I’ve named this podcast Financial Autonomy. So what is Financial Autonomy? What does it mean? Well that’s what we’re going to explore in today’s podcast I’ll give you a big hint – Financial Autonomy is about gaining choices in life. Buckle up – let’s dive in! Financial autonomy or financial independence if you prefer, is about being in a financial position to have CHOICE. In my role as a financial planner, every day I talk to people about their financial plans.  In almost all cases, amongst their financial goals will be retirement plans.  For the past 50+ years, most people in developed countries such as Australia have lived on an expectation that they will enter the work force in their late teens or early 20’s, and work through until somewhere in their 60’s, whereupon they will cease work entirely and live out their remaining days in “retirement”. This scenario is perhaps a bit male centric, as for many women, paid employment is often put on pause when children arrive.  But none the less, in more recent times this is a rough sketch increasingly applicable to both the sexes. [caption id="attachment_13" align="aligncenter" width="919"] Financial independence[/caption] Whilst this trajectory remains applicable for many people, increasingly the feedback that I’m getting is that this is not how many people wish for their life to unfold.  Instead they seek a path perhaps looking more like this: Financial autonomy, is about getting yourself in a position where you can move to yellow section above. Where you have CHOICES. Where you don’t have to work in a job you hate, or with a boss who is a moron, simply because that’s your lot in life until you reach 65. Financial autonomy might mean reducing your normal paid employment from 5 days per week to 3 or 4.  And in those now freed up days, you might chose to study, do a different job, care for your kids or grandkids, or get involved in the local community. Financial autonomy might mean a career change.  Initially the pay might be less, maybe even permanently so.  But you spend a lot of your life at work.  Do you really want to waste so much of the limited time you have on this earth in a job you hate? Financial autonomy might mean starting your own business.  There will be many challenges and certainly risks.  But you will have the flexibility to work when and how hard it suits you. Do something you are passionate about.  Take holidays when it suits you.  And if your son or daughter is getting presented with a student of the week certificate at assembly, you can go without having to ask the boss for a favour. Whilst financial independence in the extreme might mean not having to work again, for most people this is not what they want.  Financial independence is about having choices in life. So where to start? First you need to clearly identify your goal or objective, and then you need to quantify it. Vague “one day I’d like to …” won’t get you anywhere. Let’s say that your goal is for a career change.  You currently work as a company accountant but have lost the passion for this profession and are finding the stress too great.  You would really like to re-train to become a primary school teacher, something you feel you were born to do.  So what are the financial challenges associated with this change?

1. To retrain you would need to take 2 years out of the paid workforce to attend uni and  complete the on-the job training required.
2. The pay for a teacher will be lower than you are currently on – approximately $30,000 per year less initially you estimate, though this will narrow a bit as you gain experience.

You and your husband own a house with a mortgage of $300,000.  Your husband works full time, enjoys his job, and believes it is quite secure.  As a household therefore you have confidence that during your training period, some money will be coming in from your husbands earnings. But what if any, is the shortfall?  , ie. what is the difference between your husband’s take home pay and what it costs to keep your household afloat? You need to know what you are spending. We have a budgeting tool in the Resources page of our web site.  I know household budgeting is no fun, but there is just no way you can gain choices in life through financial autonomy without knowing how much it costs you to live. So let’s say mortgage repayments are $2,100 per month, and from the budget tool you have determined that your living expenses average $2,600 per month, and bills average another $1,200 per month.  So your household expenditure is $5,900 or $70,800 per year. You should allow some money for the unexpecteds, so let’s assume $75,000 is the current need. Note that we have not allowed for lavish holiday’s here, or a new car.  This is just what the household needs to function. Your husband’s bring home income is $53,000.  This is after tax and lease payments on a car. This is net income. So you have a shortfall of $22,000. To achieve your goal, this shortfall needs to be plugged, both during the initial 2 year training period, and then longer term.  In our next post we’ll look at some potential strategies you might be able to deploy to plug this gap. Congratulations.  You have taken the first definitive step towards achieving financial independence and being able to choose the life you want to lead.   So let’s summarise.  To begin your journey towards financial autonomy and gaining choices in your life, you need to: 1 – determine your goal or objective 2 – quantify - how much money do you need to make this a reality?   Important Information: This information is of a general nature only and has been prepared without taking into account your particular financial needs, circumstances and objectives. While every effort has been made to ensure the accuracy of the information, it is not guaranteed. You should obtain professional advice before acting on the information contained in this publication.

