Edmonton Business Coach | Tax Planning Boot Camp 2
So section three, I have Matthew Allen from cineastes financial oop
and he’s going to help us, you know, go through and how we make sure you have enough cash for life. And His journey,
eight he released so that we have their worksheet here. It starts with the fixed cost and monthly.
So I do budgeting a little bit different than some people that you budgeting. I think the main mistake people make a personal budgeting is they get too precise. I look at like, uh, people will come into my office sometimes like, Oh, I’m going to impress you. I got this spreadsheet and the spreadsheet has like 85 categories of it and I’m just, it’s too many. It’s actually too complex and in even if you are to maintaining it, I’m questioning what are you doing to generate more revenue in your business if you’re updating this ridiculous spreadsheet every, uh, every week. So you need to simplify it in the way I recommend simplifying it is separating your Edmonton Business Coach fixed costs, um, you know, from your variable costs. And so you really don’t have to drill that hard down through your variable costs. But your fixed costs, these are the costs that you can’t get up.
You have to pay your mortgage every month. You have to pay your rent every month. You can’t do anything to say that amount as you know, will help. Making major financial changes is usually long term initiatives, but chances are next month you can’t change that too much. Um, you can’t, you know what your, your property taxes, your property taxes, your property tax, you can’t call the city and asked for deal. Um, your condo fees, your Conflict Corp, you know, you can show up to the meeting has been all the time in the world and the condo beauties, but that’s the biggest time suck ever. Don’t show up. Just be happy. Someone else is doing it for you and write the check in the door to more money in their business. On My condo boards, I’ve done, I’ve done a whole theory as a precedent on common core and it was a year of my life will never be back.
I saved, I saved their condo board 1.6 million or so. Glad I was on that board. [inaudible] they wanted it. They wanted to a $25,000 special assessment. I looked at what they’re doing. I’m like, now that can be moved there, that can be moved out. They wanted to do fences. I’m like, no, we don’t need fences. No. Can do that later. Yeah. Same thing. We did over a million bucks to see these. Um, everybody hated me because I was still the guy who should issue the levy to everybody we were meeting, but it was $1 million less than they were going to issue before, but it was $1 million divided by a hundred units. It wasn’t worth my time. So, um, yeah. So we’re going to be car payments. I mean, you can’t sell a car car. You could refinance the car with different, yeah, I mean, the key, the key,
his car payments don’t get that one. Um, I mean, that’s, that’s number one key because you can’t afford a car. That’s fine. But your vehicle should never be more than half all. Your vehicles should never be more than your half year annual income. Never. And that’s if you pay cash for it. If you’re financing cars, you got to really assess why you’re doing that. Um, if you have them, if you have the financial capacity to do it, for sure do it. But at the end of the day, that car payment, I’ve seen more than enough budgets. I’ve seen more than enough plans. There’s one killer, you know, and number two myth or a number two killer of small businesses running out of cash. The number one killer for a personal financial situations I’ve seen is a car payment. It’s never, you know, the meals, entertainment budget, all of that can certainly help. But a car payment can be 400 to 800 to $1,000 a month in something that will never come back to you.
When I first came, when I first started, uh, kind of on my own, 2002 Hyundai accent, no power steering, no AC, I bought it off of military guy for $1,800. I sold a few years later for $1,500, and I put one tie rod on that thing was 50 bucks. People always say, oh, but the repairs and maintenance, you can spend $800 a month on a car and you will never ever spend that much on repairs and maintenance on the vehicle. 250 bucks a quarter is kind of on average what you’ll spend on repairs and maintenance. You have the engine blows up 3000 bucks. It’s not $50,000 for that. You could buy them and they say, oh, but the convenient or the reliability, all right, bye two used cars, park one just in case you need it, drive the other one. And if that one breaks down drive, you will still save money.
