Run Your Personal Finances Like a Business

An article from The College Investor, How To Run Your Personal Finances Like a Business, was referenced in one of the blogs I read daily. I absolutely LOVE the concept because one of the things I learned early while in the MBA program at Case Western Reserve University is that what you learn is not just for business; it can and SHOULD be applied to your personal life as well (Finance, Economics, Accounting, etc.). On a daily basis we do the same types of things corporations do: we find ways to earn income and analyze our expenses (operating costs). We also plan for “life events” like saving for a house or buying a car (long-term, strategic planning).

UnknownBusinesses have full-time people dedicated to analyzing their financial position. On a monthly/quarterly/yearly basis they generate financial documents, like income statements (explained below) and have formal review sessions to gain insight/understanding into how they performed against the plan and how it positions them for the future. How often do you review your financial position? Not just what you spend last week but also your 401K, insurance policies, stock growth, rate of return on your savings account? There is SO much to learn (which I also love) and I’m diving in head first with resources like Early Retirement Extreme and Smart Women Finish Rich.

3700bc66e0a8a53960de7873cb1c0937You MUST use Mint. It automates a lot of mundane tasks for you – the same types of tasks businesses pay software engineers to develop for them so they can focus on value-added tasks like analyzing trends, comparing year over year expenses/revenue, etc.  Mint calculates your monthly net income (income – expenses) automatically on a monthly basis. Access-anywhere (mobile, desktop) templates like Google Docs work well also. (I happen to use both, for different purposes).

The article details 5 steps to running your personal finances like a business:

  1. Create Income Streams

  2. Slash Your Operating Costs

  3. Pay Your Employees First (i.e. yourself)

  4. Insure Your Risks

  5. Make Your Money Grow

  6. Fine Tune Your Systems

  7. Think Long Term

If you come across unknown terms or phrases as you read through this material, you can use resources like Investopedia, iTunesU and even Google Search to gain a better understanding. Take it slow and don’t give up!

Happy Financial Planning!