I bet if half the people in America thought of their finances like a business, we could eliminate much of the personal debt crisis and people would stop living paycheck to paycheck. The problem is people are doing much of what society is telling them to do: spend more, save less, and buy on credit. People are starting to believe credit is acceptable because it strengthens your credit rating. Sorry, not true. With those words firmly planted in our minds, we go out to spend more than we make. When all else fails, we whip out the credit card thinking we can just pay it off next month.
Back when I stacked up some credit card debt, I knew I needed some help to dig myself out. I went and checked a bunch of books out of the library to see what I could learn. I can’t remember which one I read or when I exactly read it. But, it introduced me to the concept of thinking of myself as a business. At that moment, everything clicked. I know everyone has that ah-ha moment, and it sounds kind of cheesy, but it is true. It finally made sense. After that, every decision I made about money was a careful deliberation on whether I could afford it, did I needed It, and how was it going to benefit me.
Those of you who have been reading some of my other stuff are thinking, “But you quit your job and went on a somewhat of an extended vacation?” Yes, that is true, but I needed it. My job was going nowhere. I did months of financial planning including pre-paying my rent for four months in advance and lining up insurance for myself. I had plenty of a nest egg built up beside my retirement account. My business was going to be beautiful and refreshed when I was ready to go again. Let me show you some things I learned about businesses along the way.
Financial Independence Reason #1; Businesses are a numbers game just like your finances
You need to think about your finances as a numbers game. Money in and money out. The leftover is there to spend or invest. I hope you’re thinking about investing over spending. Once you start adding in the ‘wants’ and ‘desires,’ you will start to creep into frivolous spending. Now, I’m not suggesting you be a total miser.
If you want a nice vacation for your family, plan it, save for it, and spend what you need to have a ton of fun. The spending I’m talking about is walking into a store to buy just one thing and walking out with thirty. Twenty-seven or twenty-eight of those things you probably didn’t need because they weren’t on your mind when you left to go to the store.
Always keep the money coming in more than the money going out. That is how businesses stay in business.
Financial Independence Reason #2 Businesses have multiple customers and sources of income
We think of businesses with only one customer as a pretty shaky business model. But, people with only one source of income, a job, is normal. The ones who make money on the side, are unique or are struggling to get by so they need that money to make ends meet. In my mind, people with side businesses or two jobs should be embraced by society. They are the smart ones for not having all their eggs in one basket. I would think their bosses or business owners they work for would respect them more than the ‘one stream of income’ employees.
Who better to understand and empathize with what a business owner goes through than an employee who runs their own business on the side? In all the jobs I’ve had, it was almost taboo to let it out that you made money other than in the job. To insulate yourself from the ups and downs of society and our shaky job market everyone needs to be earning from several different revenue streams.
Financial Independence Reason #3; Businesses run on budgets just like your finances should
You need a budget. Budgets help control spending, help prepare for capital expenditures, and can give you a snapshot at any given moment where the money is spent. People can get overextended pretty fast when they forget about this bill coming due or that thing they needed to buy that they forgot about. Businesses that run on budgets are smooth and efficient. As you start creating side businesses or larger businesses to earn enough to quit your job, you need to think like a business and create a budget for each business. Then create one for your finances.
Financial Independence Reason #4; Businesses are not afraid to sell
Too many people are afraid to sell. I see far too many people who are out to earn side money and just don’t charge enough for what they are selling. Many think that as long as they have a job as their primary source of income, what you charge on the side is a bonus. If you treat yourself like a business, you need to have your pricing in line with the general market price. If your product is worth the same as the ones sold by retail stores or your work is the same as professionals, don’t be afraid to charge for it.
You can be competitive in the market and underbid them, at first, by a little to get the ball rolling. But, after being established for a while, you need to get your pricing up to market levels. If you have a line around the block because you have the lowest prices in town, I’d think you aren’t charging what you are worth.
Financial Independence Reason #5; Businesses that usually go deep into debt, go out of business
‘Not going in debt’ is a reoccurring topic around here on this blog. Don’t go into debt. Businesses that don’t make a profit and take on lots of debt will soon be out of business. I know our society embraces debt, but if you run yourself like a business and think like a business, you need to not take on debt.
If you must acquire debt for some emergency reason, plan on paying it down as fast as possible. Debt in these situations should be a do-or-die situation. Not something to be taken lightly. The key to achieving financial independence is getting our minds right. We need to treat ourselves like a lean money-making business. We need to be ruthless in our decisions when our goal is the end dollar.
There are some terrible examples of businesses that seem to make it without the above characteristics. They got lucky, or everything just fell their way. But stable companies have a bunch of stuff in common.
- They have a budget.
- They don’t take on too much debt or receivables.
- They are not afraid to sell themselves.
- They have multiple customers.
- And, they are ruthless when protecting their numbers.
Be Safe,
Kevin