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Become Your Own Personal CFO
from: Creating Wealth for LifeDoing a budget and personal finances aren't most people's favorite topics. Even bank executives have problems in this area, but if you're an entrepreneur, you as well. Too often you're concentrating so much time on your business, your personal finances take a back seat. Then suddenly one day you realize you're not saving enough for lean times and emergencies and you panic.
The solution is to apply your professional talents to the situation and become your own personal CFO (Chief Financial Officer). By applyin your CFO instincts to the situation, it will temper the pain of dealing with your own money. You can start with 5 rules for treating your personal finances like a business:
1. Be Your Own Board of Directors: To make good decisions, you must know what you're trying to achieve. In business, Board of Directors write mission statements to keep the company on track. With persoanl finances, you should define your mission and make sure you're fulfilling it by writing down all your goals, both financial and "life" goals.
2. Know Your Operating Costs: Do you know what you spend every month? Businesses need to know this and base their budgets on historic spending patterns. Most people, however, don't know what it costs to keep their lives operating. Making out a detailed budgets is one thing, but sticking to it is another. Rather than of putting together a budget that dictates how much to spend, it's better to do a "cash flow statement" that records how much you're really spending every month broken into appropriate categories.
3. Determine Your Net Worth: Companies measure progress in achieving their goals with a balance sheet that lists their assets and liabilities. Your net worth is your balance sheet where you list everything you own including your checking and savings accounts, investments, car, house, and so on, minus everything you owe. Track your net worth regularly to make sure you're moving toward your financial goals. If you leave out this step, you might miss seeing the impact of your money decisions until it's too late.
4. Forecast Money Decisions Results: When a business makes an important decision, they use a process called "scenario planning" by looking at possible outcomes of one decision compared to another. Why not use the same process to make smart money decisions. For any choice, pick two options, and then look at what each answer will do to your cash flow and net worth. Keep in mind, there are no "good" or "bad" decisions -- only decisions that make it posstible to get closer or farther from your goals.
5. Track Your Progress with an Annual Reports: Just as companies assess their progress in their annual reports, it's a good idea for you to review your list of priorities each year. Have you accomplished any goals? Have your spending patterns changed? Did you spend less than you earned? Did you save as much as you planned?
Always treat your money like you treat your business. Give it the time it deserves, because in the end the time you spend is really an investment in yourself and the fulfillment of your dreams.
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