Now’s the time to be frugal!

I started last week’s blog with “we had a bad week”, and unfortunately I could use that same intro this week. We saw nearly 4000 jobs disappear in just two companies on Thursday.

And China hit the news with its growth rates forecast down to 6.7%. In previous emails I raised this very possibility, and now it’s our reality.

None of this is good. The flow-on effects will affect on most small businesses.

For the last five months I have been on about reducing debt and watching your cashflow. The next step from here… START SAVING.

Some background first…

Being a baby boomer I still remember the days when I was constantly nagged by my parents to save money every week. Even when I was at school I had a savings account and I was expected to save part of my very hard earned pocket money.

Then I became chairman of a credit union, and it was our policy to encourage our members to save. We even set up special accounts to encourage savings. In fact, the only money we could lend, in those days, was the money that our members saved. So some saved and some borrowed.

Then we had some “very smart” finance people who dreamt up all these fancy money instruments. We now know where that has left us.

What happened to Kev’s bonus?

Kev gave Australia a $10 billion Christmas bonus to save Australia from the worst of this mess. And the headlines read: “SPEND, SPEND, SPEND.”

I think that was bad advice. And I’m not the only one who thinks this way.

We conducted a poll two weeks ago to see how people used Kev’s bonus. Here are the results:

• 55% paid off bills and/or debt.
• 24% saved the money.
• 21% spent it on consumer items/Christmas presents.

So only 21% actually went out and SPENT, SPENT, SPENT. It’s good to see that Aussies have a great deal of common sense.

So, in my opinion, the only way out of this mess is to save. That applies to both businesses and consumers.

We all need to start getting out of debt and set up some savings.

For a company, that means to build up your reserves. Don’t spend all your profit. Look very carefully at what you can afford. Don’t get the “nice to haves” on credit. Wait until you have enough profit to pay for them.

Will the cars be OK for another year? Can you put up with computers that might be a few years old? Can you extend the life of your office equipment? Do you really need to upgrade your premises right now? Should you downgrade your office?

You get the idea.

Of course, you’ll need to balance issues here. There is no point suffering with under-performing equipment that causes productivity loss. What I’m suggesting is that you assess very carefully how you spend your money.

And you can’t build up healthy reserves unless you are relatively free of debt and your profits are adequate. So work on getting out of debt and increasing your profits. This should be your top priority.

I have just read an article by Alan Kohler, and I agree 100%. It’s definitely worth a read.

Till next week…