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Often people associate success with money and wealth. While this is a one-sided view of success, it is true that success often brings with it financial rewards; It is also true that many people who aspire to success are thinking about the financial rewards they will get if they are successful. But what if your idea of success is purely financial? In that case, it may be that you are looking for a financial success system that will help you achieve your financial objective.
In two other articles I discuss the use of project management techniques in achieving personal success. In that case, we looked at “Project Success” and how we can plan for it. Why not apply more business techniques to money this time around, and develop a financial success system or plan?
In most cases, your personal finances are no different from business finances. The underlying principles are the same. As a former professional management accountant, I can assure you that the way a company or organization’s finances are run, or should be, is basically the same way your own finances should be run.
Every company will have systems in place that are designed to further the success of the company, as well as protect its assets from misappropriation. In fact, they put in place a financial success system that enables them to run the business profitably and build wealth.
The core elements of a company’s financial system can be easily identified as good practice in your own personal financial system. The statutory requirements differ greatly, but there are some helpful similarities from which one can learn from a financial management perspective.
If you apply some of the following business finance fundamentals to your own approach to personal finance, over time you will develop a finance success system that will grow your wealth for the rest of your life.
1. Budgeting
Setting and managing a budget is a regular part of any business; They are an important tool in financial control. The budget of the house is also very important. Get in the habit of setting and monitoring your personal budget of income and expenses, and you’ll have the foundation for a plan for financial success.
2. Investment Appraisal
Whenever a company decides to spend money on a large capital item or new product, for example, it may conduct an investment appraisal. You will not have such big decisions to spend, but the important thing is to assess the expenditure consciously. Will it build or hinder your financial success? For example, if you are buying a car that will depreciate, there is a high risk that it will significantly reduce your personal wealth and set back your financial success plan. When it’s time to indulge, make sure it’s the right time.
3. Building Assets
A company creates wealth by being consistently profitable, investing wisely, and growing the business at a sensible and sustainable pace. Being profitable means earning more revenue than spending in expenses. The same is true of you as a person; Always make sure that you earn more than what you spend every month. The balance (savings) goes into your spare assets, which can grow over time, especially with good investments.
4. Balance Sheet
Creating a balance sheet in a large business can be quite complicated. A simplified version can help you keep track of the status of your assets. Preparing a rough balance sheet once a year, showing your assets on one side and liabilities on the other, will give you an idea of your personal worth in financial terms. By comparing year over year, you can be sure you’re making progress.
If you use a home budgeting software program, it may have a balance sheet feature to assist you.
5. Regular Financial Reporting
Companies have a legal obligation to produce accounts every financial year. Your legal requirements are for your personal tax purposes only.
However, a business doesn’t rely solely on annual accounts, and neither should you. It is likely that they will have management accounts, at least on a monthly basis, so that management can keep track of how the business is progressing. You should follow that example too, and keep a close eye on your budget each month and respond accordingly.
6. Cash Flow Forecasting
Even a profitable company can have trouble staying afloat if it doesn’t manage its cash flow properly. In fact, it is a common reason for companies going out of business. As part of your budget, make sure you include a cash flow forecast, that way you can allow for peaks and troughs in income and expenses without running into problems paying bills on time.
Missed payments can prove to be costly for your overall wealth, hence should be avoided at all times.
7. Investment and Treasury
If everything goes according to plan, you’ll have extra cash. A company will have a treasurer for that, but in your case the treasurer is you. Take that role seriously, and over time you will be financially successful. If you have a partner, it makes sense to include them in this and other parts of your plan for financial security.
Investing is a fascinating subject, so if you can learn about it, you’ll be in a good position to do better than the average investor. Investing is about balancing risk and return, and if you can master this without taking unwise risks, you should do well financially.
On top of those purely financial aspects, there are other key areas of business that will affect finance that you can learn from:
1. Marketing.
Keep an eye on the market place for the type of success you’re looking for and your areas of expertise. Try to anticipate how that market may develop and prepare yourself ahead of everyone else. If you’re ahead of the game, you’re worth more, no matter what field you’re in. For example, when I was 20 I decided that it was a good idea to learn as much as possible about computing and finance, as eventually they would be important in every organization. This was before PCs existed, and it turned out to be a wise decision, even though my main objective was to become a writer.
2. Education and training of key personnel
As an individual, the more you educate yourself about the many aspects of life, both personal and professional, the better positioned you are to become wealthy. Never be complacent about your own knowledge; It will lose its importance over time, so you need to refresh it constantly. Train yourself, educate yourself, relentlessly.
Here are some ideas of how you can use business finance practices to create your own financial success in the long term. Follow those, and you shouldn’t go too far wrong, and prepare yourself for a rebound if anything does go wrong, such as redundancy or divorce, which can derail even the best-laid financial plans. .
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