If we behaved with money at work the way we do at home, some of us would be fired by lunchtime!
It doesn't make sense. We work so hard to make money. So why don't we put as much effort into looking after it once it's in our account? It may be because we don't have any emotional baggage attached to our "work money." But at home all kinds of emotions get tangled up in our financial decision-making.
These emotions get in the way of our objectivity, making it harder to make sound decisions. Sometimes, this extra emotion is like a bag of rocks weighing us down as we tread water between paychecks. You know, like when your entire auto-deposit is gone before it even arrives!
We can begin to reverse this pattern by looking at our household finances more like a business. This helps us better plan our spending from month to month. Your household deals with revenue, expenses, profit and capital the same as any business does. Looking at it this way allows you to dial down unhelpful emotions that cloud your thinking.
For starters, think of your salary as revenue. Instead of selling products and services, you're running a living, breathing household. Your goal is to keep that income flowing and growing.
We spend so much time worrying about expenses that we forget the importance of earning. Don't take your income for granted. Plan ahead by creating new ways to increase your income. I can show you some exciting ways to get started in my Queen of Your Career Workshop on December 12, 2020.
Business and households both have essential and non-essential expenses. You can think of these as your household’s needs and wants. A business that overspends on vacations and kombucha stations can end up bankrupt. Likewise, if you spent all your money on jewelry instead of food, you’d end up broke and hungry.
I'm not saying you have to live like a martyr! In fact, you'll be able to better recognize how abundant your household already is. Greater objectivity helps clear the emotional fog that obscures your bigger financial picture. In the process, you end up transforming your relationship with money.
You know your business is doing well when you start making a profit. That is, once you have money left over each month after paying all your expenses, you’re “in the black.” At home, you make a "profit" when you can cover your expenses and still have money left over at the end of the month.
I teach my clients how to do “zero-based budgeting.” This approach helps to clear the money fog and so you know the answer to the monthly question “where (TF) did it all go?” In this type of budgeting you give every dollar a job. You sort outgoing dollars into three groups: spending, savings and debt repayment. As long as you've given every dollar a job, your spending plan (a.k.a. “budget” or, as I call it, the “B” word) should ”zero out.” Any money left over (a.k.a. profit) can be put toward other needs and wants or, better yet, savings!
You gotta have money to start or grow a business. That start-up money usually comes from finding investors or going into debt. At Vibrant Money we encourage you to become your own investor. The first step we recommend is to save at least 6 months of expenses in a “Freedom Fund.” This is money put aside for the event of income interruptions such as maternity leave or job loss. You can also use it to help you launch a new business.
I’m not a fan of using credit cards or financing as a form of capital. Such habits can get out of hand fast, draining your financial resources before you know what hit you. Businesses fall into this trap all the time. They end up carrying so much debt that they can’t afford to pay their monthly bills, including payroll and rent. If they survive at all, they sometimes have to fire people and make other painful cuts to stay afloat. Your Freedom Fund will help protect you from such drastic measures.
Putting on your CEO hat at home makes you a better steward of your financial resources. You lighten the drag on your psyche by seeing your money as revenue, expenses, profit, and capital. This more clinical approach allows you to create the financial future you want.
We know it can be challenging to balance work, family, friends, exercise, the house, some "me time," and 17 other things you have going on. That's why we launched the Vibrant Money Newsletter!