Um, so if you’re a business owner and you’re not making money and you’re just starting, you’ve got to really assess your personal financial situation so that your business is not sucked dry by your personal life or you’re forced to take on clients so you don’t really want to take on, are forced to sell things you don’t necessarily believe in, but you need to make that next monthly cut, get your, get your personal finance situation as minimal as possible. That’s true financial freedom because at the end of the day, if you can’t retire today at what you live on, you’re not free. You are, you are a captive to your financial situation and your Edmonton Business Coach income. So that’s my, that’s why I really try and work on with particularly business owners or people is to to cut down, to trim down to what you need so that you can set up the life that you want later.
Yeah. And sometimes if they’re going back to that mortgage, probably kept changing tomorrow. Uh, but a lot of times we will see business owners and they have this really aggressive mortgage paydown strategy, which, great, if you’re an employee, uh, but if you’re a business owner that operated capitals just like key and your mortgage, you might be, you know, 3%, um, did, you can extend that amortization period in the growth cycle of early stage of business, it’s probably going to help you avoid 18 or 29% credit card interest, some other
and biweekly payments. You can switch the semi monthly. It basically does almost the same thing. Um, another thing that I, uh, uh, that I did for a client I use business owner asks, you know, I want to pay off my mortgage. I said, well great. The math will never work even if you’re an employee. Um, but it’s personal decision as a business owner, if you made a 1% rate of return on what you would basically be putting extra down your mortgage inside your corporation. So basically GIC almost less than GNC, a savings account, you will actually do better than paying off your mortgage.
So if you can get a three or a 4% rate of return, still very low, you’re going to end up way better off. And if you need to float that mortgage payment, fine, just sell me investments and take them out of the corporation. Pay Your mortgage payment as a business owner is a very, very personal decision ever. Pay Off your mortgage faster than the, than the basic amortization schedule.
Can we get, you know that you have your a required credit card payments required loan payments, electricity or natural gas. Don’t get too into it. Someone’s at this month. Just take an average basis. Let’s get the fixed number on paper here. Your Edmonton Business Coach home insurance, your life insurance, your disability, or critical. As Matthew talked to us about how business owners always forget disability, how much more,
yeah. People don’t really think about, just really think about life. Think of all, if I die, you know, my spouse or my mortgage needs to be paid off. My kids need money, which, which is true, but at the end of the day, in my opinion, it’s you’re actually worse off if you’re disabled because now you’re still alive. You’re still eating your spouse, you know they’re a good person, probably isn’t going to leave you.
All these things so that now and you have no income. If you die, actually you’re more flexible. Do you downsize that House that they could remarry? You know, there’s a lot more things that you can do that your spouse can do. If you pass away way, then if you’re actually alive and can’t work. Disability insurance is by far most important. Life insurance is only more important, or at least at the same level. When you have kids, if you’re single people, a lot of people think, oh, I’ve got to have life insurance for my mortgage. No you don’t. Because what’s going to happen is the how it’s going to be sold for. The value of that is going to pay off the debt has done. If there’s nothing else, if you have a spouse and you bought a house based on your joint income, then yeah, probably insure the mortgage. They don’t want to sell the house when you pass away. So term life, keep it cheap, put it inside the corporation, you’ll pay it with an 89 cent dollar instead of a 65 or 70 cent dollar and there’s no difference in the tax treatment.
If you, if the life insurance gets paid out in the corporation, it gets paid out to the shareholders of the beneficiaries tax free. There is no difference other than how you’re paying it. So if you’re paying personally and for your life insurance policies, you’re paying too much. You’re, you’re over paying essentially because of the tax you’re paying. You have to tax dollars, disability insurance, keep it outside of the corporation. Fits inside the corporation, the benefit will be taxable to you. So there’s really no point. You just have to buy more insurance, which is deductible, but it just doesn’t work out. Hold it personally. Um, keep it minimal. You know, really ensure that the very minimum you’re your fixed costs. Then if you want to add some, some variable costs on top of that fine or assessors lifestyle budget, if you’re married, just to assess what you need on top of your spouse’s income. So you know, 25 to $300, 25 bucks will get you your basic injury. Only policies say for a couple of grand a month. So to become injured, you’ll get paid you a monthly benefit. $300 is more and more robots, like a professional series where there’s a lot of built in features, great policy and things like that. But only if you have the cashflow and only if you require it and only if it makes sense for your budget.