Redundancy – not something most of us like to contemplate. Yet it is a reality for many of us in our working life. So rather than redundancy being seen as something negative, let’s flip it around - your redundancy could be the best thing that has ever happened to you. Financial autonomy is about building financial strategies to give you choices in life. And very often these choices present themselves at moments of transition. In this case, your transition is leaving the comfort of a work place you’ve been at for many years, maybe even decades, and moving onto the next chapter in your life. Today’s podcast will explore how you can make this transition a successful one. I’m Paul Benson and you’re listening to the Financial Autonomy audio blog. Let’s dive in!   It’s not you, it’s them. Over the years I’ve dealt with many people who have been made redundant and so I know it can be a huge confidence sapper. But I want to tell you, if you are currently facing redundancy that you being made redundant is almost never about you – your performance, skills, or work ethic. You’ve been made redundant because the industry has changed, or the company you work for has changed. In some cases there is simply a natural pyramid structure with lots of workers needed at the customer facing coal face, but far less managers and senior people as you move up the pyramid, such that workers need to be shed over time to accommodate the new blood coming through. Being made redundant can be distressing – how will you keep a roof over your head and food on the table? Where will you find a new job? And there is also the loss of regular contact with your work colleagues. But there are positives too. Give some thought to the opportunities your redundancy presents. In a career sense, perhaps you can try something different. Maybe you could start your own business. Perhaps the payout you receive puts you in a stronger financial position so you can have more flexibility in your working life. Does it continue to be essential that you work 5 days per week? Financial autonomy is about building financial strategies to give you choices in life. And very often these choices present themselves at moments of transition. In this case, your transition is leaving the comfort of a work place you’ve been at for many years, maybe even decades, and moving onto the next chapter in your life. Be completely assured – you can make this transition a successful one, and we’re here to help you do just that. Before jumping down the first path that presents itself, let’s take a moment to consider the range of options you have available. I’ve come up with 8 – let me know if you can think of more: 1. Apply for a new job in the same field as you are currently working in. 2. Apply for a new job in a completely different industry, but which still draws on some of the skills you have built up in your old job. 3. Retrain to do something completely different. 4. Start a business to become self-employed. 5. Buy an existing business. 6. Freelance. 7. Work part time and pursue other passions 8. Retire Applying for a new job in the same industry that you were in probably doesn’t require a lot of planning. If you worked in a bank for instance, there is every chance that you will find work at another bank. For many, this is not an option due to industries winding down, or they’ve simply had enough of working in that sector. I’ve worked with a client who was on the production line at Holden, and is now working in the food manufacturing industry. He’s in a completely different industry, but it still utilises many of his skill in production line automation. Someone else I know worked at Kodak. When made redundant from that dying industry, he found work at the company that prints our bank notes – different industry but still using his skills. Take a step back – what other industries use the skills you have? This redundancy could be great opportunity to move from an industry in decline into one on a growth path. Retraining can present another great opportunity. Often we finish our formal education and then fall into a job – just go with the flow a bit. Before we know it we’ve got a mortgage and perhaps a family, and the thought of changing stream now is just unfathomable. But a redundancy might provide the perfect opportunity to make that change given you will receive some sort of payout to reflect years of service. With some good planning around managing your cash flows, this redundancy might give you the opportunity to finally pursue the thing you were born to do. What about starting a business? In episode 1 we looked at getting yourself into a financial position to start your own business. We made this our first episode because this is an ambition