Many of us do not think of managing our households like a business. However, I believe that if you take a step back and evaluate your personal finances from a business perspective, there is much to be gained.
The concept of managing your household like a business should not be taken to the extreme. This exercise is only intended to help you change the way you make purchasing and investment decisions. In doing so, you will be able to increase you net-worth and more than likely increase your standard of living.
You can start managing your finances like a business by taking advantage of the following opportunities:
Create a Business and Financial Plan
The first step of managing your finances like a business is to create a plan. Planning is a critical element of managing an organization. Often, when a business lacks goals and objectives it has a hard time growing and becoming successful over the long-run.
To manage your finances like a business you should first create and implement a strategic and financial plan (or budget). Your strategic plan can be a simple list of the things that you would like to accomplish and the actions needed to keep you moving forward. Your financial plan should estimate your future revenues and expenses.
Cut Expenses to the Bone
Like many households, businesses base their spending (expenses) on the economy. During recessions and other weak economic environments businesses will look for any opportunity to reduce expenses in the effort to save money.
In addition to cutting expenses in poor economic climates, businesses will even look for efficiencies when the economy is growing. Due to profit motive, businesses will look to eliminate any and all wasteful processes they may have.
In order to save more money and increase your net-worth you should try to find expenses in your financial plan that you can reduce or eliminate. You can begin by looking at your purchasing habits, can you reduce what you buy at the grocery store or local coffee shops?
Look For New Opportunities to Grow
Businesses are always looking for new opportunities to grow and become better, you should too. Many of the world’s most successful people are self-starters, always looking forward to the next opportunity.
Understanding that the chance of inventing a billion dollar product is far-fetched, however you can still take advantage of more realistic financial opportunities. Some simple ways to increase your cash-flow include renting out an extra room or basement, start a side businesses or go back to school on the weekends.
Accumulate Revenue Generating Assets
Many of the personal things that we own do not generate revenue, which is normal. However some of the things that you purchase or currently own should create some type of cash inflow.
Before a business purchasing an asset they calculate how much revenue can be generated from it. More often than not, a business will compare a few different investment options and determine the risks, costs and potential payoff of each one. This helps them determine the best revenue generating opportunity available.
Managing your finances like a business can be a big shift from what you are doing now. However, the benefits of doing so can be extremely rewarding. Remember in-order to manage your finances like a business you should first create a business and financial plan, cut expenses to the bone, look for new opportunities and finally accumulate revenue generating assets.