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Financial Planning Especially Key When Salary is Uncertain


May 23, 2011 (Knight Ridder/Tribune Business News) "I just want to do hair." It's a phrase that Tom Kuhn, accountant-turned-beauty-industry executive, hears regularly on the salon floor. But for stylists, most of whom Kuhn describes as "reluctant entrepreneurs," being good at cutting or coloring hair isn't enough to ensure financial success. So Kuhn created a finance class to help stylists brush up on business fundamentals and make more money.



The course is part sales training, with lessons on increasing income by persuading clients to spend more at the salon, and part financial education - something most stylists don't hear about in beauty school. Brook Landers took the course to learn how to quickly grow her business at the 526 Salon in St. Paul, Minn., where she's worked for nearly two years. She was particularly interested in learning how to measure success since "you don't know where you're going if you don't know where you are," she said.

Angela Ebbers, a more experienced stylist at the same salon, wants to learn how to make more money in less time so she can work less once her second baby is born.

Kuhn is a former president of Juut Salons and now runs his own consulting and education firm - Qnity, Inc. He designed the course so stylists can "make numbers their friend so they can grow their paycheck and power." But it's filled with advice that applies to any worker with fluctuating income and an aversion to numbers.

Here are some money tips from Kuhn's class:

-Set up automatic deposit: Being in a business with variable income and cash tips makes direct deposit critical. Without it, many stylists won't even notice when they are increasing their income; they'll spend it all. Fund the rainy day fund and meet your debt obligations before spending your paycheck.

-Don't forget retirement: Many of the stylists in his courses are in their 20s, a time when goals such as paying off student debt, buying a car or moving out of Mom and Dad's basement are far more pressing. But they have to think about the long term, too. "There's a physical element to this profession - it's important to realize that," Kuhn said. It's hard on aging bodies to stand all day.

-Watch for paycheck shrink: "Understand that just because you make a dollar doesn't mean you keep a dollar," Kuhn explained, referring to taxes and splitting your earnings with a salon. Base spending off of your wages after deductions are taken out.

-Reinvest in your business: Stylists typically work on commissions and need to bring in new clients and improve their speed and skills in order to make more money. Kuhn instructs stylists to reinvest a portion of their earnings in the business. "Skip going out to lunch every day this week ... and invest in your own professional development."

Ramit Sethi, author of the book "I Will Teach You to Be Rich," is sick of hearing about the latte factor, and only partially because he enjoys them too much to happily bid them adieu. But cutting out lattes saves just a few hundred dollars a year, he points out, and "you can make that in a week or two." Instead of focusing only on expenses, Sethi focuses on teaching entrepreneurs and working stiffs alike how to find a skill they already have that can earn them $1,000 a month in side income.

Whether you're earning big bucks or just scraping by, commissioned employees have to be better planners than the rest of us, said Paul Bennett, a certified financial planner with Raymond James Financial in Bloomington, Minn. You know the personal finance rule of thumb to save three to six months' worth of emergency savings? Commission-based employees need enough money saved to cover at least six months of basic expenses.

They need to think twice about taking on monthly payments. "Someone who has a $40,000 salary can easily take on a $300-a-month car payment or $150-a-month boat payment," Bennett said. But if you're on commission or work a seasonal job, "that payment can really get you," he said.

Bennett recommends opening a home equity line of credit if you can qualify and having a checking account backed with a line of credit just in case there is a slow month or two. Obviously, living on credit is not a long-term solution.

And then there's taxes. Don't forget to set more aside if your income suddenly balloons. No one wants to come up short when payments are due.

(c) 2011, Star Tribune (Minneapolis) Distributed by Mclatchy-Tribune News Service.

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