The Benefits of Running Personal Finances Like A Business

Wednesday, September 23, 2020, 6:00 AM | Leave Comment

How Adopting a Business Mindset Can Revolutionize Your Finances

Businesses can feel harsh, cold, and calculating. A company might adopt a new environmentally-conscious cause, try to hire a specific kind of person, or manufacture its goods only in the United States, but at the end of the day, each and every decision that is made has one focus in mind: the bottom line.

In other words, a business is an organization of people striving to turn the costs associated with their efforts, time, and resources into revenue — ultimately leaving them with a profit.

In a certain sense, the same can be said when it comes to running your personal finances.

The Benefits of Running Personal Finances Like A Business

How Business and Personal Finance Relate

At its root, the core tenets of running a business aren’t far off from how a person should approach their personal finances. In fact, when looked at from the correct perspective, one could even say that the best way to run your personal finances is precisely as a business.

While it may be a tad reductionist, if you think about it, personal finance can generally be boiled down to three factors that are, in essence, the same focal points as a business:

  • Revenue

    One of the first steps in personal finance is to consider your income. This equates to the revenue that a business might generate through the sale of products or services that it offers.

  • Expenses

    Along with income, a personal budget requires a broad calculation of expenses. Everything from groceries to auto loan and mortgage payments, credit card bills, retirement savings, taxes, and even spending must be added up. This closely mirrors a business’s need to add up the costs — such as manufacturing, marketing, and overhead — that go into generating their revenue.

  • Profit

    At the end of the day, a business wants its revenue to exceed its expenses. If it costs $10,000 a month to keep the doors open, cover payroll, and stock the shelves, a company wants to generate at least $10,001 in sales — and hopefully much more than that. In the same way, personal finances aim to ensure that the money that you are spending is less than the money you’re making.

  • The Benefits

    When your personal income is larger than your expenses, you generate “a profit” — i.e. you have left over money that you can save, spend, or give. When this happens, a variety of different benefits kick in.

    For instance, you can:

    • Use the excess money to support a charity or cause that you support.

    • Use the excess money to pay down debt or save more for your future.

    • Build and maintain good credit by paying all of your bills in full and on time.

    • Develop sound money-management skills.

    • Have peace of mind that your finances are healthy.

    On top of all of these, perhaps the greatest benefit of treating your personal finances as a business is that it replaces emotional decision-making with logic and reason.

Rather than making decisions based on how you feel, it forces you to consider what you have to work with, how you’re spending your money, and what you can do to maintain a healthy financial state.

How to Run Your Personal Finances as Business

While the two aren’t compared very often, the overlapping principles of running a business and managing your personal finances are too critical to be ignored. With that said, here are a few different ways that you can integrate a calculated business mindset into your personal finances.

Embrace Technological Tools

Businesses are always looking for ways to embrace technology in an ever-evolving workplace. In the same vein, look for ways to integrate tech into your personal finances. Among other things, this can be done through depositing personal checks with your phone, setting up direct deposit, or downloading a budgeting app.

Take the Time to Forecast Your Finances

Don’t just wait to see what happens down the road. Proactively strive to understand what expenses you may have in the future and consider what you can do to prepare for them. This will help you avoid the need to borrow money and pay interest because you aren’t prepared for an expense.

Prioritize Function Over Looks

Businesses don’t proactively replace equipment, such as a company car, simply because a new model comes out. They track their assets and, as long as they’re still productive, useful, and effective, they continue to use them. In other words, they look for assets that function well at a low cost. In the same sense, don’t constantly be purchasing new things when they aren’t needed. For instance, if you purchase a new car, pay it off quickly, and use it for as long as possible. You can even do your research and carefully look for a more affordable used car that can get you the same results as an expensive new model.

Relating Personal Finance and Business

It’s not difficult to see how running your personal finances like a business can be a savvy move. Considering income (revenue) and expenses (costs) in order to ensure that the former is larger than the latter (i.e. you generate a profit) is an excellent way to maintain financial health and wellness.

It provides a blueprint for you to follow and helps to avoid emotional financial decisions. In addition, it ensures that you can develop and maintain good financial habits not just now, but for years into the future.

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