I always feel the way we folks run our own finances are similar in nature to how we tend to prospect companies for our investment.
It has to be correlated in that manner, we get to improve on one thing and that thing opens up the door for another perspective. It has a compounding double win situation.
There are many people in our circle group of friends that are struggling to live on paycheck to paycheck. They used these income that they’ve earned to pay off expenses like their mortgage, car loans, education and basic necessities like utilities and telco expenses.
There are nothing wrong with that of course. All of us had to start somewhere one way or another. It only becomes a problem when you start depending onto it for prolonged period of time and taking it a holy grail to run your lives.
How is this translating into the way businesses are being run by management you may ask. In businesses, the most important part is about making a profit at the end of the day (and positive cashflow). They can have increasing sales revenue every year but they have to maintain a lower amount of expenses in order to maintain a profit.
A good business should also maintain their balance sheet healthy. That means having sufficient cash in their book for any emergency funds. They also need to have a good cashflow and think about diversifying their revenue in case something crops up and they are not able to depend on that customer anymore.
Living and heavily depending on our paycheck is just like a company with a major customer concentration. We put our mind and souls to work for it all our lives and tend to project our expenses in trajectory according to how our income increases. Higher bonus translates to more luxury and expensive travels for most cases. But there are very few people that build contingency into their plans, either by diversifying their income stream or having an emergency funds to project a worst case scenario.
What if that major customer suddenly starts to struggle? If this is run as a business, they will be soon go out of the business, especially when companies start restructuring and you become the unlucky victim to get hit by the tsunami.
By thinking about running our finances the way our own companies that we are working are being run, we should be able to structure our finances better than what we’ve been doing all along.
Thanks for reading.
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