You Are a Business
Episode #12 of the course Personal finance concepts by Maureen McGuinness
“‘Imagine, being your own boss!’ I would think. ‘Why, you could set your own working hours, or even your own working seasons!’ ‘Man, the first thing I would do is strike Mondays entirely from the work schedule.’” –Mr. Money Mustache, early retirement blogger
One way of staying on top of your personal finances is to think of yourself as a business. Why are you taking a new approach with your personal finances? What’s the driver for change? When things get tough, having a reason helps you to “drudge through the drudgery,” as Joshua Fields-Milburn, a successful author and one half of The Minimalists, says.
Have a Plan. What’s the big picture? What’s your timeframe? What’s the outcome of achieving your end goal? What will you do after you’ve reached that goal?
Operate With a Profit. If you are living paycheck to paycheck, your balance is 0 at the end of each month (or worse, you’re in the red). What business can sustain itself without making a profit?
Cut Costs. If you aren’t making a profit, you need to find a way to spend less than you earn. If you’re not making any profit, start tracking your expenses. Use a week or a month’s worth of expenses to determine where you can cut costs. Assess your expenses. What are your priorities? What can you do without in favor of supporting your priorities? Assess the potential costs and benefits of any purchase.
Find Better Processes. If you’re eating out daily, what’s stopping you from cooking at home more often? Can you find a better way to balance eating out with friends with frugal eating in? Could you take a brown bag lunch to work?
Treat Economic Outpatient Care with Caution. Thomas J. Stanley, author of bestseller The Millionaire Next Door, coined the term “economic outpatient care” (EOC) to describe parents that continue to provide financial support for their adult children and their families long after the kids have left home.
Stanley found that parents who provide EOC have significantly less wealth than parents within the same age, income, and occupational cohorts whose adult children are economically independent.
Stanley found that self-sufficient adults were more likely to:
• Accumulate more dollars
• Invest their income in appreciating assets
• Have a higher net worth
• Be less dependent on credit
Reinvest Your Profits. When you spend less than you bring in, you have surplus cash. While it might be tempting to use that surplus to fund some entertainment, if you reinvest the money, you can make it work harder for longer either by investing it for a long-term goal like retirement or for a short-term goal like paying for additional education.
Continue to Learn About the Market. Sorting out your personal finances isn’t just a one-time event. It’s for life. It’s important to know what’s happening in the market, both in terms of the stock market (for investors, which is anyone who has a 401(k) or pension) and in terms of jobs. How secure is your job?
Know Your Sources of Income. What provides you with your biggest source of income? As an employed individual, this will most likely be the company you work for. How can you ensure you get that mid-year bonus? What steps do you need to take to secure a pay rise? Could you take on additional responsibilities and provide additional value to your company and influence your compensation?
Grow Your Net Worth. Any surplus cash can and should be used to build your net worth. Only once you’re meeting your wealth goals each month should you use your cash for non-wealth-building spending. What is net worth? Your assets (what you own, like investments) minus your liabilities (what you owe, like a mortgage).
Look After Yourself. Endlessly striving for wealth can leave you burned out. One of the best investments you can make is in your health. You can’t buy health with money. You can only use time to invest in building habits that keep you healthy.
Ready to put what you’ve learned into action? Take my Premium course on Financial Well-Being, where you’ll learn how to worry less about money.
If you enjoyed this course, you may find value in Maureen’s eBook: Your Money, Your 20s which outlines the key habits and mindset for building wealth in your 20s.
Share with friends