Managing Your Overall Finances

Owner-operators generate and consume tremendous amounts of cash. Your company writes you a check every week, but you have to make a truck payment; pay insurance premiums; and pay for fuel, food, showers, truck washes, tolls, maintenance and tools. The list goes on, and it doesn’t even include your household expenses, which are also diverse and vary from month to month.

If you aren’t on top of all cash coming in and going out, both in your personal life and your business, you can find yourself in the hole quickly. But with proper money-management habits, you can control your cash flow and have more money to show for your efforts.

A Spending Plan
Many people hate budgeting, but a budget is a powerful tool because it forces you to think about what’s really important. A spending plan can reveal problem spending areas, fine-tune cash flow, free cash for savings or investment, pay off debt and help you plan for the future. Budgeting can help you make more money without running more miles.

The first step in preparing a spending plan is to look at where your money goes. Unless you know what you do with all your money, there’s no way to manage it.

Off the top of your head, you can name your most important monthly personal obligations, such as:

House payment
Groceries
Utility bills
Telephone
Credit card bills
Car payment

But those expenses usually don’t account for your total income. Where does the rest of it go? Too many impulse buys? Too much eating out? Too big a splurge during the holiday season?.

Financial First Aid
The simplest way to know how much of your money goes for nonessential items and services is to list those expenditures that are necessary for basic living and what you’re spending on those that aren’t.

The budget worksheet in this chapter lists common categories for spending. Some are what most families consider to be essential – car, food, insurance, telephone, etc. If you have borrowed money – say, for furniture or a television set – that payment should be included in the debt category of your budget. Also include credit card payments. Other categories, such as entertainment and eating out, are less essential and are considered discretionary spending because they can be changed at your discretion.

Take the total income from your pro forma business plan that you made in the last chapter. Divide by 12, and use this as your average monthly income for this worksheet. Add in other income – perhaps from a spouse, a side job of yours or investment income.

Tally your expenses and your income. If the income doesn’t cover your expenses, you’ll need to make some adjustments. You can balance your budget two ways: by increasing income or reducing spending. Don’t kid yourself by projecting too much income as an owner-operator. It’s far too easy for the opposite to happen due to breakdowns, economic downturns and spikes in fuel prices. Because most owner-operators have high expenses during their first year in business, those who enter trucking with unstable finances find themselves unable to meet the financial demands of a new business.

Start with discretionary categories to reduce spending but, again, be realistic. You and any family members need at least a little breathing room for entertainment, eating out and hobbies. Beyond discretionary spending, you can often find a few ways to trim essential spending. You might consider raising the deduc-tibles on some of your insurance policies or trading a nice personal vehicle for a less expensive one. If your monthly debt payments are high, you can talk to creditors about special repayment plans. Credit card companies will discuss reducing or eliminating interest, or even the debt itself. For a nominal fee, Consumer Credit Counseling Services or other crisis credit agencies will negotiate with your creditors on your behalf.

Budgeting Month To Month
Make copies of the blank worksheet in this chapter. Before the start of each month, project your income and expenses on the Budget column of one sheet. Use the Actual column to track income and expenses through the month, trying to keep spending in line with your budget. At the end of the month, compare them so you can see how you are doing each month and, if necessary, how you can reduce expenses. After several months, you’ll have a better idea of what your average spending is for each category – and you’ll probably be surprised in some cases. Those averages will help you to more accurately budget each month, or even an entire year.

Steer your finances toward having some left over, then think seriously about putting some in savings. Even if you can spare only $50 a month, do it. Having an emergency reserve, apart from a maintenance fund, is important. You never know when illness, slow freight or unexpected truck repairs might keep you off the road for days or weeks at a time. Put money in a savings account every month until the balance reaches $6,000 to $8,000, which should cover your living expenses for two months. A good rule of thumb: Put aside at least 6 cents a mile for each mile you run. If you can't manage that, start with as much as you can and increase it as circumstances allow.

It’s never too late to budget. If you've been an owner-operator for years but can’t seem to make ends meet, try budgeting. You’ll be amazed by how it can help you get your personal and professional finances in order.

Any costs that cover more than one month, such as a six-month insurance premium, should be divided by the number of months to prorate the cost.

Only costs for household purposes should be listed here; for example, groceries bought to take on the road should be counted elsewhere as a business expense.