In my opinion, you can learn a lot about personal finance (and get better at it) if you ask yourself some small business-like questions now and again.
Thinking like a small business will help you act like a small business – one of the many ways to continually improve your personal finance situation. I know this thought process has helped my wife and I on a few occasions, so I’m sharing our small business-like questions because hopefully they can help you too.
Where is our business now? Where do we want our business to be?
What is our personal finance situation now? What do we want it to be?
These questions help the personal financier get to the heart of their situation. In my opinion, finding out “where you are” is critically important to understand “where you need to go”. Have you ever tried to drive somewhere in your car without knowing where you’re starting from?
On a personal level, about 18 months ago, my wife and I took inventory of where we were financially. For example, we had a rental unit that was causing us problems. Instead of living through them, thinking everything will eventually pass and be fine, we seized the headaches as an opportunity to re-evaluate our situation. After many discussions, we realized being rental property owners wasn’t who we wanted to be long-term. We recognized the need to change; change our investment strategy and did something about it. We worked to fix-up the rental unit and sold it. This occurred about a year ago and now we’re much happier (and less stressed) because of it. We took our rental unit gains and invested some of those proceeds into dividend-paying stocks. Looking back, I think asking the strategy questions above helped us clarify our goals and moved us in the right direction.
Is the business environment changing? Should the business take advantage of new products or services? What types of products fit our personal finance needs?
Recognizing death, taxes and change are the only things that are constant in life, my wife and I often reassess if the investment products we own match our investment strategy. For example, years ago, we were comfortable with “market returns” with our mutual funds. That is, until some years we trailed the market significantly! After a detailed review of our mutual fund holdings and learning more about how cyclical the financial markets really are, we realized we could improve our investment strategy (and returns) if we owned ETFs. ETFs certainly aren’t for everybody, for every situation, but these products made sense for us and so we worked out a plan to starting owning them. If you’ve been following my blog, you’ll know it has taken us the better part of this year to switch from mutual funds to ETFs in our RRSPs. We’re still comfortable with market returns – so our strategy hasn’t changed – but we’re now spending much less on management fees, keeping more of our money, and gaining more dividends that get reinvested in the process. As financial products continue to change or emerge, if something better comes along, we’ll definitely consider it. We’ll repeat the same process to ensure our financial products align with our investment strategy.
How is our business doing? Do we need help?
Are we meeting our personal finance objectives? If not, what knowledge, education or help do we need?
I would argue that running a small business is tough work. I have a few friends that do it; they don’t take many days off even when they’re not in the office. Being on top of the business is important to my small business friends because they want to ensure their businesses are meeting their objectives, satisfying their customers. I don’t see how this should be different for personal financiers – except the customer is always you. Reassessing your performance, your strengths, your weaknesses; knowing what you do well are just as important as knowing what you don’t do well and need to improve upon. Good small business managers surround themselves with good staff. You should do the same! If you need help at managing your household budget, starting a monthly savings plan, selecting stocks for your dividend income portfolio, don’t be afraid to seek out expertise. Learn from people who provide financial services and apply it to your own situation. Nobody knows it all – getting help is sometimes needed – even for seasoned investors. Sometimes reading a few good books can put you in the right direction, I know this has helped me on more than one occasion. On another personal note, many bloggers have helped me out too – so thanks to you as well. One of the reasons I started my blog is because I wanted a forum to share my financial experiences with others but also to continually learn from others who have been there, done that or are trying to do that – paving their own financial independence road. Your learning vehicles could be different than mine but the important thing is to get help when you need it. The small business owner does this to be successful, why not you?
There are a few other questions that I didn’t write about, parallels between the personal finance and small business worlds, but I think you get where I’m coming from. I know from experience, working through these questions have helped my wife and I before and I’m sure revisiting them will help us again in the future.
In closing, although the questions might differ a bit, the desired outcome for the personal financier and small business owner is pretty much the same – a very happy customer!