Sometimes it helps to put on a nice suit and sit in the garden.
Companies have to manage the bottom line in order to stay in business, and it’s easy to forget that we have to do the same. Instead, it’s easy to let your money manage you and to play a constant game of catch-up with your finances.
Here’s how to take the bull by the horns and manage your money like a CEO.
Implement a finance meeting
No emulation of an executive would be complete without a meeting. Whether it’s alone or with your spouse or family, set aside a regular time to review your money situation. Think of this as your regular finance committee meeting.
The point of the meeting is to do three key activities: measure past performance, make projections for the future, and reallocate your money as needed.
Once you have a budget in place and a sense of what you want the plan to be, it’s critical to measure your performance. After all, you don’t really know how well a budget is working unless you have the numbers in front of you.
So, look at your expenses and ask yourself these questions. Were you able to stay under budget? Did anything unexpected come up? Where did you struggle? How much, in total, did you spend, save, and invest?
You might encounter some surprising results. Maybe you blew your entertainment budget because you under-allocated for events like birthday parties, or perhaps you were surprised to have saved more than you planned. Either way, seeing what happened will help you to better tweak your finances to suit your life and to savor the wins that will keep you motivated.
One of the problems with budgets is that they aren’t dynamic: they assume that the expenses you’re facing day-to-day will always be the same. And perhaps that’s largely true, but, just like businesses, we all encounter random changes like vacations, back to school shopping, and the holidays.
Instead of letting those changes surprise you, plan for them. Use your performance “meeting” to make projections about your future expenses. Do you need to buy plane tickets for a family vacation? New tires for the car? Build these into your plans so that you’re ready when the expense arises.
Your planning process should also go further. What new expenses or investments are on the horizon one, two, or five years down the line? Do you want to send your child to a private school? Invest in a second home? These long-term goals should also be informing your activities and spending today, so make them a key component of your agenda.
Finally, it’s time to take the results and projections and put them into action. If you had extra money left over in your budget from the last period, sweep it into your savings account. If there’s an extra expense you still need to cover, decide where it will come from.
If your projections require extra money, make the transfers now. Taking the time to review, plan ahead, and implement any necessary changes will not only ensure that your budget is keeping up with your life, but it will make it all more manageable and, most importantly, less stressful.
Source: The Motley Fool