Money is a tough thing to wrap our brains around sometimes. Especially when it comes to our own personal finances. It can be stressful, make you feel lost, and seem like you’re running on a treadmill.
I felt these same feelings early on in my financial life. I was in debt, frustrated, and looking for a way to figure this whole financial mess out. It’s a terrible feeling when you don’t know where you spent your last paycheck.
The problem is, there’s nothing out there that provides a clear cut plan for your situation. That’s because you’re situation is mostly likely unique.
It is however, your obligation to find a way to turn it around.
The best way to do this is create structure for you and your family. This may sound a little odd at first, but you need to treat your finances as a business. As the ever popular theologian Jay-Z once said: I’m not a businessman, I’m a business, man.
Whether or not you applied for the job, you are the CFO of your own finances. How your personal balance sheet looks, is a reflection of how well you have been doing your job. If your current situation looks a little gloomy, we can work on turning it around. It’s on you, as the leader of your family, to make the adjustments and turn a profit.
See, most of us tend to run our personal lives as a consumer. How can we not? We are constantly fed commercials that scream buy, buy, buy.
A business runs its operations in a different way. They look for opportunities, cut their losses, and turn a profit. What if we ran our personal lives like a business? What if you became the CFO (Chief Financial Officer) of You Inc.?
I believe our behavior would change. As a matter of fact, I know it would. I have implemented business principles as my primary structure for my family’s finances. We look at our spending, savings, and investments in a different way.
What Does A CFO Do?
First let me interrupt your regularly scheduled reading, to explain what a CFO does. If you already know what a CFO does, feel free to scan on down.
As a quick rundown, a CFO is in charge of a company’s financial stability. To make it easier to understand, a CFO can be broken down into three parts.
1. A CFO is in charge of reporting and presenting a companies historical finances. This means they keep track of data and present to managers in the company to recognize trends. This is also known as controllership duties (like you care).
2. A CFO is also in change of a companies current financial situation. They decide how to invest the companies money, take on debt, and how much risk the company has.
3. Lastly, a CFO is expected to plan for the future. I.e. Apple iPhones are a huge producer of cash for the company, so they put huge emphasis on Improving sales for the iPhone well into the future.
That is just a quick broad rundown to get the point across. Let’s get back to the good stuff!
Have A Plan
The first thing a new business does, before it even opens its doors, is develop a business plan. This should be no different for You Inc. We need to develop a budget based on our expected income.
If the word budget makes you cringe, I get that. It’s not the sexy word we all want to hear. You don’t see celebrities bragging about how much they saved on their grocery bill this month. But, the reality is, if you want to build wealth for your family, you have to keep track of your finances.
It does not have to be complicated. It can be as simple as figuring out how much you need to save each month. Then when your paycheck comes in, you take that off the top. The rest is yours to pay bills and spend freely.
I talk more about why budgets aren’t boring here.
This was the first step for me on turning my finances around. The budget was my plan that told me where I was going to spend my money. I didn’t have to think or worry anymore, it was all right in front of me. The stress melted away.
Turn A Profit
One of the first things a business wants to do is turn a profit. I am a firm believer that if we changed the name of our savings account to profit account, it changes the way we psychologically think about our savings.
That is because the money you manage to save, is your profit for that month. It didn’t go to the electric company, grocery store, or Amazon. It’s money that you keep for your family’s well being.
You should always turn a profit before you pay your bills. So your profit account gets paid before “How Are We Not Considered A Monopoly, Electric Company” and “You Pay $10 Per Show and Don’t Even Know It Cable Co.”
Communicate With Everyone
Most companies have quarterly meetings to make sure everyone is on the right track, and in-line with the companies goals. You should do the same. Set aside time monthly or quarterly to meet with your spouse and go over your progress. Let me preface by saying that this is not a time to yell at someone for getting too ‘spendy’. There should be no finger pointing or blame thrown around. If your better half has not been on track, use this time to show them (In a loving way) that if we meet our goals, here is what happens. For example, print out a chart that shows if you max out your Roth IRA each year, at the end of 30 years you will have over a million dollars.
People have to be incentivized to change.
How can we expect everyone to be on the same page if they don’t have a clear understanding of our goals?
If you are flying solo, make sure you write down your goals to keep yourself accountable. If you want to max out your retirement accounts, review your progress to ensure you’re on the right track. Write it on the wall, put it on your calendar, I don’t care! Just make sure you stay on top of your progress.
The best businesses have a clear understanding of where they are and what they need to do next. They make sure everyone is on the same page and they execute. Do not walk through your financial life blind. You as the CFO, you need to make it happen!
Increase Your Income
Not only does a business want to turn a profit, they also want to increase their income. It goes even further, they want to diversify their income. The same should go for You Inc.
The first thing you want to do is look at your current situation. Can you ask for a raise? Look at some of your accomplishments within your company and how they have translated into wins. Present some of these wins to your manager. What most people fail to do in the first place is just ask. The worst thing that can happen is your boss says no!
Next, along with your current job, look to make extra income. This will increase your savings rate, earning potential, and hedge against any risk of job loss.
We call this your side-hustle. Some of the best side-hustles are based around things that you love. If you are a musician, consider playing gigs, or giving lessons to other aspiring musicians. If you love building web sites, work for hire and build websites for other people. If you love creating content based on your passion, start a website or blog!
There are literally hundreds, if not thousands you can choose from. Just look at your passions, then figure out what you can do related to that passion. (If anyone has any successful side hustles, let us know in the comments below!)
When a company invests their hard earned resources into buying another company, they don’t do so on a whim because their Uncle Freddy called it a ‘sure thing’. They do their due diligence in learning about the business, and make sure they invest at a price that makes sense. You should do the exact same. Too many people run our investments like they are sitting at a blackjack table waiting to hit ’21’. They act like it’s money to blow.
Let’s make this easy, If you are going to invest in something other than a total stock market index fund, you need to do your due diligence beforehand. Why are you investing? How will this improve the bottom line at You Inc? How strong are the investments financials? Can you play a part in turning this investment around?
All these questions (and many more) should be asked before making an investment. Only invest in businesses that you fully understand. It doesn’t matter if you are buying a company that makes socks, or you are buying stocks (l rhyme all the time). A good rule of thumb I use for myself: If you can’t explain the business to a group of people in detail, then you need to do a little more research.
If a business is struggling, the first thing they look to do is control their expenses. Yet, so many of us don’t do the same!
This should always come after you focus on increasing your income. Most people fall into the trap of spending way too much time reducing their expenses. Let’s play a game of would you rather:
Would you rather focus two hours a week on clipping coupons and save $15. (Congrats you just made minimum wage).
Would you rather focus two hours a week on researching rental properties, and find one that provides $300 in monthly income.
Please, the two don’t even compare.
Focus on increasing the proverbial meat, then trim the fat later.
That being said, decreasing recurring expenses would be a good use of your time. Can you cut your $200 cable bill down to $100? This does not take more than an hour, and can net $1,200/year. If you focus on things that don’t have a huge impact, you will never play in the big leagues. You only have so much time to focus outside of your normal job. Use it to hit home runs.
Wrap It Up
Money can be hard and overwhelming, but treating your finances as a business is the first step to getting on the right track. If you feel overwhelmed you’re not alone. The only way to solve your problem is by taking action (I’m ’bout that action, boss!). Start reading, listening to podcasts, and learning as much as you can. The fog will lift, and the road will become clear.
Get with your family, and develop a plan. You have nothing to lose and so much more to gain.