Budgets and personal finances are not most people’s favorite topics, and certainly not one of mine. Most bank executives even have problems in this area, and if you’re an entrepreneur then more than likely you probably do too! It’s not that you don’t care or anything, it’s just that you’re probably concentrating so much on your business that your personal checkbook takes a back seat. Then one day you are met with the startling fact that you’re not saving enough for lean times and you panic. Then what?
Well, just apply your professional talents to the situation and become your own personal CFO! By focusing your CFO eyes on the situation, it somehow tempers the pain of dealing with your own money. To get started, here are five rules for treating your personal finances like a business:
1. Be Your Own Board of Directors.
To make good decisions, you must know what you’re trying to achieve. In business, Board of Directors write mission statements to keep the company on track with goals. At home, it’s up to you to define your mission and make sure you’re fulfilling it by writing down your goals. Not just your financial goals either, but your “life” goals as well.
2. Know Your Operating Costs.
Do you know what you spend every month on average? Businesses do because they base their budgets on historic spending patterns. Most people, however, don’t know what it costs to keep their lives running. You can make out detailed budgets, but find out at the end of the month that you haven’t stuck to it. So instead of doing a budget that dictates how much to spend, do a “cash flow statement” that records how much you actually spend each month broken into several categories.
3. Know Your Net Worth.
Companies measure the progress towards their goals through balance sheets which list their assets and liabilities. Your net worth is your balance sheet where you list everything that you own. That means your checking and savings accounts, investments, car, house, etc. minus everything you owe. Track your net worth quarterly to make sure you’re moving toward your personal goals. Without this step, you might not see the impact of your money decisions until it’s too late.
