Gaining personal finance insights from business budgets
If you’ve been an employee, especially if you’ve been a middle manager or director at a larger corporation, you know all about annual operating plans, i.e., what most of us would call budgets.
Each year, millions of businesses across the world go through this process, where the requests for spending come in, the financials from last year are examined, and the spending plans for the coming year are set.
Again, a lot of times this is called budgeting-and it is in a sense. But it’s also more than that. It’s financial planning.
How most people budget
For most people who are in the middle-class, a budget is a way of taking a known income amount-your salary-and planning your expenses based on that income. It’s a fairly straightforward process (if you’re organized!). You simply take your expected expenses based on past trends and match them up to your known income.
If there’s a shortage, you cut expenses. If there’s a surplus, you decide what to do with the extra money. As an aside, too often the extra money is spent on something like a vacation or a new car, meaning money that could be working for you is now making you work for a liability.
How a business budgets
A business, on the other hand, doesn’t budget like the middle-class. Instead, a business determines what its financial goals are for the coming year, makes a plan on how to increase income to meet those goals, and then budgets expenses according to that plan-not based on what it made last year.
With a business, growth is always the name of the game.
With the middle-class, managing the status quo is the name of the game.
How the rich budget
If I were to ask you how the rich budget, what would you say?
I hope you said, “Like a business!” Because if you did, you’d be right.
Unlike the middle class, the rich think in terms of financial goals, make a plan to meet those goals, and budget according to that plan, not the status quo. In this way, they are always growing personally, just as a business is always growing operationally.
Think more like a business (and the rich)
If you find yourself budgeting more like the middle-class, that is managing the status quo, I encourage you to take a page out of the business book. This year, take the time to evaluate what you really want financially. Be bold! And make a plan to meet those financial goals.
In a similar manner, be bold in your expenses. How can meeting your financial goals allow you to enjoy something you’ve always wanted? How can you grow your income to enjoy the finer things in life? And how can you guarantee that your financial growth is sustained and perpetuated year in and year out?
By shifting your mindset to that of a business (and the rich), you’ll change your financial future forever.