We can learn a lot about budgeting and being successful financially if we look to the way that businesses are run. Yes, there is a lot of red tape that makes many businesses and corporations lose productivity, but the way that they stay organized financially, have a plan, and optimize their profits while investing in the long term are all excellent traits for the average person to use at home.
To illustrate, let’s discuss how a business is run and then look at how it is similar to what you should do at home.
Maximizing Revenue. A business focuses first and foremost on maximizing the amount of revenue that they can produce. Without revenue, a business would fail instantly. Revenue is needed so that all other parts of a business can grow and prosper. In a home budget, you also maximize your revenue by increasing your income. Whether it’s through investments in education or by finding a second source of income, consistently increasing your income is a big way to get ahead financially at a personal level.
Staying Organized with a Financial Budget. Companies are usually meticulous about budgeting, no matter which type of business budgeting they use. By staying organized and having a budget, businesses can help reduce their expenses and more closely match their expenses to their revenue. The same is true when it comes to your family budget. You must create a budget for yourself that includes both your income and expenses. You also have to continuously monitor and analyze your spending so that you stay within your budget and help improve your personal finances.
Having a Financial Plan. A business needs to have an operating and financial plan to keep their focus. They have to set long term goals and measure their success against these goals. Similarly, you should also have a financial plan. Your plan should incorporate large future expenditures like children’s education and retirement. Like a business, you should measure your success periodically against your plan and update your plan as your situation changes.
Optimizing Profits. Optimizing profits means trying to keep good gross margins while minimizing operating and miscellaneous expenses. The result is a higher level of profit that can be reinvested in the business or added to the cash position. It makes the balance sheet stronger and the company more stable. The same thing applies to your personal financial position. By working toward raising your income (revenues), lowering your taxes (gross margin), and reducing your spending (lowering expenses and being frugal), you can maximize the amount of money you are able to save and invest for your retirement/future.
Investing for the Long Term. Businesses make short term decisions, but continue to focus on the long term. They need to focus on the long term by doing such things as investing for the future. In business, spending on research and development is often a way to ensure future success. When it comes to investing in your future, you should also take the same steps. You must invest for your future spending, as well as make investments that can help raise your income. That may mean working harder at your job so that you can get more promotions, or it could mean going back to school to increase your worth to your employer. Also, investing for you future means thinking about your retirement and making sure that your financial plan can meet your goals.
What Others Are Saying About Running Their Life Like a Business
We like to see what others are saying about the topics we write about. When we searched around for other blogs that touched on this subject, we found a great post from Neal Frankle at US News Money. He wrote a very similar article that had very similar views. He broke out the business aspects a little differently than us, but had many similar viewpoints. Here is what he had to say about comparing business cash flows to personal cash flow:
I mentioned that every good business has to have enough cash flow in order to survive. You are no different. If you want to advance in life and have more financial freedom, your first order of business is cash flow. It goes without saying that you will need to track your spending and make sure you earn more than you spend. But beyond that, you need to look ahead. If you are just getting by, that isn’t good enough. You need a solid financial plan.
The best financial plan for cash flow is also the simplest. Figure out what you need to save every month in order to reach your goals and save that money before you do anything else. If it means taking on a weekend job, do it. If it means working part time, get on it.
You don’t need to do any more research. You don’t need to read any more blogs or books. You already know more than people who have the success you want. In order to reach the next level of financial success, all you have to do now is get to work. Are you willing to put in the extra effort? If not, why not?
You can find the rest of this at For Financial Success, Run Your Life Like A Business. It’s nice to see that we see eye to eye with this person’s opinion.
How about you? Do you agree that running your life like a business can result in financial success?