Manage Your Personal Finances Like A Business

Manage your personal finances like a business. That sounds sort of harsh and impersonal, doesn’t it? The truth is we face a major problem in managing our personal finances: We make them personal. We make too many financial decisions based on a series of shifting emotions rather than according to a comprehensive plan. Many of us don’t even have a long-term plan, but we need one. We need a governing mission that determines our goals for now and in the future, and as a standard for those goals we need a mission statement. Regardless of the arena—business, government, education, religion, personal, or other—a mission statement allows the owner, manager, or governing body a means to monitor and analyze all aspects of an endeavor for conformity. These aspects include goals, timing, applications, assets, and resources. (I’ll cover some of these below.)

By the way, regarding your finances, you are the owner, manager, and governing body.

Manage Your Personal Finances Like A Business

Write A Mission Statement

A mission statement is defined as a formal summary of the aims and values of a company, organization, or individual. It is a concise statement of purpose.

An Example From Business

Here is Campbell Soup Company’s mission statement: Together, we will build the world’s most extraordinary food company by nourishing people’s daily lives.

Campbell’s began as a family business. Now it is a huge global food company owning several brands, including Swanson’s, Pepperidge Farm, and Prego as well as others. More likely, you have heard their slogan, “Real food that matters for life’s moments.” (They have other slogans, too.) That slogan and the foods Campbell produces are consistent with the mission statement as the company perceives it. (Note: I have no intention of getting into a debate about the quality, price, or production processes of any company’s food products.)

Make It Personal

Written out or not, the mission statement of many parents is “I want to be known as a good parent by providing the means for success to my children.”

Financial considerations would be an important aspect of that mission statement. You’d want to provide all kinds of opportunities to make your kids well-rounded. That would include a good education. You’d ensure you had good health care for them and yourself. (You’ll need to be alive to continue building your financial base for quite a while: this is where your budget comes in.) You might want to provide funds to get them started in business or let them save more of the money they make early in their careers. You’d do your best to avoid becoming a financial burden to them as you age.

Your mission statement should be built on three or four of your most important values (Some of them might not be financial.) Also, you’ll need several solid goals to distill your mission statement. (More goals will come as you move to achieve these.) Your mission statement will keep you focused. It’s a lot like a budget but philosophical.

Treating your personal finances like a business doesn’t mean you don’t have personal goals.  It’s more about making business-like decisions and staying on track to reach your goals.

A Set Of Goals Designed For Success

As you meet your current goals, you’ll find there will always be something more to work toward. Your goals evolve but must remain consistent with your mission statement. (Note: It’s possible that over a long period of time, with the change of circumstances, your mission may change.)

Example

As a good parent, it’s quite possible you’ll want your children to go to college. One of your goals may be to have enough money saved for this purpose by the time they are old enough to go. Alternatively—and frugally—you may have researched other funding sources, but it’s still likely you’ll have to cover some of the cost.

You have options, among them are opening (as soon after your child’s birth as possible) a mutual funds account to which you deposit monthly money. Another available option is opening a 529 plan—a plan specifically designed to save for education that offers a tax break. This is a good example of treating your personal finances like a business because you are planning (preparing for the future).

Saving for your children’s education is a good parenting strategy, so is teaching them that “things” cost money. They need to know how money integrates with work and time.

Many parents give their young children an allowance. At a very early age this is often “free money”—funds to do with as they wish—to buy treats, etc. Even at this point, your kids may want something that costs more than they regularly receive. It takes patience on the part of the parents, but this is the age to start training them in the power of saving.

As children mature, we often make their allowance dependent on completing some small chores. (Behavior may be also a factor if they need to work on it.) That makes money no longer an allowance. It becomes pay. At this age, your children have a sense of time. They’re at least becoming familiar with the concept of the “future.” They know there is more than “now.” Induct them into their own mission for going to college. Encourage them in scholastics and areas of growth. Also, have them contribute to a college fund from their allowance. You’ll want to guide them to a reasonable commitment (not paltry or too taxing).

Here’s the hard part: In accordance with your mission statement of being known as a good parent, you’ll have to act as an enforcer, too. (Your kids probably won’t understand how that makes you a good parent until they have their own children.) One more thing: Your children may find employment when they become teenagers (maybe even before). Even then, you will still be the parent: require them to make regular—reasonable—deposits to their college fund.

Giving your children an understanding of money—how it relates to time and effort and the power it gains with accumulation—should be among the goals within the scope of desire for anyone who wants to provide their children with the means for success. Such a goal would certainly align with the mission statement I presented above.

Mind Your Time And Money

Saving money is not the only profitable thing that can be done with it.

The owner or manager of a business has to use money in a way that enhances the likelihood of continuing and increasing profits. For example, time is a valuable asset that can be easily abused: How many people do we have working today? Enough to accomplish the goals we’ve set? Too many? Too few? Is anyone not producing (wasting time)?

Managing may include comparing deposits to the checking account statement, expenditures from the cash fund, and operating expenses—any number of functions to determine if profit is being made. They may decide to spend money to make money—advertising.  The point is they pay attention to the most important aspect of their business: That’s money.  Who has access to it? What are they doing with it? What is it doing for the business?

