7 money management tips to manage your personal finance like a successful company

If you want to be your own door and make your own opportunities then that means you need to start thinking about yourself as being an investor in your own present and future.  Whatever your stage in life, your financial decisions now will have an impact on your own future, the people you love and the legacy you leave behind.  Here are 7 tips to managing your money like a successful company.

Recognize that cash-flow is king

The most basic element of financial management is making sure that you always have enough cash to cover your essential expenses, plus a little left over to save for future essential purchases and emergencies.  For practical purposes, essential expenses, in order of importance, are:

anything you need to pay to keep body and soul together
anything you owe the government
anything you’ve made a legal commitment to pay

You may have more control over each of these categories than you think and we can talk more about that in later posts, but these are the expenses for which you need to have funds available, otherwise you will have to rely on credit, if you can get it or, literally, go bankrupt.  If you have an income, there is a good chance you will get credit, but it will come at a price and, of course, you will still need the money to pay it back.  These days, as most people are paid monthly, most regular expenses are billed monthly too.  For many people, the challenge is to be ready to manage occasional expenses, such as when a major household appliance needs replaced or a pet needs to go to the vet (even with insurance, there’s usually an excess to be paid).  For some people, particularly freelancers, there is the additional challenge of budgeting even though your income can vary hugely from month to month.  We can talk more about budgeting, even on a variable income, in another post.  For now I’ll make it this.  Look around your home and decide what would be the most expensive essential item to replace, for example in my home, it would probably be the washing machine.  You should aim to have at least enough cash savings to cover this, preferably 1.5 times the replacement cost as an absolute minimum (so you do have some cash left over once you’ve bought the replacement).  Once you have this, you can start forward planning for when other key items reach the end of their useful life and need to be replaced, but we’ll talk about this more in another post.

Monitor your income and outgoings effectively

Just like a successful company, you probably have financial statements (from your bank, credit cards etc) and just like a successful company, you need to look beyond the headline figures and into the details, which means you need to keep your receipts, or, more accurately, you need to keep electronic copies of your receipts.  (There’s nothing wrong with keeping the paper if you prefer, but I’d still suggest keeping an electronic copy as well).  If you don’t get a receipt, then you still need to record the purchase somehow, which is where phone cameras can come in so useful, failing that, you can use an old-fashioned paper notebook.  This will tell you how much of your money is actually going on essentials, which may be rather different from what you think.  If you make regular trips to the supermarket, it may be easy to tell yourself that everything you’re spending there is going on groceries, when in actual fact you’re picking up the odd bottle of wine here and the odd DVD there and the odd magazine somewhere else.  There’s nothing wrong with making these purchases, if you can afford them, but you need to understand exactly where your money is going now, so you can take informed decisions when it comes to managing it.

Be clear about what is a need, what is a want

A need is something you have to have to be able to function effectively in life.  A want is just that, something you would like to have.  This sounds clear cut in theory, but in practice, it can be very easy to start to convince yourself that a need is actually a want (and the more you want it, the easier it becomes to convince yourself that it’s a need). Phones can be used to illustrate this point very well.  In this day and age, it’s probably reasonable for most people to class having a mobile phone as a need, some people may be able to class having a smartphone as a need but for most people it’s a want, a very few people may be able to class a high-spec smartphone as a need, but for most people, the latest and greatest phones are definitely wants rather than needs.

Understand the difference between a possession and an asset

A possession is just something you own.  An asset is something which has value, in other words something which improves your life in some way, for example by improving your financial situation.  In this modern age, it’s really easy to accumulate possessions, but it’s really important to focus on minimizing possessions and building assets, which may or may not be items we physically hold in our hands.  We can have digital assets, such as ebooks which improve our lives or intangible assets such as education and experiences.

Minimize and manage debt

You can argue the toss about whether or not debt can ever be good (such as when it’s used to buy you an asset such as an education or a house), but it’s hard to dispute that high-interest consumer debt (such as credit cards) can take a serious bite out of your finances.  One of the great ironies of modern life, however, is that it can be hugely advantageous to take out a credit card as early as you possibly can, spend a little on it each month and pay it off in full.  That is one of the easiest and most effective ways to start building up a credit history, which is now essential for many purposes (including being accepted for some jobs).  We can talk more about debt in a later post, but for now, just remember to think long and hard before you take it on.

Remember that your time has a value

This is probably the single, biggest money-management mistake I see people making, even freelancers in their private lives.  If you enjoy an activity, then it’s fine to do it for that reason alone.  Unless, however, you actively enjoy doing something, then you should always be asking yourself whether or not it is a productive use of your time and if the answer is no, then you should be open to opportunities to delegate it or just stop it completely if at all possible.  Remember that these days you can do a lot of delegating to machines, so if, for example, you hate vacuuming, then a Roomba could be a great purchase.  Of course, delegating can cost money (sometimes it can be free), so you may need to do some extra saving to afford it.  

Set clear goals

The difference between a goal and a dream is that a goal has a clear definition and a realistic budget and schedule.  Deciding what you want from life is the first step on the goal-setting process and will act as a basis for working out how much money you will need to get where you want to be and how long, realistically, it will take you to get it.

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