So Matt said something really powerful here. I’m going to yellow demonstrating great Matt. I couldn’t meet in the fact that you said something super amazing. Did you say whole life or universal life? What did you say? Turn well, so that wasn’t universal. What was it again? Turn, not whole. What was it? Turn. Oh my God. Yeah. How many insurance agents that are out there, they want to sell my business owner his whole life and universal life and their 30 year old professional, I know that are starting their business and it’s an absolute money suck. It’s a 3% return on your money. Uh, and they’re pocketing a giant commission to do someone. It’s really not going to fit into your business plan. I can.
Insurance companies would not exist without permanent insurance, just put it that way. Is their permanent home and auto insurance? No. Is there any other insurance product that you would ever ensure? Where are you paying investment component on top of what you’re actually just buying it for which the protection? No. Now later in life, yes. As a business owner, there is a place for whole life in universal life insurance policies. They can be very beneficial for estate planning and retirement planning for a business owner. But if you’re starting your business and you’re growing your business and you’re 30 years old, you’re, that’s not your goal. Your goal is to grow your business. Your goal is to invest in your business. Your goal is to hire employees. Those are your goals. Your goal is not to at that point to provide for your next generation. Even a lot of people can get black heart believes like that.
I’ll tell you what a million dollar term policy for a 30 year old probably pays me 800 bucks. We’ll call it maybe 500 600 depending on male, female. If I sold $1 million whole policy, you’re probably talking like 20 to 20 grand, 15 to 20 grand. It is a very, very different commission structure. That’s one of the reasons why I don’t only do insurance is because it doesn’t really matter to me to sell that policy to make sure that I get value out of this relationship and client. So be aware of what you’re being sold, the educated on it. You should not be buying whole life or private insurance unless you have grown your business to where you want it to be. A, you’ve pretty much secured your retirement and now you’re looking at the next kind of the next step, the estate plan, almost transferring wealth.
This is the reason why I get mapped to come here. It’s not just because he has a cheap car stories which are kind of funny to listen to. There are a plethora of financial advisors who would pay me a big sum of money to get in front of this audience, but I will let them in here because I know they want to sell crap that it’s useful for them to get a commission. So, um, you know, term insurance, get your disability and disability, so,
Exactly. Yeah. And critical illness, that distant third critical illness is not, not really necessary. It’s a nice to have. But um, and then inside or outside the corporation.
Sure. One way or the other.
Yeah. So we’ll give you a few minutes here. I want you guys to try to populate your total fixed costs from memory. So I want you to, cause this is a good exercise to see how well how comfortable you are on this. Try to talk, collate your total fixed costs from memory. So all of those line items there, I don’t have to be precise, rounded to the nearest hundred three. Do you want to make it easy to add?
okay, how’d you guys do? Your Room’s ready to do. Okay. So now, now you’re going to put in a number for variable costs. This is where the budgeting changes. This has gotta be something got to be able to do quick. Um, it’s gotta be meaningful for you. It’s the variable expenses and the variable expenses. These are expenses that because of your choices you can change from month to month. So these are things like your food, your entertainment, your gas, your clothes or shopping, whole maintenance, travel. These costs vary month to month. And if you want to change them, you can. And why I grouped them together is because, well, if you spend less money on travel, maybe you can spend a little bit more money on eating out that month. Um,
spending more on eating out, you’re probably not spending as much on groceries,
but you want to look at these as an aggregate, uh, because it doesn’t matter if you’re hitting your Edmonton Business Coach targets in seven of them and then blowing it up in the other one, you’re still going to be way behind you. You need to know this number in aggregate so you pair up those fixed costs because they’re not really going to change month to month. That’s just gonna happen. Autopilot. Chances are it’s probably keep them coming out of your calendar. You can’t even, uh, you know, change the timing of when next time, but it’s those variable costs. So not what you think that most people drastically underestimate what they can do to change those variable costs. Yeah. Usually
when I’m sitting down to a budget meeting, they drastically underestimate how much they’re spending. They give their wishlist of their budget, not their actual, um, do you want your actual go back three months and just line item your entire bank statements, credit cards, um, you can export into an excel spreadsheet if you are computer savvy. Um, and you can just write all the, or you can just do it quite quickly and pull them over into which category they are. Um, but yes, there’s a lot of ways that you can drastically reduce your budget. Um, you know, when I was starting my business, I’ve got four kids at that point. I had to, and then I was like three, and our fourth was born a year and a half ago. Um, we would eat 14,000 acres that we bought with a farmer would deliver to our house. They were $3 a dozen for thousand eggs.
