Successful businesses don’t end up with profits and balanced budgets by accident. They have staff members dedicated to reviewing overhead, cutting unnecessary costs and watching the overall bottom line.
You may not have a staff to manage your personal finances, but there are numerous lessons you can borrow from the business playbook that can help you save more, spend less and achieve your goals.
Lesson 1: Create a Strategy
A business strategy is the guide that lays out the vision and goals for a company and details how they will be achieved. Management will then use the strategy in planning and projections to more efficiently invest in defined goals. Before making any big-ticket decisions, such as buying new equipment or hiring more staff, they will analyze the potential upside to ensure that outcomes are aligned with strategy.
In much the same way, a personal finance strategy would allow you to define your life goals and create a concrete plan to achieve them. Your strategic plan should include a resource allocation section detailing where you will find the funds needed for each goal and ideally articulate how you will measure your progress on your goals, whether saving for a down payment or paying off a college loan.
Putting every dollar you save or spend through this filter will enable you to be more efficient in your spending. It will also highlight where you might be falling short on saving for specific goals.
Lesson 2: Consider Risk
Businesses have to take risks to grow—investing in new technology, for example, or launching a new product or service. But the risks they take are carefully calculated based on research and by looking at the possible fallout should things not go well. Some businesses have to take sizable risks to keep up with competitors and stay attractive to investors, but other business models work best with smaller, safer bets.
Personal investment risk tolerance works very much the same way: As an individual investor, you need to determine your risk appetite in order to choose the right investments. You may want high returns, but if you know you’ll lose sleep investing in high-risk equities, the payoff won’t be worth the anxiety. You might be better off accumulating more cash in a savings account or investing in lower-risk bonds.
Lesson 3: Get On Top of Cash Flow
For-profit businesses judge their success on the value of the company, and in most cases, that means monitoring cash flow. To ensure the bottom line is in the black and they are spending efficiently, they will keep a keen eye on revenue coming in and expenses going out.
You can do the same by tracking your expenses and your income. That will allow you to see your profit margin, which is your net for each dollar coming in minus expenses. You can then make adjustments as needed to raise that margin.
For example, you might identify a high-ticket item in your expense column—your cell phone or cable TV bill—that could be lowered if you switched providers or negotiated a new rate. Or you might be able to bring up the revenue side by negotiating a raise or changing jobs. Looking at cash flow will enable you to see where your spending is not as efficient as it could be or where you may be apportioning too much of your income to a particular expense.
Lesson 4: Focus on Growth
Most businesses, if they’re successful, are not stagnant. They are focused on getting bigger, whether that’s through offering new product features, finding new customers, mining opportunities in new markets and so on.
If your finances are stagnant, there are two key ways you can change that:
● Make changes for greater revenue. Can you move into a new career or position or try to change jobs for a higher salary? Can you invest in education to get you to the next level? Can you save more each month?
● Make changes in your spending. In addition to looking at ways to boost income, take another look at expenses to see how you might be able to shave off a little each month. The less you spend, the higher your profit margin and the more growth you’ll see in your savings.
Lesson 5: Delegate
As businesses grow, leaders will assign day-to-day tasks to junior employees. This leaves them open to have a bigger-picture vision for the business while also empowering others.
If you find you’re spending too much time tracking your day-to-day finances, leaving you less time to think about your overall goals, consider apps or desktop software that can track your expenses and income. Most will provide a dashboard so that you can see your big picture and your budget’s bottom line anytime you need to. Set up bills to be paid automatically wherever possible. Take more off your plate by enlisting a financial advisor to help with investments and an accountant to do your taxes.
Lesson 6: Understand Your Taxes
Businesses read and understand the tax codes in order to minimize their tax burden. It’s not improper to understand what taxes you owe and which expenses you can legitimately write off or deduct.
To make sure you’re not overpaying Uncle Sam, spend an hour with an accountant and have them review your tax returns from the last year or two. Most accountants will offer a free consultation, and they may be able to find savings or deductions that automated tax websites missed. The code changes often too, so having an accountant on board who is keeping abreast of the latest will be a big help.
Lesson 7: Use Financing as a Tool
Businesses don’t take on debt unnecessarily. Before they borrow, they look at the longer term and see how financing today can help them achieve growth—and more money—in the long run.
Likewise, try not to draw down a line of credit or use a credit card simply because it’s there, but rather use credit strategically to better your finances. For example, when used responsibly and paid off each month, your credit card history can improve your credit score, which will enable you to tap higher lines of credit when you need them. Most cards track and categorize your expenses, which can be a big time saver come tax filing season.
Your credit use can also help you get closer to life goals. Say, for example, that you’d like to travel more; a card offering travel rewards can help you get there faster and less expensively. If you are carrying some credit card debt, transferring balances and consolidating that debt onto one low-interest card can help lower your monthly outlay. Taking advantage of no-interest financing on big-ticket items—which allows you to pay principal only so long as you finish by a certain date—can help lower your monthly expenses and raise your profit margin.
Lesson 8: Have Fun
Business leaders know that all work and no play make for cranky employees and lower productivity. That’s why they make sure to reward employees with holiday parties, occasional free lunches or extra days off for a job well done.
If you’re focused only on work or on saving money, you won’t have a chance to enjoy the fruits of your labor. Reward yourself with a splurge on new clothes, eating out or a spa visit—as a reminder that, for both businesses and individuals, that hard work and saving are means to an end and not an end in themselves.
C.J. Prince is a freelance writer who covers finance, business strategy and leadership. Her work has been published in Working Mother, Entrepreneur and New Jersey Monthly Magazine as well as many financial websites and magazines.
Illustration by Jack Hudson.
If you’re stressing about managing your finances, know that you’re not alone. Financial anxiety doesn’t have to consume you. Read to learn about others with similar challenges, including how they are navigating financial anxiety and making financial choices to better preserve the future.
