Something that we’ve heard recently is the idea that people should ‘run their finances like a business’. It may sound like a motivational soundbite, but we think that there may well be some truth behind it.
After all, the purpose of a business is to be profitable, making more money than is spent on expenses or stock. For a family or an individual, this can be equated to our need for savings that will help us achieve our goals or retire in comfort.
Business owners know that making more money than you spend is essential: otherwise you’re going to go out of business. While it’s possible to plug gaps in the short term by borrowing money, in the longer term the books have to balance. And really, the same goes for personal finances… which means that maybe it’s time to see what lessons can be drawn from the business world.
At the heart of a good business lies the mission statement: the thing that they exist to achieve. In other words, a goal – but one which has been pinned down into a short and sweet sentence. Maybe you want to “rule the world”. “Own a coffee shop”. “Retire in comfort”. “Put the kids through school”. “Write a novel.” … You get the picture. The point is, a strong mission helps give you direction and motivation.
You also need your business plan: in this case, a budget. Too many people use their budget in a way which tracks what they are spending rather than planning what they will spend.
This might mean using the amount you’ve spent on food throughout the last few months to project how much you should be budgeting for the following months. Instead, your budget should be a way of reviewing and reflecting on past expenditures in order to form better habits.
If you’ve ever worked for a company that doesn’t offer staff enough training, you’ll know that a lack of education can lead to disaster. Outside of work, though, how often do you take the time to train yourself in a useful skill?
Teaching yourself about money, or taking the time to learn something that will help you land a better job, are both great ways of using your down time to improve your financial situation.
No company is complete without regular board meetings, where past performance is discussed and new plans are hashed out. For families, taking some time to discuss money and spending habits is essential if you want to make sure that your budget is realistic, and that you’re still working towards your goals.
While a lot of this comes down to common sense, it’s easy to forget these steps when you’re caught up in the hubbub of daily life. By remembering the lessons of business, though, it can be easier to take stock of the bigger picture – and therefore to keep driving towards a profitable financial life.