One area where most advisers take a hard line is saving - the area where most businessmen tend to slip up. Harris of Leeds is particularly blunt. "A guy has to save 25% of his after-tax income before he eats if he ever expects to become financially independent." Of course, when Harris talks of saving, he means more than just money in the bank. His 25% includes contributions to Social Security and a retirement fund; life, hospitalization, and major medical insurance; and all investments.
The ability to save obviously depends on income level, but virtually every adviser will try to get you to set up some systematic savings program. An adviser will try to convince a £50,000a-year executive to put at least 10% of after-tax income into cash savings. "At the £20,000 level," notes one Accountant, "inflation burns too great a hole for most people, so 5% is about it."
Advisers will not make specific investment decisions for you, such as what stocks or bonds to buy. They will help you plot a broad investment strategy based on your financial position and your long-term objectives.
Consider the pound profile of a businessman who earns £50,000. Say that he saves 10% of his take-home pay, or £3,500 a year. An adviser would suggest saving a little more. This man has £10,000 in cash savings and securities worth £30,000. Most advisers would regard £10,000 in savings accounts as low. One Accountant says: "I would tell him to build more cash savings- say half of his £50,000 salary - before he goes into a stronger equity position. When he reached £25,000 cash savings, I'd say that his £3,500 could wisely go 25% into cash and 75% into investments."
Keeping too much cash is no solution, say the professionals, who push for a blend of cash and investments. Here, too, changing economic conditions have changed the sort of advice the professionals hand out. There is less emphasis these days on investing in the stock market and very little on venturing into highly speculative issues.
But most advisers still think that a businessman should have some money invested in an equity situation - if not stocks then real estate - as an inflation hedge. "The man who is afraid of such investments has a problem," says Brown, the London Accountant. "He must really force himself, in my opinion, to at least look at these inflation hedges."
Business rides on a sea of paper: budgets and balance sheets, cash flow statements, and long-range plans. No well-managed corporation would start the year without a firm fix on how much it expects to earn and spend in the next 12 months. Every successful businessman has at least a fair idea of the major expenses he will be facing four and five years out. And what works at the office can work at home, say the men who make their money by counselling executives on how to manage theirs. "Use the corporate technique," urges Robert P. Fairman, a Reading partner in the Big Eight accounting firm of Touche Ross & Co.
The best technique is the personal audit - done early in the year, on your own or... see: Guidelines For An Annual Audit