More and more individuals are realizing that treating themselves like a business, as opposed to just an individual taxpayer, reaps benefits like
1) reductions in personal income taxes,
2) control of personal and household spending, and
3) stress reduction overall for a happier, healthier lifestyle. So why are the principles of good business applicable to our own lives? A look at how small business best practices can be applied to you and your household and easily create your company, ‘Me Incorporated’ or ‘I Inc’.
Why would you not consider yourself a business of ONE person? Or your family as a business of 3 or more people? Well, that is exactly what you are – “Me Incorporated”, “I Inc”, “We Incorporated”. You truly must consider yourself a small family business. Like any business, you have ongoing expenses (rent, utilities, groceries), revenue (salary and other income), and major capital expenditures (house, vehicle, vacations, renovations).
Like any good ‘household business’, you need to do some planning. Set out a budget for the year, and track your expenditures and retained earnings (savings). Yes, all of this looks, feels and is exactly like a well-run business. On My Gosh! Don’t rush out and buy an accounting package to run your household. And no need to take a crash course in accounting or bookkeeping. You can accomplish all your financial tracking and planning requirements with some paper or by using a simple template with your favorite spreadsheet package – Microsoft Excel or even Open Office.
Just like a well-run business, your household budget and tracking your spending is best served using a visible record of events; namely, financial records, bank or check register. It is just like tracking your road trip progress using a map. If you know where you are now, then you will have some idea of when you will arrive at your destination. In life, money or finances allows you to get to your destinations or dreams. A visible financial roadmap of your ‘Me Incorporated’ finances, mapping your progress, seems logical.
Running your ‘Household Business’, like a corporate business, requires a few processes to keep track of your finances:
1) Establish a yearly and monthly household budget. Consider all your expenses – weekly, monthly, quarterly, and yearly outlays of money. You will be surprised at the length of this list and all the places you spend your money.
2) Track monthly your spending and income against the budget you established in Step 1. This will help you see the ‘peaks and valleys’ of spending or the seasonality aspect of your expenses. Over time, you will come to know these expense ‘peaks and valleys’ and this will help you maintain a positive cash flow. Bottom line: have money in the bank to pay all your expenses and still have some leftovers (retained earnings). Your single biggest challenge in running any household (or business) is always having enough money in the bank to pay the bills; especially, the unexpected ones. Having a buffer of savings will help with these ‘peaks’ in expenses.
3) Track all your bank account activity. Track and enter in your Bank or Check Register every deposit, every electronic (ATM, web, PayPal, debit machine) transaction, and every analog (check, money order) withdrawal. And reconcile your bank statement every month. Know exactly how much money you have available in your bank account(s).
4) Especially track your spending through credit cards and lines of credit. These are potentially the ‘run away’ expenses. Remember only once a month do you see the visible record of your credit card spending. Compound that with the fact that most people have more than one credit card.
This can easily result in multiple ‘spending surprises’ each month. Be diligent in tracking your use of credit card transactions. Break down the credit card expenses into their respective budget items – gas, groceries, clothing, entertainment, etc. This will help you separate normal household expenditures from other shopping incidentals. You will come to see your spending patterns and can now make adjustments. Just like your bank account, reconcile your credit card statement every month.
All this personal bookkeeping every month can be done with pen and paper or set up a personal finance and budgeting template using your favorite spreadsheet software. Using an electronic spreadsheet allows for all of the mundane calculations to be processed automatically, reducing monthly reconciliations to a simple 5-10-minute endeavor.
Whether you choose an analog or digital approach to your personal finance bookkeeping, these visible records are the most effective way to plan and control your finances and reduce one of the major stress points in your life – Your Financial Health.
THE AUTHOR: Carl Chesal