for a lot of the people we work with. Making it a reality is tough though because most businesses make little money in the first year. But your redundancy package may be just the thing you need to make that transition a reality. If you haven’t listened to or read episode 1, be sure to check it out. Sometimes with redundancies, you get some lead time. The automotive industry for instance, where we’ve seen a lot of redundancies here in Victoria, put their workers on notice over a year ahead. Whilst this doesn’t make for the most positive of work environments, it does provide you with the opportunity to start planning your next step in life. I had a client who started a test and tag business in his local area that he was just doing on weekends. He did the training, got some business cards printed, and went around to some local businesses and asked if they needed his solution. He picked up half a dozen customers, which as a side job was enough. But it meant that when he was made redundant almost 12 months later, he had something to develop. He knew what services customers were willing to pay for, what his pricing needed to be to make it attractive to customers but also worthwhile to him, and he had ideas around how he could best grow the business – in this case having customers geographically close together was essential to operate efficiently and profitably. Another option I’ve seen some people pursue is to buy a business. For a couple of years, in addition to being a licensed Financial Planner, I was also a licensed Business Broker. My thinking was that for many of our business owner financial planning clients, selling their business was an important aspect of their retirement plan. So I started researching how that process unfolded and ended up deciding to give it a go myself. I handled several sales, which was really valuable experience, however I decided to cease doing the business broking as my financial planning practice grew and I felt my time was better spent there. So I’ve got some good learnings to share with you on buying a business, and I plan to write several future posts on that topic. For now though, I suggest just putting the idea of buying a business on your radar as an option. I find it’s an option often overlooked. Sure you can start a business from scratch, but that is no easy road. If you can find a business operating in the area of your interest, perhaps you can buy it, run it as is for the first 6 or 12 months to understand why things are done the way they are, and then change things to make it your own. Offer new services to the customer base, or go out an attack a new customer segment that the previous owner had overlooked. At least you will start day one with some cash flow and some customers to talk to. Google “businesses for sale” – there are several web sites that advertise businesses that are on the market, just like real estate sites. Freelancing is another really interesting option, with the internet just opening this area up massively. Upwork, Airtasker, Uber, Fivrr, AirBnB. Just so many ways you can turn skills that you have into dollars. No boss. Work when it suits you, and work as much or as little as you like. Perhaps linked to this, after your redundancy, do you still need to work 5 days per week? Maybe part time work, or freelancing, will provide enough income to meet your needs, and in the time now freed up, you can pursue other interests, help family members, or do community work. Uber drivers often have interesting stories in this regard. I met one guy who did security at big sporting and music events, and Uber at other times. What worked especially well was turning on his Uber app when it was time to go home from a big event. Usually there’d be plenty of people looking for a ride, so he’d get paid to drive home. I met another lady doing Uber driving who worked in the first half of the day, when her husband was home, and then around the middle of the day, she knocked off, he headed off to his job, and between the two of them, the kids were looked after. The point is, work doesn’t have to be one employer, with you starting around 9am and finishing around 5pm. There are so many more options now for how you structure your working life, and this redundancy might just be the ticket that enables you to take advantage of these options. The final option that I came up with earlier was retirement. Perhaps the redundancy provides you with the chance you were looking for to retire early. I can recall helping one client who had young grandchildren and really wanted to help her daughter care for them. A redundancy package was the best thing that could have happened for her as we were able to set her up to not need to return to the paid work force.

