Managing Your Personal Finance Like A Business

Managing your personal finance matters better simply by translating some relevant skills that you would have already picked up from your workplace. We look at some examples.

 Most of us “semi-adults” have a job. We may work at an MNC, an SME, at our own start-up or even for the government. Like it or not, part of our job scope will involve us having to deal with some form of finance management.

What we did in this article is identify some of the finance management skills that you may have already learned at your workplace, and to look at how you can apply these skills to your own personal finance management. 

1. Budgeting

In the course of prudence, all organisations, including non-profit entities, do some form of budgeting. Typically, budgeting would be done at a department level and consolidated thereafter. If need be, the proposed department budget may be reviewed if expenditures are deemed too high.

One of the main reasons why budgeting is necessary is to ensure that the company’s cashflow remains healthy and it does not spend more money than it generates. Spent monies have to come from somewhere and if the money is not yet earned, it would have to be borrowed, at an interest.

In the same way, you should be doing budgeting for yourself and your family. If you are a salaried employee, this shouldn’t be difficult, as you would already have a good idea what your monthly income is going to be. A simple budgeting exercise would ensure that you do not fall intro the trap of reckless spending beyond your means.

Do not forget about allocating money for savings and investing when you do your personal budgeting exercise.

2. Diversifying revenue streams

Have you ever seen the profit & loss statement of a listed entity? If you have, you may realise something in common that most listed entities share, but which majority of ordinary Singaporeans do not have.

The bulk of listed entities would usually have more than source of revenue. That is because companies frequently have more than one source of revenue.

Most company would have a core business, which generates the large bulk of their revenue. They may then have other complementary businesses, which further generate additional revenue. Sometime, these business are not linked.

For example in 2013, Singapore Press Holdings generated about $1 billion in revenue from their core business of newspaper and magazine. The company further generated about $200 million from their property development business.

As individuals, it is worth noting that we too can strive to generate income aside from what we earn at our day job. These additional incomes do not always have to be linked to our day job. An engineer can always invest in a blue chip, dividend-paying stock. A civil servant can look to invest into properties. A self-employed businessman can choose to contribute to his CPF accounts. This author chose to write.

3. Spending on assets

After you have decided that you would like to “diversify your revenue stream,” the next step would be to take a closer look at your “personal balance sheet” and compare it to those of listed entities.

The balance sheets of listed entities are usually filled with “useful assets” such as cash, investment property, equipment and even patents. These are assets that help the company generate revenue. They are basically “needs” of the company.

On a personal level, some “needs” include the purchase of an affordable home, expense on food, utilities and transport. These “needs” are essential for helping us generate revenue. Without them, we will not be able to hold on to our jobs.

Investing in stocks, bonds, commodities & properties can also be considered “needs” as they are part of a holistic retirement plan. These financial instruments fit nicely into the asset category of our “personal balance sheet.” Other intangible assets include your degree certificate. At times, we even have to chalk up some liability to fund some of these “useful assets.” Taking a home mortgage or an education loan are some examples.

What doesn’t fit into the asset category of your “personal balance sheet” are items such as an expensive honeymoon trip, the awesome birthday bash you just organized or even your half-drank macallan bottle at Zouk. And while you can argue that the $5000 matrimonial bed and the $4000 Italian leather sofa you have bought deserves to be in the “asset” category, we can assure you that it is not going to be a “useful asset.”

4. Maximising tax breaks

Big companies hire consultants to assist them in fully maximising available tax breaks. They essentially spend money, to save more money.

As individuals, most of us do not require a consultant to assist us in our tax returns. However with some self-education on tax related issues, we might potentially help ourselves save significant money in the long run. You can read up more in this article on DollarsAndSense.sg

Do not underestimate the amount of money you can save just by doing a little homework to gain some knowledge. If you are the type that have spent hours arguing with the credit card operator on waiving your late fee charges, you should definitely consider spending a little time reading up and keeping up to date on personal tax matters in Singapore.

5. Prioritising spending 

Anyone who runs a business will tell you that there are a million things they need to buy. This could range from critical items such as a new equipment to replace an old one, essential but not-so-critical items such as new computers for the office, good-to-have items such as a nicer meeting room or the luxury items such as a nice pantry.

Something that is critical for one company need not be for another, and vice versa. For example, an advertising agency may rank the importance of a newly renovated meeting room a lot higher up on their priority list as compared to a company in the manufacturing industry.

In the same way, you need to categorise your spending in order of importance. For some families, spending top dollars for their children education expenses is a must-have. Others may prioritise the need of a car, regardless of how expensive it is, due to the necessity of transporting their special needs child. There is one-size-fits-all answer.

Not re-learning, just re-application

You may already have some, if not all, of these finance management skills and experiences. Now, it is all about translating these office skills back at home.

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