The importance of running your personal finances like a business

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Image: Getty
Image: Getty

From managing your finances and your reputation to networking and planning ahead, there are many parallels you can draw between the two. Why then, asks Lizl Budhram, Head of Advice at Old Mutual Personal Finance, do so few of us treat our personal finances with the same level of attentiveness and organisation that we would a business? 

“Just like a growing business, we face various challenges, overcome obstacles and, hopefully, go from one milestone to the next, all the while working towards achieving our long-term goals, including financial security when we retire and can no longer work to earn an income.”

Budhram suggests you follow the same seven essential steps a business needs to take to assure long-term success and financial stability:

Have a plan

A solid strategy is the base of any successful endeavour – no business survives without one, and neither will your finances. Creating your plan begins with documenting all income and expenses to predict future cash flow. From this, you will be able to see which areas to prioritise and where to cut back to stay on track to achieving your long-term goals.

Minimise your ‘operating’ expenses

Key to running a successful business is keeping operating costs to a minimum by cutting any expenses that aren’t consistently contributing to greater profits. Similarly, in your personal life, you need to cut back on any monthly expenses that don’t add real value to your life. This might mean letting go of your expensive – and often unused – gym contract, cancelling that satellite TV package that you never use, or downgrading to a more affordable car or house.

Diversify/multiply your income streams

Multiple streams of income are the key to business success and it’s no different when it comes to your personal finances, should you have the need for it. The 2017 Old Mutual Savings & Investment Monitor found that rising prices and the ailing economy are driving some South Africans to work multiple jobs to provide additional income. By investing your extra income, you can secure an investment return, on top of your income, which means that if any of your primary income streams suffer, you will have an emergency plan.

Insure yourself against risks

Just as a business owner would insure the business against any possible incidences that may impact future revenue, such as a fire, the passing of a co-owner or theft, you should insure yourself against risks of illness, injury or the passing of a breadwinner. It is also important to make sure your assets, such as your home and car, are adequately insured.

Always pay yourself first

A business is nothing without a strong workforce and in the case of your personal finances, that workforce is you. That’s why it’s recommended that you pay yourself first every month (by, for example, contributing to a savings account), before paying any other expenses.

Keep a close eye on your debts

Poorly managed debt can cripple a business - and its effect on your life can be equally dramatic. Don’t borrow more than you can comfortably afford to pay back. Short-term debt, such as store and credit cards, usually carry high interest rates, and can quickly get out of hand. Be disciplined and monitor your debts closely – on a month-to-month-basis – to avoid getting caught up in a debt spiral that is very difficult to get out of. 

Partner with other experts

Successful business owners know their strengths and seek advice in areas that are not their speciality. Similarly, most South Africans would benefit from consulting a professional financial adviser about their personal finances. He or she will be able to help you identify your needs, draw up a sound financial plan and give you peace of mind that you are on the right track to reaching your long-term goals. Even the best entrepreneurs owe their success to coaches and mentors.

While taking a step back and evaluating your personal finances from a business perspective can prove extremely helpful in keeping everything in check, it is important to remember to enjoy your life. “Take the management of your personal finances seriously, of course,” says Budhram, “but don’t take it to an unhealthy extreme. Life is filled with unexpected twists and turns, and all you can do is be as prepared as possible and enjoy the ride.”

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