Wisdom Wednesday: Treat Your Personal Finances Like a Business

Photo from H&R Block

Since becoming adept in my studies of Business, Accounting, Finance, and Economics, I have made it a point to look at my personal finances with business acumen.  Before looking at numbers, I had to first think about why I am making my personal finances one of my life’s ongoing focuses.  Here’s what I came up with:

“To live a secure life, with the freedom to live in comfort, where I want, and continually experience the joys of time with friends, family,with professional and personal endeavors that feed my passions.”

This might seem kind of corny, but any legitimate business will have a charter indicating its purpose.  If a company does this, why shouldn’t we?  People start businesses to better their personal financial position, which hopefully is geared towards living their eventual dreams.  Dreams don’t usually happen overnight, and that’s why you need a mission statement. 

Next, you need to think about profitability in terms of your personal life.  One way to look at it is to consider your savings your actual earnings & profits (E&P).  E&P is a tax term, but can also be equated to net income and retained earnings.  During your working life, you should aim to have a constantly increasing bucket of retained earnings.  These first take the form of your three to six months of emergency savings, then your retirement accounts, home equity, and other investments made further down the road of life.

Increasing revenues, or income, should also be a big focus for individuals and businesses.  A firm may invest in new product development and the individual might want to invest in higher education or a certification.  Either way, both are looking at the big picture.  If you love your job and the pay increases are holding you back from meeting your personal goals, then look for ways to make yourself more valuable to your employer.  Alternatively, maybe you can start a second job, or “side hustle” to bring in more income.  Either way, you need be looking at ways to increase your income to stay on track and build wealth.  You might also need to consider if you are paid fairly compared to others doing similar work in your market.  Look for resources like Glassdoor for comparative salaries in your geographic area.  Always be on the lookout for opportunities to grow your career and income.

Sometimes you will have “storms” in your life, which will sideline your ability to save.  Other times you will have wants that might have you dip into savings, but this is okay if you are progressing on an annualized basis.  Taking time and money for a wonderful vacation, to start a family with kids, care for parents or loved ones who are ill, or renovating your home to improve your quality of life are all common and valid reasons to temporarily sideline savings.  This concept can be related to a business taking money and having team building days, or company picnics and award parties.  In the grand scheme of both life and business, taking some time and money to do fun things improve the overall quality and give you the motivation to keep going when you get back to work.

Ultimately, you cannot measure the quality of your life by your net worth, but you can definitely make your life less hectic and more predictable, giving you the flexibility to try new things and live out your dreams.  Life is short, but money can be shorter if you don’t plan for the future and monitor your progress.  Live in the present, plan for the future, and be prudent for the sake of making the really important things happen in life.  Stay safe, happy, and focused!

I want to hear why you work, sacrifice, and save!  What motivates you to get up and work each day?  If you are fortunate enough to not need to work anymore, what are you doing with your time?