A Business Approach To Personal Finance

Businesses around the world function in the same way – they control their expenses and try to turn a profit. This is a notion that can also be applied to personal finance. Think of yourself as your own little business. To make your business run smoothly, you need to take a look at your books. The exploration starts with a look at your income and expenses. In this article we'll show you how to apply business money-managing ideas to your own financial situation. We now have access to a Free Roadmap that can also be helpful to evaluate your current situation. Click HERE for your Free Roadmap.

Burn Rate

The rate at which a company's cash is being spent is referred to as the "burn rate." By tracing the speed at which the money is being burned up, it's easy to tell how long the company can survive (think of GM before bankruptcy earlier this year).

Applying this idea to your personal finances is easy. Think about your paycheck as funding for your retirement – amassing money for retirement is your ultimate goal. If you "burn" through your money too fast, you won't have any left for your savings and you will be headed in the wrong direction as you dip into your existing savings.

If you net $120,000 per year and spend $135,000, you are operating at a $15,000 loss. How long could you possibly last if you are burning though $15,000 in savings each year? It just doesn’t add up!  You may think it's not you, but easy credit and bad habits have put more than few people into this situation, regardless of income level.

To get your personal retirement on track, you need to put your money into investments, not credit card payments. Shrinking your “burn rate” is the key to making that happen.

Profit

In the business world, profit is what matters. It’s the same in the personal finance world.

The first step in calculating your profit is to assess how much money you earn each month. The next step is to add up how much you spend. The spending category includes everything – mortgage/rent, cars, credit cards and trips to the cash machine. You've got to subtract the expenses from the income to get your profit – this profit is what you could put into your retirement.  Mint.com is a great place to start this exercise. It’s a Free service that helps you track monthly expenses. Check it out! HERE.

Also, just because you have some left over funds at the end of the month, doesn't mean that your business is in good shape. To examine your situation further you must look at where that money goes too.

Why Are You in Business?

Look at your profit. You worked all year to earn it, and now is the time to viw the results. Your profit is the net accumulation of all of your efforts. Are you happy with the number? Is it enough? Will you make it to retirement with that annual profit?

To answer these questions, you need to have a plan. You need to know how much money you will require to turn your retirement dreams into reality. Recall the commercials – “What’s your Number?”  You may need help with this one. Check the web or ask your personal financial team.

Increase Your Profits

One you've figured out your profit and your retirement goal, it's time to do some fine-tuning. If your profit doesn't provide enough to fund your retirement, it's time to trim your expenses. Look at all you discovered in your burn rate and profit (maybe using Mint.com) and see which expenses can easily be cut. Like anything, change takes time.

If your profit is good enough, increasing it will allow you to retire early, or add a cushion for any unexpected bumps in the road. Being financially independent can be a great feeling, so why not get there as sooner rather than later?

Unlike people, businesses aren't emotional. A solid business is set up to make a profit. Simply breaking even doesn’t cut it. In your personal life (your own little business) simply paying the bills won't work either. Get past the emotions, focus on the numbers, and approach it like a business.  Success in business starts with a Plan! Why would your personal success be any different?

In this article we'll show you how to apply business money-managing ideas to your own financial situation. Click HERE for your Free Roadmap to see if you’re running your personal finances like a business.