Want to take nicer holidays? Buy an investment property or two? Or perhaps you want to build a hefty nest egg ahead of retirement?
Then you should consider approaching your life like a business.
While this might sound like an odd concept, some people believe there isn’t much difference between running a successful business and managing personal finances. The idea is that by applying common business practices to your life, you can do better financially.
What gets measured, gets managed
Business owners know that keeping an eye on their bottom line is essential if they want to be successful. So they use profit and loss statements (P&L) to keep a detailed record of their expenses, revenue and cashflow over a set period of time.
As the chief financial officer of your own life, you also need to take a long hard look at your books – because what gets measured, gets managed. To do that:
- Record your income and expenses
Most of us have a good idea of how much money we bring in each month. But do you know where all your dollars go? Tracking your spending is the first step if you want an accurate picture of your current financial position. Once you’ve done this, subtract your expenses from your income to get your own personal P&L statement.
- Set a budget
Once you know where your money is going, use this information to set a personal budget. Part of this process includes identifying your long-term financial goals. Set aside some of your ‘profit’ each month to save towards them.
Reduce your operating costs
Businesses closely watch their expenses so they can keep their operating costs at a minimum. You can do this too by reviewing your spending habits to see where there’s room for savings. Perhaps you could dial back your daily coffee habit, eat out less or buy less ‘stuff’?
It’s also a good idea to regularly review your monthly fixed costs such as utility bills, home loan repayments, car insurance and internet. There is often a lot of competition between providers, so chances are you might get a better deal by shopping around.
Create multiple income streams
The most successful businesses have more than one income stream. They’ve either got multiple clients, sell a large product line, offer different services – or do all three!
Your work counts as one income stream, so you need to look for opportunities to improve your existing wage and bring in more money. This could include:
- Building up your skills in your existing job so you can ask for raises or switch to a higher-paid role
- Investing your money in something like property that may create another income stream
- Starting a business or side hustle that could turn your hobby or skills into a money-making venture
Make your money work for you
The greater the gap between what you earn and what you spend, the more money you can save and invest.
So why not start running your life like a business?