Every great business has a mission statement that defines their goals and objectives. The underlying premise of any business’s mission statement can best be explained in a phrase coined by world renowned motivational speaker Zig Zigler, “If you help enough people get what they want, you will eventually get what you want.” Most of us have been very diligent in regards to carrying out our employer’s mission thus helping them give the consumer what they want—quality services and/or products at an acceptable price. In return the company eventually gets what they want—profits from the sales of quality services and/or products that will allow them to expand, invest, and diversify so that the company will enjoy a long productive, profitable life.
As a consumer advocate, I’m more interested in the diligence, or lack thereof, individuals place in minding their business. We’ve heard adages such as, “it’s not what you make but what you do with what you make that’s important,” and “you work hard for your money, now let your money work for you.” As I began to understand the dynamics of money I came to realize that you and I are individual business owners of a company named “My Money Incorporated.” (You can substitute “my” to coincide with your name.) Let me explain what I mean. Essentially we contract our services out to our employer for a fee (salary). We are required to provide a quality service to our respective employers (customers) so that we can continue receiving income (profits from services rendered). The compensation (profits) awarded to us should allow us to provide for our needs as well as expand, invest and diversify so that our individual households will enjoy a long productive, profitable life.
How is your business doing? Are you getting the most out of your employees (money)? When you receive a paycheck for the services rendered to your employer (customer), do you wonder where your money went? How much income do you need to generate in order to meet current expenses (cash flow analysis)? How will you meet expected expenses during the slow months (being out of work)? Have you retained cash on hand to take advantage of potential volume discounts and forced liquidations (sales at your favorite store)? Are you employing any surplus income (money left after expenses) to eliminate debt and/or save and invest? Are your assets growing so that when it’s time to expand (bigger house, newer car, vacation, own business, and retire early) you will not be a prime target for a hostile takeover (bankruptcy, foreclosure, and repossession)?
Statistics shows us that most new businesses will fold in the first five years of operation. If “My Money Incorporated” were truly categorized as a business entity, how would your business fair? Using statistical data as my source, the majority of us are failing. “Nobody plans to fail, they just fail to plan.”
The majority of us do a terrible job managing our money. Financially speaking, we have no idea where we are, where we’re going, where we want to go, or how we’ll get there. That’s because we have not given our money a mission—a plan that defines our goals and objectives. When you plan, you identify financial goals and develop strategies to meet them. When you have a mission to carry out, you begin to prioritize what’s important and what’s the best method for achieving a specific goal. As the owner/boss of your money, you have to take accountability and responsibility so that your money will eventually get you whatever it is that you want.
Every dollar you earn should have a mission statement attached to it. When it comes to your money, you should know where you are, where you’re going, where you want to go and how you’ll get there. This all starts with the dreaded B-word—BUDGET. For those of you who detest the B-word, call it a cash-flow plan. As C.E. Hoover put it, “a budget is telling your money where to go instead of wondering where it went.” A more formal definition of a budget would be a plan for spending, saving, and investing money. The importance of making a budget and sticking to it is to save for future goals while meeting present obligations. There are essentially three pillars to a budget—identify how you spend money, evaluate current spending and set goals, and track spending to ensure you stay within your guidelines.
The more simple the budget, the easier it is to understand and implement. There is financial software available to help you draft a budget. You can also employ an old tried, yet simple method using a notebook. Important components of a budget include:
Cash flow analysis—Identifying income received weekly, monthly, quarterly, etc. Taking that number and figuring out how much to expect on a monthly basis. The second part of a cash flow analysis is tracking expenses to see where your money is going. You can review your checkbook or various receipts. You also want to maintain a journal tracking various items purchased throughout the day such as breakfast, lunch, newspaper, coffee, cigarettes, lottery, etc.
Setting goals—to make a budget effective, you have to identify specific goals you would like to achieve with your money. The cash flow analysis allowed you to see where you are financially. Setting goals will give you the motivation and direction to cut back where necessary, prioritize what’s important. It will also be the benchmark used to evaluate progress.
Put your money on a mission—now that you know where you are and where you want to be, you have to use your money to serve your needs and goals. Every dollar spent should have a purpose. You should identify where your money is going before it’s spent. You do this by setting up budget categories. Never again should you wonder where your money went for you would have spent it on paper before you actually spent it.
(Mortgage and Money Coach Damon Carr is the owner of ACE Financial. Sign up for Damon’s FREE “Ask Damon” e-Newsletter @ www.allcreditexperts.com. He can be reached at 412-856-1183.)