Our Home, Inc. - Run Your Household Like a Business and Win

When you were a kid, you likely had a piggy bank.?Literally, a bank shaped like a pig.?Why a pig? Isn’t being a pig about money teaching us the wrong thing? ?I mean, pigs just consume.?They’re stingy and dirty and have no manners and taste good when fried.?Maybe a squirrel would be more appropriate.?Squirrels are hard workers, and they save what they don’t need to consume.?Someone invent a squirrel-shaped bank for kids.?You’re welcome.?

There was something about that piggy bank when you were a kid though.?That, along with some good parenting taught you the value of hard work and saving.?The piggy bank and the mounting pile of coins inside were the tangible evidence of your hard work (i.e. house chores, and cutting the neighbor’s lawn, or allowance if you were so lucky) and saving mentality.?It felt good to throw loose change in there, and it felt really good the day you counted it all up and instantly felt like the richest eight-year-old on the block.??

Bad Piggy

However, that piggy bank and the lessons that came with it should have been the 101 course to personal finances.?Unfortunately, we see how little is taught about personal finance in our school systems, and so we are left to our own devices to learn and fail as we go.?Now while the Piggy Bank & Saving 101 course was valuable, it also had some unintended consequences.??You see, because we never took the 201 courses, we picked up a habit, and it’s not a good one.

If you were like most kids, you saved money in that piggy bank, found something you wanted to buy, waited until you had enough, and then depleted the piggy bank to buy said item.??The piggy bank served it’s purpose and “I’m happy with my new box of baseball cards.”?

Now before you jump all over me for my elementary example of the piggy bank, let’s approach it from a different angle…

It’s Just Business

In it’s simplest form, what makes a business profitable??It’s revenue exceeding expenses…more money coming in than is going out.??A business is laser-focused on profit because that’s what keeps it open and functioning.?Without it, the business will close and fail.?

Many people own businesses or work in a corporation where they have to be conscious of the budget.?In past corporate and consulting roles that I’ve had, I would have loved to approach my role using only what I learned in Piggy Bank 101.?“Hey we got $X leftover in the business accounts after expenses, so let’s go spend $X on that fancy new marketing strategy, or better yet, Mercedes car allowances for everyone to boost morale. ?After all if we saved it up, it’s in there to use baby!”??Nobody does that.?Departments and initiatives have budgets to stick to in order to protect the viability of the company.?Yet many of us continue to apply business rules when we’re at work, but piggy bank rules when we’re at home.?We’ve replaced the piggy bank with a brick and mortar bank, but we can treat it the same.?We save it.?We count it.?We spend it.?Repeat.?Some people have gotten caught doing that in reverse order, which is even more dangerous.?Spend it. Count it.?Save to pay it back.?Repeat.

Why not break that cycle?

Our Home, Inc.

What if I told you that you all own a business??Regardless of where your paycheck comes from, whether you are self-employed or a W2, you own a business.?That business is your home and I’ll prove it to you.

"Businesses have assets and liabilities. Don't you?"

We know a sustainable business in its simplest form consistently has more money coming in than going out.??Isn’t it the same for your home??You have income coming into the home, but the expenses didn’t stop when you got laid off did they??Enter income statement or profit & loss statement.

Businesses have assets and liabilities.?Don’t you??Your home, your investments, cash, jewelry and even you yourself and your ability to go out and get a paycheck are considered assets.?Your debts are your liabilities.?Enter balance sheet or net worth statement.?

When you experience changes in your income, or you pay down debts, or acquire a new asset, you’ll experience changes to your cash flow.?You’ll be able to see the net effect of how much cash you have, where it came from, and what it could cover if all of a sudden you had to pay all debts.?Enter cash flow statement.

You have (or should have) departments all with their own budget…groceries, utilities, mortgages, savings, vacations, etc.

If you’re married, you might even have different roles…i.e. ”I go to work and make the money, but my spouse takes care of all the finances.”

Now you might say, “well these are just financial statements, but they don’t prove that my home is a business.?I don’t produce anything like a business does.”?You do produce something.?You.?You are the product or service.?The company you work for hired you.?They trade their dollars for your time and skill set.?You’re selling you.?If you’re self-employed, this is even more obvious.

So what do we do with this?

Next time you order a pizza for the family, I want you to sit down and update your cash flow statement, net worth statement, balance sheet, and budget to account for that pizza.?Make sure the grocery department approves the expenditure as well.?Joking. That would be miserable.?

For now, all I want you to do is consider that perhaps this whole time you’ve been trying to keep up a household and manage the finances, that you really are CEO of Our Home Inc.?The home needs to stay profitable for it’s long-term viability.?Some of you will get this right away and you will have a mindset shift that will lead you down a path of running a more efficient home.?Others will need more prodding along until it clicks.?

Ultimately the goal is that you think of your home like a business.?It has departments, and budgets and there are financial statements that can be used to measure the health of the business.?Knowing this, and using some tools, this can help you make better decisions that will have more positive long-term impact on your personal finances.?This is something I can work with to help clients grasp and utilize, but if all you did was take one baby step, it would be this:

Ditch the piggy bank methodology.?What’s in the savings account isn’t up for grabs.?

I can smell the bacon already! ??

Investment advisory services offered through CWM, LLC, an SEC Registered Investment Advisor.

The views stated in this blog are not necessarily the opinion of CWM, LLC.

This piece is not intended to provide specific legal, tax, or other professional advice. For a comprehensive review of your personal situation, always consult with a tax or legal advisor.