Why not take some financial pointers from the business world and apply them to your personal finances? Whether you are a party of one or a family of four, it pays to be fiscally agile. Some of the longest financial plays in the business world today are small businesses that perennially stay afloat and drive their successes through careful planning and conservative financial forecasting. Why can't these principles be applied to your personal financial life too?
1. Determine who your trusted advisors are
Major corporations rely on the skills and experience of a board of directors and you may be asking yourself, "Well, where am I going to round up 10 people to form my own personal board of directors"? Don't worry – you don't have to. It doesn't matter if you are managing the budget of one or a much larger family unit. The real value in making an appraisal like the services rendered by a corporate board of directors is to shed light on where you are financially at this very moment so that you can strive to meet some long-term goals in your future. Spending every dollar that you earn is equivalent to a small business bankruptcy sale in the making. Before you put yourself on the chopping block, you need to round up the powerbrokers in your home and have some "tough love" conversations about money and goals.
2. Talk It All Out
Round up the breadwinners in your family unit and have an honest discussion about financial expectations and long-term goals for everyone seated at the table. The aim here is to understand everyone's perspectives as personal stakeholders without minimizing each individual contribution and professed goal. Think about your own personal meeting agenda and factor in a "Current, Near Future and Retirement" plan that you want to achieve. Keep it general at this stage. Your plan will change as circumstances change.
3. Budgets: Needing, Wanting and Wasting
Businesses must have a budget to track their finances and plan for future expenses. Does your household have one? Create a monthly budget that covers all expenses for the next twelve months, including annual expenses like subscriptions, license renewals, and taxes.
Every good corporate accountant will tell you to account for every penny whether it be a debit or a credit. One of the easiest things to do is establish a simple paper list or spreadsheet that accounts for every nickel you earn. Instead of forecasting your behavior based on what you think your ideal expenses will be, why not log into your online banking website and break apart your actual expenses for the last two to three months by category to see where, when and how your money flowed into and out of your personal bank account. Numbers in this context do not lie. Once you have a couple of months' worth of income and expenses divided into categories, you can then start to see a pattern forming around the expenses that are driven by need, want and waste.
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The second part of our article, 5 Steps To Be Your Own Mogul - Part 2, presents the final two steps to manage your finances like a business.