Why do we struggle with handling our money? Some of us live paycheck to paycheck and barely save anything. Others do okay but never fully take advantage of the best financial options available. What is it in our methods that makes us so bad at managing money better?
Interestingly, the answer might lie with the big retail giants where we spend most of our money each month. You might dismiss companies like Walmart or Apple because of an anti-consumerism mindset, but I urge you to look again. Beyond what they sell, what is it about them that should capture our attention? The answer is simple: They know how to manage their money!
Imagine for a moment that your household is a Fortune 500 company. Would it thrive, or would it fail based on how you handle finances? Do companies that live paycheck to paycheck or rack up excessive debt last long? Your goals, just like those of a big company, should be to make money, keep it, and use it for future growth.
Take Apple, for example. One reason they did well from 2011 to 2012 was because they had more cash on hand than any other company at the time, a stark contrast from when they were nearly bankrupt a decade before. How much cash on hand does your household have?
While you might not be selling iPads, you do sell something more valuable: your time. Value it as such and learn from the financial giants. From now on, think of yourself as the chief financial officer (CFO) of your household.
The goal of your household corporation is to reach financial freedom as soon as possible. While each of us might have a different definition of financial freedom, we all want to stop worrying about finances. As the household CFO, set a clear direction for your finances and ensure everyone in your household agrees with these goals.
We all generally want to be rich, but part of managing money better is knowing exactly which direction we want to go and why. Once we have these long-term destinations in mind, we can focus on short-term goals. Call them milestones—these are specific paths with measurable achievements.
For instance, if your goal is to retire early, one milestone might be to max out your 401(k) and IRA contributions by the end of the year. Your plan would then include steps like saving more from your paycheck, cutting back on certain expenses, or getting professional help for investments. Remember, plans aren’t set in stone. Sometimes goals change, and steps need adjustments. Big companies go through this too. What’s important is trying something and then tweaking it as you go.
Preparing an annual budget is crucial for two main reasons. First, there isn’t a well-run company that doesn’t use a budget. How long can you stay in business without tracking your income versus expenses? Why run your household finances any differently?
Second, the way the budget is prepared matters. Traditional advice suggests creating a monthly budget, but this method is flawed. Big companies prepare annual budgets to gain confidence for the whole fiscal year. Shouldn’t you want the same? With a yearly budget, you can identify any financial trouble ahead of time. If your household budget isn’t balanced, it needs to be revised immediately. No company or household can sustain losses for long.
One of the best tips we can take from large companies on managing money better is the characteristic of innovation. No successful company remains static. They continuously seek ways to improve and outdo themselves, whether it’s speeding up drive-through times at McDonald’s or creating new gadgets at Apple. As the household CFO, you need to adopt the same mindset.
Ask yourself questions like: How can I cut unnecessary expenses? How can we increase our savings or income? And how can we better invest our savings?
CFOs don’t operate alone; they need the support of everyone in the company. Mutual respect and cooperation are essential. Everyone should work towards the common goal of financial growth. To manage your money better, involve everyone in your household. Assign responsibilities, like someone taking charge of retirement funds while another ensures bills are paid on time. Working together creates more value than individual efforts.
Don’t hate the big retail stores; learn from their success. Grow your household finances into a thriving ‘company.’ You don’t need a large staff or a fancy degree. You just need the drive to make it work and the leadership to guide your family to financial success.
