3 Ways to Manage Your Finances the Same Way You Run Your Business
You should treat your personal finances with the same dedication, passion, and strategic planning that you do your business.
The National Women’s Business Council reports a spike in the number of women-owned businesses — how many have opened, how many people they employ, and how much money they collect.
Growing those businesses requires a smart strategy. You must make tradeoffs, decide what to prioritize, and consider what can wait. And as you reach one milestone, you’re often planning for the next.
But with that sharp focus on your bottom line at work, are you neglecting your finances at home?
What’s your strategy for repaying student loans while building an emergency savings fund? How do you prioritize whether to buy a home or make investments? Should you pay for your kids’ college, set aside money for your parents’ care, or both? How do you balance all this with saving for your own retirement? After all, you want to be able to enjoy the lifestyle you’ve worked tirelessly to achieve.
Balancing these financial considerations may differ depending on your personal circumstances. That said, here are three ways you can manage your personal finances the same way you run your business.
Form a plan.
No matter how much money you have, it’ll never be enough to do everything you want. The most important thing is to meet with a financial advisor who can help tailor a plan that strategically meets both your short- and long-term financial goals.
Advisors can help with:
● Crafting a budget. Track what you earn and spend each month, and make sure you’re paying yourself first. In the same way you automatically deduct money from your bank account to pay for utilities, insurance, and other routine bills, you should automatically deduct money from your paycheck and have it go directly into a retirement account. If you wait to save “whatever is left over” at the end of the month, you’ll struggle to get started.
● Calculating the best ways to pay off debt. Chart your credit card debt, personal, and student loans, and for each one, evaluate how much you owe, the interest you pay, and the minimum amount you’re required to pay each month. After that, you can calculate how to make your debt-free date arrive a little sooner.
Here’s an example: What if you owe 7 percent interest on both a student loan and a car financing agreement, but you owe 20 percent interest on a credit card debt? Each month, there’s a suggested amount you pay for all three loans, but take a closer look at the annual percentage rates.
Maybe it makes sense to make only the minimum payments on the loans for your car and your degree, for instance, while making a bigger payment to get rid of the credit card debt sooner since it has a higher interest rate. How quickly will that strategy lower your overall monthly expenses? Another idea: What if you just added an extra $10 a month to your car payment plan? How much sooner would that be repaid, and how much would that save you in interest?
● Determining how to save for retirement. Enter information, such as your household income and your number of dependents, and this will estimate your monthly budget during retirement. You can then see how things would look if you decide to save either more or less.
After you take this most important step, here’s the second-most important factor to consider:
You would never craft a strategy for your business and then simply let it play out. You’d look at your company’s performance month-over-month and year-over-year to see what’s working and what could be better.
Why would you handle your personal finances any differently? Meet with your financial advisor at least once a year to revisit your financial plan and adjust accordingly.
Consider recurring expenses.
Just like you make long-term investments in your business, you need to make long-term investments in yourself. No matter how far away retirement seems, saving for it should always be considered essential.
In the same way you may automatically deduct money to pay for your utilities and your insurance, you can automatically deduct money from your paychecks and use it to build your retirement savings. You can’t miss what’s not there, but if you wait to save whatever is left over at the end of the month, you’ll likely never get started.
You’ll often balance other looming expenses, of course, but don’t let that stop you from saving for retirement. Even just a little can go a long way.
Here’s an example of how much your money can compound:
Let’s say you have two women who both turned 65 last year. The first one started saving for retirement when she was 25. At that point, she set aside $100 a month — that’s just $25 a week.
The other woman decided to wait 10 more years to start saving for retirement. At that point, she was 35. She waited an extra 10 years, but when she started saving, she set aside twice as much money as the first woman. It wasn’t $100 a month — it was $200 a month.
If they both put their money into the S&P 500 — a stock market index that tracks the stock performance of 500 of the country’s largest companies — then about 40 years later, the woman who started investing when she was 25 would have more than $400,000. That’s because her money had more time to grow. It’s called compound interest.
But the woman who waited an extra 10 years? Even though she invested twice as much money once she started saving, her delay means she would have barely $300,000.
I have a client who started her own business and, understandably, she focused on the current cash flow. I first met her five years ago, when she was 60, and after we reviewed her retirement savings, there simply wasn’t enough money for her to live the retirement she envisioned for herself. She doubted whether she would ever be able to retire.
We started automatically shifting some of her paycheck to her retirement account and now, after those initial concerns, she plans to retire in five years.
Evaluate risks.
As you save for retirement, don’t just have a magic number in mind — say $1 million — and think as soon as you hit it, you’ll be fine.
Researchers say the biggest financial threat retirees face is called longevity risk, which means you could outlive your money. Think about it: You can’t just consider what you have in your bank accounts and predict whether that’ll be enough. That means you’d have to make withdrawals and hope you don’t outlive your savings.
Unfortunately, too many people aren’t aware of longevity risk. A recent TIAA Institute report shows more than half of Americans do not have an accurate view of how long adults tend to live in retirement, a knowledge gap that can keep them from saving enough money to last as long as they live.
The survey polled people still in the workforce and retirees. Consider what was shared by the retirees with strong “longevity literacy:”
● 81% saved for retirement while they were working, compared to 57% of those with poor longevity literacy.
● 54% have tried calculating the overall amount they need to save, compared to 30% of those with poor literacy.
● 40% find it very easy to make ends meet — almost twice as many as those with poor literacy (23%).
● 40% are very confident about having enough money to live comfortably throughout retirement, compared to 25% of those with poor literacy.
● Only 17% said they have a lifestyle that falls short of their pre-retirement expectations. For those with poor literacy, more than twice as many (37%) agreed.
To guard against longevity, make sure you have lifetime income. The value of some investments, such as stocks or crypto, will fluctuate. Or what if you invest in a company that goes out of business?
Lifetime income provides a reliable monthly paycheck. There are three sources: One is Social Security, but that’s often not enough by itself. Another is pensions, but those are becoming increasingly rare. The third is annuities. Instead of investing money, you can buy annuities, which provide a series of payments — like a personal pension plan — that can last the rest of your life and your spouse’s.
Economists at the University of Pennsylvania’s Wharton Business School and the Hebrew University of Jerusalem recently published a report that describes the top five financial regrets of Americans over 50. The fourth regret was that one-third of older Americans did not invest more in a lifetime annuity or similar product that would produce a guaranteed income for life.
This is even more urgent for many women. On average, they have a longer life expectancy than men, so they’ll potentially need more money for a longer time horizon. But once women stop working, their retirement savings and investments generate about 30 percent less income than men’s. That stems largely from a pay gap throughout their careers.
The ‘a-ha moment’
In your job, when you have an inspiring idea, nothing can stop you from pouncing. You want to execute immediately. You should treat your personal finances with the same dedication, passion, and strategic short- and long-term planning.