They don’t even, that doesn’t, that’s better than Costco. And that was basically our breakfasts and probably a couple of meals here. And they’re spread out with some potatoes. We had, we had sweet potatoes. Um, we’d buy bacon every now and then we’d rationed that, you know, the kid’s got like a third of a slice. I don’t gotta happen slice, but that’s, that’s, that’s what Courtney would do for our household and what, you know, we’re willing to sacrifice to make sure that we can have a successful business and make sure that we can have the life that we want later. Um, because at the end of the day, I don’t know if a lot of you have young kids, this is the worst it’ll ever be. I know that there’s teenagers, there’s all that stuff coming down the pipeline, but these, I call the gray days. All right, so grind them out now and create the life you want when your kids are going to be, you know, a lot requiring a lot more of your personal attention and probably spending more money on activities like that. But you know, $42 was essentially seven, eight meals a week. Find out how much you spend on average per meal.
What Courtney tried to do my life coordinate. Um, she essentially tried to create our budget so that we would basically be living on food stamps because at the end of the day, we don’t have money. We didn’t have money. And we didn’t have a business. I didn’t really have an income, so really at the end of the day, why do I feel like I would deserve to eat steak at that point, we’re basically living off food stamps. We’re just doing it ourselves. So she got her budget down to where we are basically paying about $3 per meal for adults and $2 per meal for kids. So for our entire household we were spending between 10 to $15 per meal. It can be done. Costco Roast, it’s usually about 20 bucks. You can shop that in three or four and that can be a few meals. You can buy a whole chicken, cook the chicken with some potatoes.
That’s one meal. Next day you put it in some sandwiches, probably even to San, you’ll probably do two days of sandwiches with the extra meat, put it in a pot, boil it down. Now you’ve got soup that’s four meals for $30 chicken with maybe some potatoes too, so it can be done. If you’re buying, if you’re shopping at Sophie’s or save on, you’re overpaying. That’s a choice. If you are buying packaged food, that’s a choice. It’s, those are the choices that people make and they go, they’d feel captive to their grocery budget. Like how do we get this thing down? Those are very simple ways. Superstore. Costco, if you’ve got a large family, if you’re two people and he had a Costco membership, you’re probably overbuying maybe your toiletries and things like that, but then you might not even be getting the value of the membership.
Um, and shop it by, by actual whole food. Way Better for you. Fruits, vegetables, you know, dollar fruit, H and w produce. That’s a great place where you can get kind of B level fruit, great fruit. It’s not going to last for two weeks, like a Costco packages going to or Safeway tax is going to do. It’s like the last two weeks and your counter, it allows for five days. So you have to go a little bit more regularly. But you can buy apples and oranges and everything for 80 stadium to 80 cents to a dollar a pound. Very, very cheap. If you have the money, go sure. Choose some savings. So we’ll be save on that. That’s a personal choice. You’re starting a business and you don’t have the money, you’re not entitled to that and you’re going to kill your business. So we had like the last time we were given way to cash giveaways and some people were making fun of my wallet
and I said, well now I have money. And I was actually up shopping for a new wallet before I last bootcamp and I was looking for the wallet. I couldn’t find the one I wanted. I didn’t buy it. And then Matt said, that’s okay. That wall is fine. Look at my wallet.
