All to often I hear people talking about how they live paycheck to paycheck. This appears to be the norm for most people and yet it doesn’t have to be. Let me explain.
What if we ran our family finances like a business? Businesses goals are to be in the black, otherwise known as making a profit. How do businesses accomplish this? Simple. They ensure their costs don’t exceed their income. In addition, a good business will also ensure they have money saved for the unexpected emergency, slow business cycle, reinvesting into the business and many other reasons.
On the flip side, if we look at how a family operates their finances, we see that many operate in the red, otherwise known as taking a loss. Many times families are stricken with debt from credit cards, car payments, or too much house (mortgage). This means that our costs are exceeding our income.
Lets examine this a little more. A businesses monthly expenses could look something like this:
- Phone Service
A family on the other hand could look like the following:
- Cable TV
- Cell phones
- Subscriptions such as Hulu, Netflix, Amazon Prime, Apple Music and the list goes on and on
- Car payments
As you can see above, the business only has items that are required for it to operate. Yes, you will have some expenses that could be questionable but at the end of the day their goal is to remain profitable.
The family on the other hand doesn’t look at remaining profitable, rather they look at, can they make the payment each month. This is a stark contrast to how a business runs their checkbook. The business is able to build wealth while the family remains at the break even point or begins piling on debt.
If a business operates like the family, they go out of business. It is that simple. If a family operates in the red, you risk ruining your credit, having your wages garnished or loss of possessions such as cars and house.
So often we convince ourselves that we need something or we find a reason to justify the purchase. Before making a purchase, if we could pause for a minute to ask ourselves a few questions:
- What is the value add for our family?
- Will this purchase make us more profitable?
- What happens if we don’t purchase it?
- What is the cost of ownership?
- Is there a return on investment?
You can be assured a business would ask itself similar questions before a purchase. As a family we should take that same approach. If we would review our finances, create a budget, set goals and remind ourselves that we have to remain profitable, we might think twice before we go buy that new car or upgrade our cell phone.
The most important business we will ever run is our family. By running our family like a business we have the opportunity to be profitable, teach our children how to be responsible with money and enjoy life without the worry of how to pay the bills. For me personally, teaching my children is the ultimate satisfaction!
Next time we will be discussing budgets. Stay tuned!
Businesses can and do run in the red. The point of the post isn’t to say that they don’t, rather to point out that their goal is to remain in the black and that as a family we should also have the same goal.