If you manage your personal finance the way a business operates its affairs, what would your finance look like? What if you manage your business the way you currently manage your personal finance? What would your business look like?
A few years back, my friends and I traveled to Dubai. It was my first time, and I was ready to make the most of the experience. I was going from boat cruise to desert rides and all the fun activities that came my way. It would seem as if Dubai was going away after my visit. However, I had to slow down at some point during this vacation.
I noticed a friend who was on the same trip as me was not having as much fun. I got curious and asked him what was going on. I naturally would have ignored it if he was someone else, but I had to ask because I knew he was a lot more wealthy than me. His business was doing way better than the rest of us on the trip. So why was he not “catching fun?” Why was he not spending like the rest of us?
I will never forget a statement he made, “I will not spend what I can’t approve for my business to spend.” I got the message right there. He was running his personal finance exactly how he managed his businesses. Little wonder he was doing better than the rest of us.
This experience led to a turnaround in how I managed my personal finances from that day going forward. Here are some tips that can help you run your personal finances like a business:
Start with a Budget
Every company starts with a strategy, even a simple one, that functions as the guide for where the company is heading. It is sensible to have a roadmap for where you wish to get to fiscally regarding your financial situation.
For many folks, the notion of establishing an individual budget fills them with fear. It seems just like hard work and restricts their financial freedom. However, in reality, it’s precisely the reverse. Using a budget is like using a business plan for how you’ll handle your finances to achieve financial freedom.
Having a budget helps you stay within the limit. Budgeting for businesses has the same positive effect on personal finance.
Set Financial Goals
In my interactions over the years, I have seen many people lose interest when they get to this point, and I found that it’s because it sounded academic or cumbersome. However, it’s is quite simple.
Setting financial goals simply means writing down your financial goals, whether short or long terms. These goals could be to $1,000 within a calendar year, Investing in real estate, being an angel investor, or even retiring early. These plans will affect how you execute your personal finance.
In the business circle, the acronym SMART objectives mean Specific, Measurable, Achievable, Relevant, and Time-bound is commonly used in project management to set goals and measure employee performance.
This acronym is fast gaining ground in personal finance. You can use this acronym to set objectives in your finances.
| Specific: | Focus on one particular aspect of your finance like saving for retirement. |
| Measurable: | How much do you need to save per day or month to get to your goal? |
| Achievable: | Can you set aside this amount? What cuts do you need to make to achieve this goal? |
| Relevant: | Make sure your goals are relevant to your lifestyle. |
| Time-bound: | Set dates, and realistic timelines for achieving these goals. |
Goal setting helps you eliminate emotional spending.
Cut Down Overhead Expenses
The target is to reduce your debt and maintain your monthly expenditures as low as possible. As a company, you do not wish to spend more than you are making. Higher overhead costs can financially ruin you.
Businesses always look for where to cut down on their overhead. In most cases, they focus on reducing their debts and keep running expenses as low as possible. The goal is not to spend more than you are making.
Your overhead costs are those necessary expenses you incur to keep you running—for instance, mortgage or lease, utilities, meals, transport, etc. Break down your cost of living and find out how do you reduce this entire amount?
Begin by going over every bill and discover a better, more economical, or more proper method to invest money to keep your household.
For a long time, my family has enjoyed watching several TV shows together. They can only be found on cable TVs, so we paid for that for as long as I can remember. However, two years ago, when we reviewed the family bills, we noticed that Cable TV was no longer as important to us as it used to be. So we cut that down on that and a few other items.
That decision that year shaved off $300 from our monthly overhead. We have been moving that into an investment account every month.
Consider decreasing any unnecessary fees or interest. Pay off your loans or negotiate to reduce the interest on the loan. Ensure to pay off your bill on time to avoid charges.
If you are going to make headway in your personal finances, you need to sit and write out all your expenses and see where you can cut costs. Failure to do this will make the following point ineffective.
You Need More Income
Take a look at the businesses around you, even the small ones we don’t know about; they have more than one client. As these businesses grow, they expand into other sources of income.
Personally, you get paid for your work. How else can you get paid? What would you need to do?
Many people get stuck at this point, but the answer could be in your hobby or interest. There has to be something you can monetize. Maybe you speak so eloquently, and your friends always like to hear you talk; you could venture into voiceover as a side gig.
If you have a lot of time on your hand after your days’ job, you may want to take up a second job. If you are a tech guru, you could create an app that solves a problem. Think and act. It gets better from there.
Suppose you wish to spend your money on something which generates another income stream. In that case, it’s possible to look at investing your money into several things that may make you cash. It will be based on how involved you wish to be with your time; purchasing rental houses might take additional time investment than buying long-term bonds or stocks.
Many people have created multiple income streams just by being serial investors; you can consider doing the same.
Pay Yourself First
There was a time in my finances when I either pay myself last or don’t pay myself at all. When my paycheck is ready, I have a long list of items to pay for and a list of people who have been waiting to get some money from me. It got so bad that barely halfway into getting paid, I would have gone broke again. This was so because I placed myself last on the list.
You are an employee in the business of personal finance, so you and your family always come first. If you want to feel secure, you need to pay yourself first and pay well too. You need to feel taken care of, and your family needs to feel the same way too from the hard work you put in.
Payments to yourself are believed savings of any kind, providing you a base on which to construct. Saving money for afterward will provide you safety and make it a lot easier to make purchases that are needed whenever they come up. It is also the best way to plan for significant events, vacations, holidays, cars, or purchase houses.
Placing away 10 percent is perfect, but it is possible to work up to this if you’re overly concerned about paying for yourself that money. This “pay yourself first” goes towards savings: crisis finance and retirement.
Whenever you’ve got a good base of cash for unexpected and future demands, you’re putting yourself in a fantastic area when you fall into a financially dire circumstance.
Involve Your Spouse
It is imperative to involve them in the procedure for those in a relationship or share their finances with their spouse. You want to make sure you’re all on the same page on the issues that affect your finances.
Also, it is sensible to go over your approaches to money. Specifically, the way you approach financial obligation and whether there is anything in your individual lives that might significantly influence your finances. Most of all, be honest. The more honest everybody is, the further it’ll help handle your personal finances today and in the long run.
Embrace Insurance
Business owners, small and big, take insurances seriously. Imagine if a retail business loses its company to fire or if someone slipped and gets injured on business premises. Imagine if they don’t have cover for such risk. That could be the end of the business. That is why business owners insure against such risk.
The same way business owners insure against certain risks, so should individuals too. If you are the only income earner, you will need life insurance and disability insurance. You also need to be sure you’ve got a top-quality house, health, and car insurance in place.
Conclusion
Running your personal finance like a business is all about discipline and action. If you don’t remember anything I said today, remember this one takeaway, to run your personal finance like a successful business, you need to cut your cost and increase your income streams.
