Personal Finance: Run it like a business, folks!

Why is it, that we feel more in control at work, but many tasks at home often get pushed aside, or we make emotional, rather than rational, decisions? For many of us, managing our personal finances feels like quite a task!! However, it doesn’t need to be, especially, if we apply some principles to our personal finances.

Building and managing a business requires structure. It takes planning, processes and systems. More than that, running a business requires you to be accountable to others, such as business partners, shareholders or investors, creditors and so on. So, what are lessons that we can take from managing a business and how can we apply them to our personal finances?

1. Start with a plan
   Every business starts with a plan, even a simple one. This acts as a roadmap for where the business is heading. When it comes to your personal financial situation, it makes sense to also have a roadmap for where you want to get to, financially.
   For a lot of people, the idea of setting a personal budget makes them feel like hard work, and limits their financial freedom. But, in fact, it’s the opposite. Having a budget is like having a business plan for how you will be managing your personal finances, so that you can achieve financial freedom.

2. Know your financial goals in detail and set clear objectives
   Take the time to write down your financial goals, whether they’re short-term or long-term. All of these goals, whether it’s investing in property or retiring early, will affect how you plan and manage your personal finances. Well run businesses have a plan – for contingencies, for wealth creation, to cover risks, and many more – having numbers written and planned works best.
   You can apply the following points for setting goals and objectives for your personal finances:
   • Specific – target a specific area of your finances one by one, such as saving for retirement.
   • Measurable – quantify or at least record an indicator of progress (e.g. to save X amount by X date).
   • Achievable – be realistic about what you can achieve (e.g. save X amount of your monthly salary).
   • Relevant – ensure your goals make sense to you and your lifestyle.
   • Time-bound – set realistic dates for when you want to achieve your goals.
   Emotional situations can cause you to make bad financial decisions. Setting clear objectives will help to remove the emotion from decision-making, instead helping you to weigh logical options for managing your money.

3. Involve your partner and/or family members in the decision-making process and objective setting.
   Always share your financial information with family members, it’s important to involve them in the process. You need to ensure you are all on the same page and your financial goals are aligned.
   It’s also wise to discuss your individual attitudes to money. In particular, how you approach financial responsibility and whether or not there is anything in your respective lives that could have a major impact on your finances. Most importantly, be honest. The more honest everyone is, the more it will help managing your personal finances now and in the future.

4. Give your personal finances the level of attention they deserve
   Just as you would set time aside at work for something so important, schedule time in your calendar to properly plan your personal finance. Also, make time to make changes in your plan and overall finances on a regular basis. Don’t simply ‘set and forget’ and make adjustments to your spending and savings as necessary to keep you on track for meeting your financial goals.
   You will be surprised at just how much more smoothly things will run. As a result, it will be far less daunting to manage your personal finances.

5. Plan your spending
   As a family, it’s important to be on the same page regarding spending, and who is responsible for what. This is especially important when it comes to larger purchases, such as a car or overseas holiday. It can be challenging, so try following the rule that until you all agree on a large purchase, it should not be made.

6. Review performance and make accountability a priority
   Reviewing your income, expenses, savings and investments will help you identify cash flow opportunities and challenges. This is what happens in a business environment, so there’s absolutely no reason not to follow the same process at home.
   Improving your cash flow and looking for opportunities to increase your income are valid reasons for treating your personal finances like a business. After all, the goal is to put you in the strongest possible financial position. Also, having accountability is key to managing your finances smoothly with a partner.

7. Keep educating yourself
   Meeting your financial goals takes focus, hard work and commitment. Taking a business-like approach to your personal finances is a great starting point but don’t stop there. Learn as much as you can about things like credit, saving and investing. Of course, you don’t need to become an expert if you don’t want to but it’s important to be equipped with the right information. Your research and learning will be beneficial, even if you decide to take up the services of a financial adviser.
   Don’t be afraid to ask for advice.
   

All successful businesses that you see around you, started with some planning, kept adapting to changes/challenges and made better plans and processes…let’s make that start, and become successful in the business of life!!

Author: Mr. Nirmal M Jain | Mr. Nirmal M Jain is a Co-Founder at HappyWise Financial Services. He has helped over 100 Families over the last 15 years of his services in the Financial Planning Sector. He has been a mentor to several people to help them better understand investments, stocks, mutual funds, financial planning, personal finance and above all his favorite term “The Power Of Compounding!”.