"It starts out with an idea. Then I look at how much money is needed, and I come up with a budget. I save, and then when I have enough, I start. And definitely, the most important thing is cash flow."
These are the simple steps that a young, dynamic investor and entrepreneur told me he goes through when he's figuring out what his next business will be. Obviously this is not a definitive list, but I'm interested in key words and concepts: idea, budget, save, cash flow.
When I asked this person whether he does this with his personal money, the answer was no.
He doesn't have a budget, nor does he know how much money he spends on a monthly basis.
In fact, he was happy with very general guesstimates regarding where his money went.
Would he be OK with a business he'd invested in providing him with information that was not accurate and detailed? The answer was a categorical 'no'.
So, if we don't accept that lack of detail when it comes to our investments, why are we fine with it when it comes to our personal money?
I find it fascinating that we readily, and perhaps daily, use ideas, terms and concepts in our professional lives that we do not translate into our personal ones.
Today I'd like to go over just a few with the hope that we start applying them in our daily life - I believe we'd be better off for it.
So, what about our friend the entrepreneur? Let's go through what he said.
"It starts with an idea."
What's your idea of your best life? Have you thought it through? What are you working towards?
That's key. Without that, how are you going to figure out how to get there, when you don't know where there is?
If you're still working on that, that's OK. Then how about putting down a goal of yours? That's your idea. It could be something you want to do or buy.
Next, work out your budget: how much money do you need to be able to make your goal a reality?
Then: where are you going to get that money from? Well, to answer that question you need to work out what you're doing with the money in your life.
And, you need to save towards the goal you've just set for yourself.
One thing you definitely need to stay on top of is your cash flow. Can you afford a certain thing that you want this month?
So, how about this for an idea: imagine your life is your company. You are your company's chief financial officer.
These are things that will make you a successful CFO:
. Financial foresight. The ability to anticipate financial issues and address them. Figure out what your life or family's needs are, and how things will change with the seasons and circumstances.
. Excellent communication skills. You must be able to effectively communicate the financial health of your "company" to all your stakeholders - aka partner, children, any dependents.
. Confidence. Be assertive when making decisions. No amount of whining, tantrums or emotional blackmail should sway you.
. Vision and foresight. You must be in tune with your market and come up with business plans that are aligned with the bigger picture of the company's future. Figure out what your family members will want and need with the passing months and years.
. Accounting and financial competence. Sign off on financial statements and internal control systems. By doing so you confirm their accuracy. So this is everything from bank or credit card statements to checking bills and invoices.
. Deep understanding of your business. You are not just a numbers person. Immerse yourself in your company and how it operates. You need a macro feel for numbers and how your stakeholders operate. What are their money habits?
. Integrity and ethical standards. Your company and stakeholders depend on you to look after their well-being. It's a massive responsibility that boils down to doing the 'boring but safe': saving money for the emergency fund, addressing liabilities and getting every insurance policy needed, as well as being up front and honest about what you're doing.
. Risk perspective. Of course you can try out new things and take calculated risk to grow 'the business' and improve the financial position of the 'company'. This needs to be done with the knowledge of category A stakeholders - aka the spouse. Don't risk the emergency fund, cancel life insurance or dip into the various savings policies, like college education for this.
. Result oriented nature. Set goals that are specific, measurable, achievable and relevant. This is key to manage the expectations of your stakeholders and getting them on your side when you start cutting back on things like after-school activities or trips to the mall.
. Leadership skills. It takes a tough person to oversee and delegate the financial operations of your family effectively. But you also need to be gentle. In fact, you need buckets of emotional intelligence, self awareness, self regulation, motivation, empathy and social skills.
And to help you along the way, dip into these three ideas as you go along: negotiate, think win-win, and compromise. At the end of the day, it's all about balance.
Nima Abu Wardeh is the founder of the personal finance website www.cashy.me. You can contact her at nima@cashy.me
