As a tradesman or builder, it is easy to focus on the present. However, the roadmap for a successful business begins and ends with effective financial planning. It doesn’t just cover investments and retirement planning. It is the process of preparing a financial blueprint of a businesses’ future operations. However, with the physically demanding nature of a tradies job, personal finances can easily be neglected. For this reason, this article will cover the basics of streamlining financial planning for tradies, to save yourself time to focus on what you do best – be an expert in the trade.

What is Financial Planning for Tradies?

A financial plan fosters a feasible regular savings and investment target to meet your long-term goals. Ideally, this should be revisited regularly with updates in accordance with changes in personal circumstances or when reaching milestones. A substantial advantage of financial planning is the ability to maximise assets and wealth with a personalised strategy for your unique situation. This plan should be based on your business opportunities, tax profiles, earnings potential, and lifestyle at each new life stage. Therefore, the main features a financial plan should include are:

  • Business Insurance: some cover options in this insurance will include income protection, tools of trade cover and public liability.
  • Personal Insurance: “In fact, 3 in 5 serious workplace injuries involve a tradie, despite tradies making up only 30 per cent of the Australian workforce” according to the Australian Physio Therapy Association. Therefore, it is imperative to obtain insurance to cover yourself when you need to take time off from the trade.
  • Accounting and Taxes
  • Future Planning
    • Retirement Planning: financial planning requires considertion of a retirement plan to prepare for a thriving future beyond your working years. This will be where you plan and map out your current situation as a tradie, and put money into areas such as investments, savings, and supperanuation to cover yourself in your retirement years.
    • Wills and Estate Planning: it may be difficult to think about, but it is necessary. Building a plan of action in case something happens to you will make you feel more secure of the future.

Evidently, financial planning for tradies is important for both business and personal aspects of life. Without implementing a solid financial plan, you may find it difficult to retire when you are ready, or not have sufficient protection when something happens to you or your family.

Prioritise your needs and goals

Before setting goals, you need to have a good understanding of your current financial situation. This involves listing out all your debt, income and expenses. Your assets include the balance in your bank accounts, retirement savings, stocks, the market value of your home etc. Your debts include balances on all credit cards, any remaining student loan debts, mortgage balances and personal loan balances. Following this, by subtracting your debts from your total assets you can determine your current net worth. A negative number means that your assets are insufficient to cover your debts. 

While this is a key indicator of financial standing, it does not provide the full picture. If you’d like a comprehensive understanding of the direction of your business’s cash flow, join the waitlist today for the new CASHFLOWNAV app.

Significantly, financial planning is about setting goals, creating a plan, and giving yourself confidence that your financial future is secure. The first step involves identifying your goals and then refining them to realistic and achievable goals. The next step is to establish the importance and priority of each of your financial goals. Finally, determine how long it will take you to reach each goal and how much money is required.

Financial Planning for Tradies: The Basics Covered

Budget and cut expenses

The most basic step of financial planning is creating a detailed and written budget. A budget is a great way to be more aware of where your money is going and assist you to make smarter decisions with your finances daily. Items to budget include payment for bill and utilities, basic necessities (i.e., food and entertainment), and don’t forget to leave aside funds for emergencies and unforeseen contingencies.

Ideally, you will identify expenses that can be cut and put towards paying off debt, retirement savings or directing to other financial goals. Cutting expenses may mean taking a closer look at spending to make cuts or finding more cost-effective equipment or material providers to reduce costs.

Consider your risk tolerance

An important part of your financial planning is to understand your tolerance for risks. It is worth being considerably careful with only investing in products where you’ve sought expert advice or fully understand and know. When assessing your risk tolerance, it may be useful to consider:

  • your financial objectives and timeframes – ask yourself if you can afford to invest and how long it will realistically take you to reach reach that goal.
  • risk tolerance and constraints
  • your stage of life – if you are young you may be less risk averse than someone older with a family to take care of. Also take into consideration your income and financial committments.
  • how comfortable you are with putting your money on the line

Review your plan

Review your financial plan regularly and adapt it when your resources, needs and situations change. Your financial plan should not be a static object. Your interests and family situation may change, or your attitude towards risk may change as you inch closer to retirement.

Financial Planning Mistakes to Avoid

  1. Being unprepared for worst case scenarios: by planning for these unforseen events you can manage risk and maintain an adequate emergency fund to cover you or your trade business. Expect the best but be ready for the worst.
  2. Not actively saving
  3. Not seeking expert financial advice: creating a financial plan yourself can lead to lost opportunities for your finances. Seeking expert advice on matters such as investments, regulations and tax, can preserve wealth for you and your family.
  4. Forgetting to review and update the financial plan regularly

Although financial planning can be a lengthy process, it will help you grow your trade business in line with the needs of the industry. Make a conscious effort to build and preserve your wealth. Ultimately, by taking the time to create a financial plan you can establish a firm foundation for a secure lifestyle at every stage of your life.

Interested in implementing financial planning for tradies? Here at BUSINESSNAV, our financial analysts are experts in developing and prioritising actions that matter to your companies future financial success. Enquire now and get on top of your financial strategy today