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Why You Need to Run Your Personal Finances Like a Business

If you’ve never stepped foot into the business world, I would highly recommend that you take a peek. Behind the bright & colorful marketing campaigns and fancy suit & ties, there is actually a lot to be learned from analyzing businesses and how they run their day-to-day operations.

As a practitioner in my field, here are some practical strategies and tips that I’ve given to clients, based on the following concept — “Manage your finances the way a business would.”

1. Cash is the oxygen of your business. In running a business, cash is king. You can use cash to reinvest & grow your business, pay for expenses, maintain debt obligations and provide the business with flexibility & survival capabilities during tough economic times. The same applies to your personal finances! By having substantial cash savings, you create a foundation upon which you can reinvest and grow your income earning capabilities, to pay for on-going expenses, maintain your lifestyle & ensure sustainability during tough times.

So many people forgo this concept of having liquid cash and pursue the idea of investing immediately because it’s sexy and could earn them a couple extra dollars. Make sure you have a strong foundation upon which you will build your financial empire otherwise, even the tallest building will crumble if built upon a weak foundation.

2. Using debt to leverage growth. Businesses often acquire debt as a means to grow their operations — whether it is through a bank loan, bond issuance or financing through equity. The interest paid on this debt is tax deductible and is used to earn a higher return than the cost of interest (ie., borrowing at 3.50% so my company can maximize its 15% profit margin on money borrowed).

Keep this in mind the next time you’re spending on a credit card, taking out a car loan or even a mortgage. Borrowing money for your personal circumstances should always yield some sort of return for you otherwise, you should probably pay for it in cash.

3. Reinvest, Reinvest, Reinvest. In many cases, businesses who are growing will constantly reinvest every dollar of profits back into its operations to increase their revenue generating capabilities. So why wouldn’t you reinvest in yourself? Spend your “profit” on things like courses, seminars, and conferences to increase your capabilities of generating an income.

You can also reinvest your personal profits into your savings accounts — RRSP, TFSA, Cash Savings! Dump the money into these accounts and literally do what every independent financial study has proven: “Invest in an Exchange Traded Fund through a self-directed account and forego purchasing a mutual fund to save yourself the commissions & fees.”

We live in a world where everyone is bombarded with information from all directions — marketers & E-Commerce will continue to exploit the human nature of always wanting more “stuff”.

Discipline is what it takes to block out the noise, commitment is what it takes to walk the path to financial success and patience is what it takes to reach the goal.

Clement Chung, CFP, CLU

Certified Financial Planner

www.clementchung.com


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CLEMENT CHUNG, CFP, CLU

Certified Financial Planner

Fee-Based Financial Planning
Burnaby & Metro Vancouver

©2018 by Clement Chung.