Financial Success | Run Your Money Like A Business

Here’s a quick money / personal finance success tip I was asked to write for a journalist, then they pulled the feature so I though I would share it here!

If you want to be more financially secure, or even become financially free, you could learn a lot about running your money from the model that a successful business would use.  If your name is Gemma Jones, think of your financial world as Gemma Jones Inc.

A successful business plans out how much money they expect to have coming in for the next year (turnover), then they work out what it’s going to cost to earn that money (cost of sale) then what it costs to run the business (overheads) and what is left is profit.

They pay tax on the profit ** then put part of that profit aside to cushion their cashflow for the forthcoming year and re-invest in the business to grow it, then the owners/shareholders draw out what is left to spend as they wish.

You are the sole shareholder in Gemma Jones Inc, unless you are working as a couple then you are Mr & Mrs Jones Inc, with a 50% shareholding each and equal voting rights on what happens with your joint money.  (If not, why not?  This is a whole other article!)

The business constantly looks for new opportunities to make more money and they are careful about what they spend, looking for the “return on investment” and how long that will take.

You can probably already spot some significant differences between how a successful business runs its money and what you do with yours – and those differences are what is making the difference to your financial success!

Taking that model and applying it to your finances, you can work out what you expect to earn this coming year (I suggest you look at your net earnings or what goes into your bank), what the costs of earning that money are (travel, clothes, lunches, etc) and then what the overheads of running Gemma Jones Inc are (rent, food, bills etc).

What is left is the profit the place most people fall down financially – they are simply not making enough profit!

Once they have paid the costs of going to work, running the house, then paying for all the bits and pieces that they think they need to be happy, there is just no money left for the important stuff.  And this is where most people go wrong , because they are not taught to run their money like a business.

I know, because I ran my money like that for about 40 years of my life too.   Even now, I know many business people who don’t run their personal money in the same way they run their business money.  You know who you are, Money Gym Club Members!

If you ARE making a profit after paying for your day to day life, then ideally some should be put towards cushioning your cashflow against potential changes in the market next year (savings) and some should reinvested in growing the business (you!) and creating new income flows.   Learning new skills, investing in property, starting a part-time business on the side of your day job.

Before you take any personal drawings, to have fun with, as a shareholder in your business.  For example, refurbishing the office (your house), or taking the staff (you) on holiday.

Like any business, you should always be looking out for opportunities to increase cashflow and profits, because those extra earnings can be put towards buying, what we in The Money Gym call “income producing assets”.  Similarly, you should always be looking for ways to cut overhead, without affecting quality and almost as important, quality of life.

Because you are your business, and you are your main asset.  You need looking after.

The more of those income producing assets you can invest in and accumulate, the quicker you can become financially free, as the income from your assets outstrips what you need to live on.

And that’s the day you never have to work again, if you don’t want to.

Because you are financially free.

Wealth Twitterings

I’m embarking on an interesting project at the moment….turning my Money Gym ebook into Wealth Twitterings.  I’m trying to turn each Wealth Tip into a twitter of 140 characters or less, but I’m finding that each Tip makes a few twits so I will end up with more than 101 twits, more like 365 which is one twit a day.  I’ve done six today already because I’m impatient….check them out on this blog on the daily update, or visit http://www.Twitter.com/wealthcoach to follow  us, and then download Twhirl which is great fun, to keep up to date.

Money Tips From GMTV

As a wealth coach, even while recovering from an op, I can’t help my ears pricking up when a money making or money saving tip is heard…..I was awake at the crack of dawn today and Martin Lewis from Money Saving Extra was on www.GM.tv this morning and talking about the fact that not many people move their ISA money around to take advantage of great new offer rates.  Say you have some money in one ISA, from last year, or even a few years ago, where the % interest rate paid has been reduced over time, did you know that you can go to a new ISA provider and, if they request the transfer, you will enjoy the new rate offered?  You must NOT take the money out yourself to move, but in the endless race to win new business, you can enjoy higher rates as a new transferred customer.