It’s a butterfly clip. So now I’m keeping this expensable. It’s an office supply. Why be guilted into keeping my wallet’s um,
so there you go. You’ll make money to afford things, but you will,
the time that they spend a tooth also we’re going to have it as bad as your Edmonton Business Coach right. Yeah. Put a lot of people spend it before they’ve got it and they’re just digging themselves a hole and then their business has gone in a year because again, they run out of cash. Number two reason why businesses fail. Car Payments. Car payments are huge.
There’s only one way to buy an ice vehicle. Only one way to buy a nice
old lady, $1,000 cash out of that
82nd you walk in ATB and you ask them for $87,000 in cash and you bring the bag over. You buy the Ford Raptor in cash at the Ford dealership. People’s faces when you do it. So, and if anybody wants to see that video, they can subscribe to our youtube
Well, you’re going to have, we were editing it right now, but if you want to see what the bankers do when you walk in, you get 87
a thousand dollars in cash. Um, it’s kind of funny. And then you bring to the money to the dealership.
There’s nothing left in the budget for the wallet after that. I can’t buy one. A lot of people also, a lot of people also figured that Ron locked into this payment. If I sell the beer
tilapia underwater. It’s true. It’s painful. And oftentimes dealing with our bad decisions is painful. So the fact that the decision was made doesn’t factor into what the future decision needs to be. So I did an analysis with a client couple of days ago in terms of paying their vehicle off, like basically selling their vehicle, buying a six to $12,000 vehicle on alone, added in what there’d be underwater there. Debt payoff got reduced by 50% for when they are going to actually pay off their debt. So to get financial freedom, again, you might have to deal with your bad decisions in the past, rip the bandaid off, and then figure out how to heal and going forward, even if you’re underwater,
then you’re going to add in that variable expense. So you can do that right now, I’m not variable expense. You’re going to deduct the take home pay of your spouse if you have a spouse and then you’re going to deduct your Edmonton Business Coach take home pay as a business owner from any other secondary jobs. So maybe you have another job there. Maybe you don’t. Maybe you’re deducting zero from that number. So once you deduct those other two forms of employment income, you’re probably at most financial scenario is going to get down to the point where this is the money you actually need to take out of your business each and every month. So they don’t kick you out of your house. That’s a very powerful one. But then number, you need to know as a business owner, uh, because you can’t come up with this business plan, say, oh, make no money for two years. But then what about your Edmonton Business Coach mortgage payment? Uh, it’s gotta make sense. That plan has to make sense. Um, just to note on
from very easy secondary jobs, um, at the guy in a room of your Edmonton Business Coach place, uh, if it’s at a four to $500 a month, it’d be cost sharing. You wouldn’t even have to claim it. You can build a kid’s, we bill it actually for high school baseball players. Uh, they live in our basement. It’s all cost sharing. So we get an extra $2,000 a month because we bring these kids into our home. And sure enough it is work. Not always the fun part of it, but at the end of the day, it’s also a nice little chunk of change that’s doesn’t require for my business and it’s cost sharing. So that $2,000 what actually require about $5,000 top line in my business. So I’d have to have $5,000 $60,000 almost a year in revenue in my business to generate the same benefit as the $2,000. I thought that that a secondary income stream is bring it out. Uh, international students, you could get an international student, your Edmonton Business Coach House for 800 to $1,100 a month. I forget what organization it is, but there’s international students want to come here, want to go to school. Um, they pretty much take care of themselves. You just own three meals and a room and a clean room
for most people. You know, if most business owners starting out, they’d probably early on in their mortgage and they have, you know, fairly high interest payments. Most people, even if we have to report the income and the tax return that you get that $500 a month, the roommate, I’m probably going to report a loss and we’re actually going to get extra money back on your tax return because of that rental income. It sounds strange, but usually that would justify the expenses are actually higher for tax purposes. So it’s like you got $500 a month and rental income plus that. It’ll end up looking like you made a $3,000 RSP contribution by the time I’m done before. Um, kind of simplistic way. Yeah. So then you don’t deduct the take home pay from spouse or if you do have a secondary job, you get that total numpty funds required.
