Don’t switch off your entrepreneurial brain when you get home! Learn why you should run your family finances like a business – and four ways to do it.
Balancing the books of a family isn’t always easy – especially with the ever-changing financial demands of raising children. But, as online financial tool Moneypenny explains, it’s important to pay as close attention to your home finances as you would your business ones.
Think like an entrepreneur when you create your budget
In 2013, the Wall Street Journal published a controversial article Run Your Family Like a Business. The idea was to apply business principles to family life, including weekly meetings, performance reviews and clearly defined tasks and procedures.
While such an extreme approach may work for some families, it may sound just a little daunting for others. However, you don’t need to go the whole hog to learn some handy tips from the ways that businesses manage their money.
Four ways to run your family finances like a business
Budgeting, for example, is one business principle which every household should adopt. However, most of us already know how to budget, and may well already be practising it on a regular basis.
Instead, in this article, we’re going to cover some of the lesser-considered business principles and show you how they can help you run your family finances more successfully.
1) Assess the net worth of your expenses and income
Assessment is a key skill of every entrepreneur. If you want to run your business successfully, you have to be able to estimate the value of your investments in terms of money and time.
An entrepreneur would not choose a supplier without comparing different companies, and it’s wise to do the same when it comes to your personal expenses. Especially as the internet offers great opportunities to compare the prices and quality of different products.
Keep in mind that you are not only investing money, but also time. Think about opportunity costs. Is your business profitable, or are you wasting your time? Is your job paying a fair salary, or could you earn more elsewhere?
An entrepreneur has to asses the skills of their employees and distribute tasks accordingly. The same is true for your family. If you work in a bank and your husband is an artist, it’s most likely more efficient if you manage your household’s finances.
2) Prioritise your expenses and income streams
Once you estimated the net worth of your expenses and income sources, you can prioritise. As Oprah Winfrey said,“You can have it all, just not all at once.”
So focus on your most needed expenses. Figure out which expenses are absolutely necessary and which are pure luxury. Also identify income sources that make the most money and try to maximise your profit.
You may discover that you spend too much time on pursuing activities that only generate a small income. This time could better be used in order to do something else. For example, improving your education in order to step up the career ladder mays be better than trying to generate a side income in the long term.
3) Fight the temptation to spend more in good times
Every income is insecure, and households face risks, just like businesses – you could lose your job, take a pay cut, become sick or have an accident.
While it is possible to insure against some of these risks, you can never be perfectly safe. So it’s important to restrain your household spending, just as you would manage a business budget. This means saving when the times are good, so you’re prepared if they take a turn for the worse.
We’re all tempted to spend more money during good times, but try to see the whole picture and keep your spending on a low level – especially if you’re committing to long-term contracts. Keeping recurring costs such telecommunication contracts and rental fees low can help prevent them becoming a burden during hard times.
4) Invest in time and money-saving tools
Unless your personal finances are highly sophisticated, there is no need to hire a professional financial advisor. In the 21st century, there are tons of great accounting software products available online.
If you run your own small business or work as a freelancer, you may already use modern accounting software like ours. You can track your performance, analyse clients and projects, generate time-sheets and automate your invoices.
As a household, you may also take a look at simple budgeting tools, but if you run your own business, accounting software is the way to go. It’s cheap and easy to use for both, your family and your business. You can get a great tool for just a few pounds a month. Considering the time and money you’ll save, this investment will be worth it.
Run your home like a business
The bottom line is that business-like thinking is not only applicable in your professional career. If you have an entrepreneurial mindset, don’t turn it off at home – instead, use your talent and run your family finances like a business. It’s worked for others, so give it a try!
Moneypenny is an online tool that simplifies business management, record keeping, time tracking and online invoicing.Hannah Martin