6 Ways to Run Your Life Like a Business

by Kevin on April 21, 2011

You don’t want to run your budget like the government (10 ways to run your budget like the government). Well, unless you enjoy budget deficits, having to continually borrow money to fund day to day operations, and having your creditors constantly on your back.

Contrast the financial “success” of the federal and state governments with Fortune 500 companies. These firms have a solid product, a grasp of their expenses, and don’t carry enough debt to crush them. Those that do, fail.

Operate Your Finances Like a Business

Here’s how to better mimic business rather than government when it comes to running your personal finances:

Use an Expense Account

Businesses get to write off things like client meals and entertainment. If you try to completely clamp down on your lifestyle to the point that you never go out to eat (or whatever other “frivolous” thing you enjoy) then you will end up failing long term. Give yourself an allowance each month even if it is just 1% of the income you earn. Having a little bit of breathing room so you can feel like you’re still living life can help avoid a huge spending splurge that sets you back several months.

Track Your Revenue and Expenses

Imagine you are a potential investor in a business. The executive team invites you into a nice conference room to give a presentation on why you should invest in them. As they go through the presentation you notice a funny thing missing: any information on where they’ll be getting their revenue or how they’ll be spending your investment to build up the company.

Sounds crazy, right? Why would you invest in that company? Strange then that many people live their lives this way. They don’t know how much they’ll bring in every month, and they absolutely have no idea where it goes. Don’t be a failed business. Track your income, build a budget, provide the various “departments” of your life a specific amount of money that they must survive on.

Don’t Pay Vendors Late

Paying vendors late results in penalties, fees, and at the worst case scenario a complete cut off of your services. Businesses know this and do everything they can to pay their invoices within 30 days. Likewise you should pay your utilities, mortgage, and various other services on time to avoid extra charges.

Leverage Debt Where Appropriate

A majority of businesses don’t operate completely debt-free. Relying solely on equity can slow down growth. At the same time the companies that use debt use it prudently. They don’t go on shopping sprees. They normally have entire teams dedicated to analyzing how inexpensively they can acquire borrowed funds and how that debt can be leveraged to increase revenues dramatically. Debt that can’t pay for itself quickly or that has a high cost is discarded or never incurred.

I’m not saying ¬†you should jump right into the debt boat. But using credit cards safely and paying off the balance every month is okay. Looking for the best mortgage deal to lower your borrowing costs is smart. Use debt wisely and only where truly needed.

Replace Underperforming Vendors

Businesses rely on other businesses for a variety of services. There’s the break room vendor (coffee, paper plates, etc.), the IT vendor, and a cell phone vendor. If those vendors under perform by providing poor service or their prices rise unreasonably, the contract is not renewed. A new vendor is selected.

You should do the same thing. Cable bill going up again? Get rid of it or move to a competitor with a better price. Not happy with your cell phone reception? Wait until you are out of contract and leave.

Have Cash Reserves

Many businesses provide services and send an invoice to request payment. But they know not all of their customers will pay on time — or at all. There is a risk factor included in the cost of the service for all customers. When the invoice goes bad, the business writes off the lost income as bad debt and moves on. That’s just one reason companies have cash reserves. There’s also funding payroll, paying for overhead expenses, and not having to constantly rely on debt.

What if your paycheck doesn’t come on time? What if there is a delay? Are your bills so tightly scheduled that you would run into financial problems? Are your ready for that financial emergency? Act like big business and keep some cash readily available in a checking account.

{ 5 comments }

Ravi Gupta April 21, 2011 at 7:52 am

Tracking your expenses and having cash reserves are extremely important. I would go as far to say that they are the two most important since all of the other points rely on them. When I started budgeting and tracking everything is when I made the most amount of progress. I also feel relieved when I’m able to go to sleep at night knowing that there is money in the bank.

Great article!

-Ravi Gupta

Tracy April 21, 2011 at 10:01 am

Kevin,

Loved the comparison! Please correct me if I’m wrong, but I believe that the Social Security Administration deems each number as a business, whether an individual or incorporation. Keeping a business mindset takes on a responsibility for others (family) rather than centered on yourself. Thanks for another great article.

By the way, did you purposely change your reader feed from entire to partial? If so, this reader would prefer the entire post in the feed reader. I know you get more hits to your site, but I do get frustrated and will unsubscribe in time.

I would hate to miss your great comparisons and articles. Keep up the good work!

Kevin April 21, 2011 at 10:11 am

Tracy, thanks for stopping by. Unfortunately there are too many sites out there that do something called “site scraping” off of RSS feeds. They take the content off the feed and republish it on their own site as their own content. Tracking down all the sites has started to take too long in terms of sending DCMA notices to get them shut down.

Switching to partial feeds is just one step to take in helping prevent content theft. I understand your frustration of not having a full feed… but compare that to my frustration of providing 100% content for over 3 years and then having that free copyrighted content stolen.

While I hate to lose any readers, I have to protect my business. Again, this is free content that is stolen. The alternative is for me to develop a premium paid membership site. I hope you will stick around.

Golfing Girl April 22, 2011 at 3:05 pm

I gotta 2nd Tracy–I usually forward on your good posts to my husband via e-mail, since his internet time is limited at work.

Paul Sarwana April 25, 2011 at 5:54 am

Hi Kevin,
I really like your business and life analogy. Many people tend to be too casual when it comes to managing their lives. I believe they will value their lives high when they do act like an investor to their own lives.

Comments on this entry are closed.