The general concept of money making money could also apply to parents who wants to provide their children with the means for success. As they get older you’ll want them involved in activities that help them mature in any number of areas. Areas that come immediately to my mind are spiritually, socially, civically, mentally, and physically. I’m sure there are others. Actual exposure to groups and activities that can help them grow in these areas may or may not cost much directly, but you can be sure that there’ll be some expenses. What about clothing, for example, and transportation? With those considerations, you’re talking about time and money as seed that should yield a young adult with qualities in which an educational institution is interested. But…you are also advertising. Your children in themselves can be great assets. They can in essence “sell” themselves; cause others to be interested in their potential. Involved in various activities, your children will meet people (usually adults) who may follow their progress and in the future offer them opportunities or recommendations. Either of those could enhance their opportunities for success.

Analysis And Focus On Goals

Analysis is a big word with a simple meaning. Synonyms for analysis are evaluation, examination, survey, study, and scrutiny. In other words taking a hard look at something to find flaws: Are we working as smart as we can? Do we even need to do this? Are there ways to prevent loss? Is there something we can do better?

Achieving your goals requires execution of a step by step plan. As manager of your finances you need to regularly review (conduct an analysis) of your goals and the plans to achieve them to see if they continue to be in harmony with your mission statement. If not, does it just need to be tweaked? After an evaluation, it’s possible that performance and outcome could be improved by small changes. Or—and this is especially true if you see that you’re working contrary to your mission—you might need to scrap a plan and develop goals that are more compatible.

Goals are important. You have to do something to achieve them. Governed by your mission statement, the pursuit of your goals is an expression of who you are. Regular analysis and correction will help maintain that.

I’d like to give several of examples here:

• Remember, the Campbell Soup Company mission statement is “Together we will build the world’s most extraordinary food company by nourishing people’s lives everywhere, every day.” There’s no explicit mention of money, but it’s obvious the company has done an analysis and sees the need for some correction: On 8/30/18 an American news website, axios.com posted that Campbell’s is planning to sell off several brands in an effort to cut costs and concentrate on its North American market. That’s because building and maintaining a food company requires money and cutting costs is a way to keep money.
• A similar application could be applied to “I want to be known as a good parent by providing the means for success to my children.” (The example I presented.) What would you do if your (honor roll) child started an after school job and his grades started slipping? Arguably, you’d cut your losses, have him quit the job, and concentrate on his grades. Losing opportunities for scholarships would likely cost more than he could save out of his paychecks. In other words, you’d cut your losses.
• Even those who want to be known for philanthropy must manage the funds coming in and going out if they want to stay “in business.” They will do regular analyses to find ways to boost donations and insure the outlay of funds is doing the most good.

Of course, in business or in managing your personal finances like a business it’s not all about saving money and cutting costs. Money must be made. Under the right circumstances Campbell’s could be interested in buying brands with profit potential. As you work to provide your children with the means for success, you’ll be interested in finding ways to accumulate more money.

Multiple Streams Of Income

Most businesses need more than one customer and more than one product. Do you think Campbell’s Soup Company would be in business very long if they only produced tomato soup and sold it only to you? (Nope.) Campbell’s produces a variety of products and those products are available to customers in just about every grocery store I know of.

You need to have multiple streams of income, also.

In addition to their day jobs, some people have side gigs or part-time jobs, and some invest. In keeping with the idea of providing their children with the means to be successful, I’ve known parents who buy a house with several bedrooms in the area where a child will attend college. Their student has a room and the other bedrooms are rented out. This can cut housing costs and might actually generate some income. After graduation, the place could be kept for further rental or sold.

Some parents even pay their child to act as the property manager and do maintenance. That gives the student experience in responsibility which would fit with the concept providing the means for success. (Also, funds that would be paid to professionals stay in the family.)

Every business needs more than one source of income. So do you, if you manage your personal finances like a business; the ways you find to make money should fit within the scope of your mission statement. Campbell’s mission is a building a food company. As the company diversifies, more ways are found to “nourish” people. That’s why Campbell’s doesn’t sell gasoline. Of course, some mission statements allow for broader interpretation. It’s possible that yours could.

I’ve said you need to manage your personal finances like a business. In order to do so you need to do the same things a business does with and for its money: set goals: manage all aspects of finance: do analyses: adjust: diversify. And, you need to do it with in the perimeter of a mission statement.

I know some of you might say that using a mission statement is a bit of overkill, but it really isn’t. You write it as a guide, something to keep you focused and moving forward rather than stagnating or working contrary to your purpose.

As examples, I used the Campbell Soup Company mission statement and the hypothetical personal statement of “being known as a good parent by providing the means for success to my children.” Of course, you’re not Campbell’s and you might not even be a parent, but I hope that by comparing the two scenarios, you see how having a mission statement can help you manage your personal finances like a business.

Conclusion

Treating your personal finances like a business will help you achieve your goals and help you be efficient why achieving your goals.