Running Your Household Finances as a Small Business

I bumped into this idea a few months ago when I was negotiating with a contractor on some work that was performed at my house that had some bumps and issues in the process. As I was imaging our negotiations beforehand, I was ready for his statement along the lines of “but we are a small business” to justify his services. I certainly have respect for running a business and the need to make profits. Yet, in my mind I was saying I’m an even smaller small business and not a money pit for you to gouge.  The question that came up for me was what if you thought of your household finances from a small business perspective. What if you were running your household finances as a small business? How would you manage and run your small business? What would you do the same? Different from today?

<Insert Your Last Name> Incorporated

The reality is that concepts are the same. You have revenue and expenses and desire to make a profit just like a corporation. Household revenues come from salary, rental income, owning a business, investments, etc. Household costs come from your decisions on your lifestyle. Profit are the difference. If needed, you can acquire debt through mortgages, car loans, credit cards, and student loans. You can’t do any stock offerings like a corporation though.

Corporations seek to grow their revenues, watch their costs, and have a responsibility to deliver profits back to the owners of the business. Do you and I do the same thing? Or do we use a someday strategy and hope that things will all work out someday? What if we ran our household finances as a small business? When publicly traded companies do a good job of financial stewardship, their company stock prices rise over time. Wouldn’t it be fun to see our household “stock price” or networth rise over time too?

CEO of Your Household Finances

Take a moment to reflect on your activities over the course of a year. What activities are you engaging in that will help to grow your revenues by adding to your skills or seeking new positions or looking for incremental side hustle opportunities? Are you looking at your spending for opportunities to maintain expenses and not have lifestyle creep? Perhaps you are actively work at cutting discretionary expenses and “automatic” expenses like car insurance, cable TV, cell phones. What do you do with your profits? Do you have any profits? Do you invest back in your business by doing positive activities for your future self like investing for your financial goals, creating new revenue streams, building a safety margin for financial stability? Maybe you pay yourself a “dividend” and go buy more “stuff”, for example, splurge on that fancy car, vacation, new house, or whatever.

Balancing Act

How about finding a balance point with those profits? Crazy idea, but what if you take care of your future self and have some “enjoy” along the way. Where the balance point rests is up to you. If you have aggressive financial goals, then heavily tilt your profits toward your future self. If you don’t have aggressive goals, STILL tilt your profits toward your future self as that’s the only path you have to financial independence. Your future self will say a big THANK YOU someday. Can you hear it?

Debt Spending

Companies who acquire too much debt often have a tougher time with long term survival. The same can be said for our household business. There’s good debt and bad debt. Good debt are things that will improve your future revenues and lock in expenses for assets that grow. Right sized mortgages are good debt. Reasonable student loans for a valuable and marketable new skill or degree are good debt. Bad debt is from overstretching your means and lifestyle issues. Running up credit card debt so you can “live large” is not long term smart. It’s bad debt. Overstretching for that super fancy car so people stare at you when driving down the road is bad debt.

Think good debt.

What to Do?

Do some homework. It’s a great time of the year after the holidays to slow down and set aside some time to reflect on your past year from many perspectives. One of them should be financially. What worked well in 2018? What didn’t go as expected? What’s your intention around your financial practices in 2019? What shifts are needed in your daily habits, behaviors, and planning?

The honest  reflection (“work”) may not be easy and maybe it’s not fun. Yet running your household as a small business is worth the effort. You are worth it. Your family is worth it. Your future self is worth it.

Homework:

• What activities are you undertaking to grow your skills, start a side hustle, and generally grow your revenues? What’s a specific action/endeavor you want to start in the next month? What’s the first step?
• How are you doing to be a steward over your expenses? What “automatic” expenses do you have and do you still need them? Music subscriptions, food delivery services, every Friday night dinner out? When’s the last time you shopped your car and home insurance? Asked for a better deal for your cell phone package, cable package, and other monthly services?
• How do you employ your profits? Positive habits for your long term good? Spend it and wonder what happened? What’s a shift you could make to the positive side?