Let me introduce you to today’s perspective. Each of us is a business, and our families are corporations. Take a moment to think it over. I may be biased since my lowly degree is actually in Business Administration but hear me out.
I’m a person who produces a product or service and I market my product or service through my resume, applications for employment, or perhaps freelance proposals. My brand is based on the quality of my product or service, therefore I must handle my own quality control. When I learn new things, I invest in what’s called human capital. I may also buy tools and equipment to help me be more efficient or improve the quality of my work. You could also consider learning new things as research and development.
Each of us is also responsible for managing how much we spend, how we spend it; basic accounting. If what we spend (expenses) is more than we make (revenue) then we will surely be insolvent. Now we see why accounting is required coursework for a business degree and how it applies to personal finance.
If every person is a business then every household is a corporation. I was going to say family but I think household is more correct. In my household I consider myself the CEO; it’s not because I’m the guy, it’s because I’m the most pragmatic and least likely to panic. I’m an analytical person who considers what will be best for right now and for the long run and I consider it my duty to make sure everyone in our family is taken care of.
I’m also the CFO (chief financial officer) because I’m responsible for all our finances. My wife doesn’t work so I’m solely responsible for the family’s revenue. I’m also responsible for paying the bills. Budgeting, financial analysis of our spending, investing, etc. is all within my prevue. If my wife has any role in the finances it would be head of revenue retrieval and cost avoidance. She fiercely stops me from buying anything she thinks is unnecessary and returns anything that she doesn’t think is good enough. Seriously, she returns things I would never consider returning. Frankly, I’d be embarrassed to return some of these things and I’m generally shocked that they take them back. She once returned an inflatable bed three years after it was purchased and got a full refund from Bed, Bath, and Beyond. She regularly returns food from the grocery store if she doesn’t think it tastes good enough. AND THEY TAKE IT BACK!! The whole thing dumbfounds me and I personally don’t think it’s worth the time but she considers it her way to financially contribute to the family. From my perspective she does enough and doesn’t need to worry about the finances (I’ve certainly never complained that she doesn’t work), but there you go.
CTO (chief technical officer), my wife has also appointed me because I’m the only one who knows how technology works in the house. Anytime the internet is down, someone needs to connect to the network, we get a new device, or anything that has to do with electronics is immediately handed over to me. However, the kids are quickly becoming my backups if I’m not around. Even 2-year-olds can be quick to understand how tablets work. Ours is pretty savvy with an iPad and within days, also a pretty solid Amazon Fire user.
Head of HR? this is of course my wife, she produces the children (obviously) and takes care of them about 90% of the time. She’s responsible for primary training and making sure they’re taken care of during the day. In our house she’s a child care business and in business terms a cost center.
She’s also the head of facilities. This doesn’t mean that she does all the work, just that she sees what needs to be done and delegates.
Where do the kids come in? They’re effectively employees; well treated employees. They’re of course treated like children but in this analogy they’re employees. Our 12-year-old has a role and responsibilities and he’s compensated. Our 2-year-old is still considered a trainee; he’s very eager to help and participate but doesn’t quite understand our operating procedures yet.
Our corporation is small but like any other we need to manage our revenue, expenses, assets, and liabilities
What does all this mean? Just understand that the rules of business apply to both yourself and your household.
Have you seen an income statement? If not, here you go.
Try putting one together for a year or a month so you can get an idea of how you’re doing. If you have Excel you can search (the image above came from Excel) for “income statement” and it’ll give you the template.
You can also get a balance sheet template through Excel too. Try filling it out to see how your assets and liabilities are changing from the previous year to the next. Your assets minus your liabilities is your net worth.
Also, if you don’t use a financial aggregator, I recommend that you get one. I use both Mint.com and PersonalCapital.com. If you use this link to sign up for Personal Capital it’ll give you $20 and then $20 for me. I looked into an affiliate program for both Mint and Personal Capital but it doesn’t look like either have one. So, the referral link with $20/$20 seems to be the best we can do. If you created a P2P lending account like I suggested on Day 3 then I’d suggest taking the $20, add another $5, and buy yourself a P2P lending note to start increasing your passive income. Ever little bit helps and we’re in it for the long haul.
Really, you’ve got to know your finances. Businesses that don’t manager their finances go out of business. Don’t know how much money you spend on food each month? There’s no excuse for that these days because if you use a financial aggregator it’ll tell you. If you’re the family CEO, be sure that you’re leading your family to success and be sure that everyone knows their role. Be sure to do it kindly though, it’s a conversation and a happy team that works together works best.
If you don’t know anything about business finance or personal finance then you’re going to want to invest in yourself by learning about them. If not only for yourself then also for your children. I wasn’t taught the finer points of finance as a child and it took me a long time and a lot of effort. I’m not knocking my parents for not teaching me enough because they didn’t know much about it either.
As you are a business, you require investment to be better. Investment in your own human capital is essential for progress. Read the blog, read finance book, read about economics, take some classes, etc. Always be learning and understand that a family that’s a learning organization (one that takes learning seriously) will be a prosperous one.
But, I digress, someone help me off this box. BTW, this won’t be the last time I plug education. I’m a firm believer in self-improvement through education.
In closing, this is just a perspective, consider it food for thought. If you disagree with my view about people and families being business, that’s fine. I don’t always think of it that way myself. But sometimes…I do.
Next post: currently unknown.