Then you want it on a separate calculation. You want to add all the personal cash you have available and all the personal credit you have available. It could be and or business credit. They are really, and then you’re going to get your Edmonton Business Coach operating capital. You’re going to divide those total monthly funds required, and that’s going to give you the number of months you can survive before the business must start paying you. That’s the number you need to know. If you’re starting, you know, what you know how far we can go, and you’re looking at that plan, what’s that initial injection of capital? What’s the credit look like? Um, that’s the number that you need to know. And then, you know, going through on mats, um, mats calculation there, people think, well, it’s just a thousand dollars. Let’s just make another thousand dollars to walk through this number with me. So everyone’s looking at that page two there, the half a page, and let’s just look at it.
Pretend someone had an additional monthly sales of 4,000, $365. Now let’s say that their cost of good soul, so you’re a contractor. So that means you got to hire the subcontractors, you’ve got to buy the materials that’s going to eat up 66%, uh, that costly to the soul of that project. So that means the gross profit at the end is $1,441. Now from that, you’re going to pay corporate tax at 11% which isn’t a good rate. You know, 158 bucks. That means the net corporate income is 1282. Now if I take that out, the dividend, if I assume you’re already at 22% rate, which is kind of in the middle, it’s actually kind of on the low end, not the lowest, but that means the net after tax cash to you as a thousand. So in order to take another thousand dollars out of your business, you had to sell $4,365 more that month. You can’t just make another thousand dollars taken out of your Edmonton Business Coach business. You probably had to make, depending on your margins and your business, four to five to $6,000. So that’s a, that’s a, uh, that’s where a lot of businesses don’t get it. They just think another thousand dollars in sales that comes out and then they don’t have money to pay the suppliers. They don’t have money to pay the taxes or both.
Um, so just to piggy back on that though, if you have kids and they’re under 18 then you need to factor in. Actually there’s, you get a child can’t Canada child benefit too. So there’s those aspects of your Edmonton Business Coach child benefits. If you make anything, everything, you make over $30,000 a household that starts to get clocked back. So for me, I’ve got four kids. If I take a dollar out of my company after third or in our household after $30,000 I’m actually tax about 49 and a half percent. Now, that’s not all tax, but it’s a clawback and the benefits and everything. So that’s why I say when I’m looking at some tax free income outside of my business, the reason why that’s so valuable to me is because of the overall implications to my bottom line as a household after tax. I’m not scamming the government just being smart with what they have.
I’ve got four kids, they’ve gotta be fed. I’ve got a business to grow. Some point I won’t be doing that anymore. I’ll probably be paying lots of tax, but factor that in. If you’ve got one kid and you’re pulling out under $65,000, you need to add on a 7% to that number or 8.2% to that. Number five, you’re taking dividends. Got Two kids, 13 and a half or 15 and 8.8 is dividend three kids, 19% of the wage, 22.2% as a dividend for kids. 23% or 26.9% as a dividend over 65% over 65,000 just for sake of time, cut that number by about two and a half. And that’ll get, what’s your, what’s your Edmonton Business Coach, uh, clawback on her benefits is after $65,000 of income.
So these are the real talks about becoming an entrepreneur. And I always say we, I said it last time. I’ll say it again this time. If I don’t talk one person in this room out of being an entrepreneur, I haven’t done my job here today. Um, you know, when you start talking about paperclip wallets and 5:00 AM six days a week, that should be scary. It should be scary. But if you’re going to do it, no, what’s involved, right?
Um, you know, that’s what can be involved. So that’s the reality. It’s work.
So again, fill up this section three evaluation form, hand it in for another, a chance to win. And we’ll see you guys back out here at all 11 o’clock.