And not solely do a similar basic rules apply to your household activities, however the a lot of you apply sound business practices to your household, the a lot of financially secure you and your family are.
But how do you get started?
Why not start your new approach to personal finance planning with a change of terminology? Let’s think of your household as the “parent company”. In business, a parent company owns junior or “subsidiary” companies and other assets. Well, your household owns assets too: a small business or practice or stocks (subsidiary companies), bonds, cars, collectibles, etc. It has money that it owes, called liabilities, such as mortgages, car loans, and personal loans.
The household also has income, whether earned as salary or as dividends from investment activities and it has expenses such as the cost of living and so forth.
The household also has executives that make day-to-day management decisions: you and your spouse. It also has staff: all of the members of the household, each of whom are responsible for certain functions.
Like any other business, your household reports its financial condition every year. The 1040 income tax return is essentially an income statement and balance sheet for the business activity for the year. The household tax identification number is your social security number. The government views you personally and your household as business activities. The sooner you adopt that same viewpoint, the sooner you will act like a business owner and run your “household company” more profitably.
Every business must have certain areas functioning to be viable: These include executive planning, personnel, sales, finance, technical delivery, quality control and public relations. Any one of these functions that are either not done at all or done poorly will make the business activity non-viable and, quite possibly, bankrupt. The household is no different.
If you are an employee of a company, you may think that these functions do not apply to you. They do. If you are employed, you have contracted your services for a salary (not really any different than being self-employed) which is then gross income for the household “corporation”. It is the lack of business perspective that has caused the adverse economic conditions in which we find ourselves.
One of the greatest omissions in the management of household business activity is the lack of a plan. Financial planning is the only way to ensure that the proper things are being done to run the household as an expanding, profitable enterprise. Yet, the vast majority of American households do not have a plan and the results are obvious-a record number of bankruptcies, unsustainable debt, and low income.
But you don’t have to follow in their footsteps — or remain on that losing path. Why not revamp your personal finance planning, apply the basic natural laws of business to your household, and grow your financial resources to achieve your life goals?
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