So you’ve decided you’re ready to take the big plunge and start your own business.  Congratulations.  Having transitioned from being an employee to running my own business, I can tell you, you will be in for some challenges, but also many rewards, not least of which is flexibility in how you manage your time.  I know of self employed people who like early morning, quiet, thinking time, and so choose to work for 2-3 hours from 6am, then take a break, do some exercise, have something to eat, and sit back down to continue working late morning.  Others work better at night, hitting full stride at 10pm and working through until the early hours.  Of course many businesses require you to be on deck during normal business hours to respond to customers, but even here you have flexibility, especially when you employ staff, to decide when you will be “at the coal face”.

So you’ve made your decision, but how to be financially ready to start your own business?  You need a roof over your head and food on the table.  Perhaps you have a family to support.  Most often the thing holding people back from taking the plunge into self employment is the financial worry.  But that is where good financial planning comes into play.  I don’t know about you, but sometimes I have pieces of work that need doing, and I just really don’t want to do them, primarily because I don’t know where to start and so it’s daunting.  So I keep pushing them aside thinking maybe I’ll feel in the mood to tackle that one tomorrow.  Eventually I bite the bullet and my usual strategy is to make it the first thing I do in the day.  So often, once I get cracking, I find it actually wasn’t nearly as big a deal as I had thought, and the piece of work I had been dreading is knocked over in half an hour.  Now whilst a financial plan to get you ready to start your own business will certainly take more than half an hour, I think it is common for people to put off planning for the move because the thought of doing the planning is just too daunting.  They just don’t know where to start.  Well let’s solve that for you!  None of us are getting any younger, so the sooner you transition into the thing you are passionate about, the more of your life can be devoted to that dream instead of clocking in doing something that is not totally fulfilling. There are two elements required for you to be financially ready to start your own business – a Survival Strategy, and a Capital Strategy.  By Survival Strategy I mean how will you (and your family if relevant) survive financially whilst you get this business off the ground?  How will you maintain a roof over your head and food on the table?  The Capital Strategy concerns your new business – how will you fund the start up costs, marketing, perhaps fit-out costs and the like? Step 1 – the Survival Strategy The starting point in developing your survival strategy is for you to be clear on how much you spend.  That means doing a household budget.  Now I know that for most people doing a household budget is about as appealing as taking an ice bath in the middle of winter, but if you want to transition successfully from being an employee to running your own business, it just needs to be done. I would set-up a spread-sheet (I have created one you could use, which can be found in our Resources page here), but if you’re not comfortable with that, hand written on a piece of paper will work too.  Set up something like this: Start with your housing costs – mortgage repayments or rent.  These are likely to be your largest expense.  Of course if you’re lucky enough to own your house without a mortgage, well done you, you can skip past this bit.  Record expenses as either weekly, fortnightly, or monthly, and then tally that to a yearly figure (the sample spread-sheet will do this automatically for you.) So now you know how much it currently costs per year to live.  Save that one, now create a second version with what is necessary to survive.  Let’s be realistic – if you want to pursue your dream of starting your own business, some sacrifices will be required.  Perhaps you will need to forgo an annual holiday.  Maybe spending on clothing and eating out will need to be cut back for a while.  Short term pain, long term gain! An option you may be able to explore if you have a mortgage is reducing your loan repayments down to the minimum required, as most of us, very wisely, pay more than the minimum.  You could also explore having the loan structured as interest only.  In both cases this is not intended to be a long term thing, but it may be helpful for a year or two as you get established in your new enterprise. Okay, so you’ve crunched your numbers and the minimum amount of money you need to survive is let’s say $42,000 per year.  I would divide that by 12 to get a more meaningful number of $3,500 per month.  Now of course bills are lumpy so some months it will be a little more and some a little less, so a bit of a buffer of cash in the bank is needed.  But you now have a target to hit – for you to progress your dream of starting your own business, you need to be able to generate $3,500 per month as a minimum. The next step in devising your survival strategy is thinking about how many months it will be before you first start having enough revenue in your new business to begin drawing some income.  This will vary greatly from business to business, but whatever period is your best guess, from my experience, double it.  So you’ve done some basic business planning (a topic for another post), taken a best guess at what revenue you’re likely to raise and what your expenses will be, and determined that you would be in a position to start drawing some income from your business 4 months after commencement.  This will be wrong.  No matter how hard we try, these forecasts are just educated guesses.  Which is why I say, whatever period you estimate, double it. So we need to assume in this example that you will have no income from your business for the first 8 months.  So where is the $3,500 per month going to come from?  When I left my employee role to start my own business, I had several months of accrued long service and annual leave that was paid out.  This covered several months of expenses and was essential in enabling me to make the transition to self employment.  Perhaps you have money available to redraw on your home loan.  Maybe you need to find a part time job to bring in some income whilst you get your business going.  Perhaps some freelancing via sites such as Upwork, Airtasker, or 99Designs.  Think broadly, ask around for ideas.  You may have a partner generating income which covers some or even all of this minimum income need.  Every solution is unique, but develop your survival guide and you are well on the way to achieving your dream.

Step 2 – the Capital Strategy Okay, so you’ve got a solution to keep a roof over your head and you wont starve.  Wow, you can taste it now can’t you?  This transition to your own business might actually be able to become a reality. Now how will you fund your business?  That’s where the Capital Strategy comes in.  Spread-sheet time again! Many business these days are service businesses, and so start up costs are fairly low.  Certainly when I set out to open my financial planning business, I needed a computer, a mobile phone, some stationary, and not a lot else.  I was able to rent a serviced office which included furniture and an internet connection, and I joined a network that provided access to the research and planning software that I needed, and who waived their usual monthly fee for the first 6 months to give me a chance to get going.  You might be able to work from home initially (maybe permanently although most people I speak to find this a bit lonely long term – we are social creatures, at least for parts of the day!). Once again, I have created a spread-sheet that you might want to use.  It is in our Resources page, which can be found here.  None of the cells are locked, so chop and change it as required. With this completed you will know how much cash you need to start your business, and then how much you need on a monthly basis to remain afloat.  For many services businesses, the initial capital required is pretty low.  You may be able to fund this out of savings, redrawing on your home loan, or perhaps a loan from a willing family member.  If your business requires significant equipment, then typically the seller of that equipment will have a financing solution whereby you can lease it over several years. I suggest doing a little reading on the Lean Start-Up methodology.  There’s plenty of article about it on the web.  It may have some application for your business. The monthly requirement for the business to survive can hopefully be meet fairly quickly via

A brief outline of what we'll be doing in the Financial Autonomy podcast.