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Why you need to be the CFO of your personal life

Take a look inside any successful, growing company and you’ll see that the business owner or CEO has spent countless hours on thoughtful, detailed planning to get there.

Take a look inside any successful, growing company and you’ll see that the business owner or CEO has spent countless hours on thoughtful, detailed planning to get there. As part of the overall business plan, they’ve also put people and systems in place to sufficiently manage the company’s financial health. Without knowing the assets, fixed and operating costs, expenses and day-to-day cash flow, the operation of a business would eventually derail.

The same can be said for our personal finances. You wouldn’t expect your company to succeed without attention and planning, so why should you expect your personal finances to thrive without the same care?

While being proactive in business, many people are reactive when it comes to personal finance. Imagine what’s possible if you apply the same fiscal principles that make your company a profit engine, to your personal life. Now you become your own personal CFO.

Build a plan

As you go through life, you’re likely to encounter major milestones such as getting married, buying a home, having children and retiring. Just as you do in business, you’ll likely hit a few bumps along the way. A well-thought-out financial plan can help you prepare for most of these, as well as realize other goals, such as sending your children to university, purchasing a vacation home or going on a world cruise.

However, it won’t magically fall into place. You do need to set some goals and map out a strategy that includes the right balance. If this feels daunting, don’t worry. A financial advisor can help you select the mix of banking services, loans, investments and insurance that’s right for you.

Monitor your cash flow and examine your financial statements closely

In a business, every penny is accounted for. Depending on your financial situation and goals, you may need to track expenses no matter how small. This way you’ll get a clear picture of your actual spending habits and can adjust accordingly.

Check your monthly statements line by line to spot red flags. If you’re already banking online, it’s easy to do via e-statements. You can view all your transactions in real time anywhere, any time, giving you greater speed and control over your finances.


Don’t be afraid of the B-word

Nearly everyone has set up a budget at some point but, despite the best of intentions, either deviated from it or gave up on it altogether. This is because it feels too restrictive – like cutting back. Businesses don’t succeed by cutting back – they succeed by expansion and investing in the company’s growth. You can do the same by allocating expenses according to what will truly serve your overall lifestyle goals. Budgets let you take the information you gather from expense tracking and use it to plan for the future.


Practice conscious spending

Conscious spending means actively choosing where your money goes – just as you would with your business. Spend extravagantly on the things you love, but cut costs ruthlessly on the things that don’t matter. This happens automatically in a business, where every dollar has a paper trail. People are less likely to spend mindlessly when they know there’s accountability built in.

Think of savings as profit

Everyone knows that if a company spends more than it makes, it can’t turn a profit and will soon be out of business. The same goes for a household. Of course it’s not easy to save money, but as with many good habits, once you start and stay with it, you’ll be surprised how fast – and easily – it will grow.

A few quick tips:

• Set a major milestone, like having $100,000 in your RRSP by the time you reach a certain age, and then calculate how much you need to save each month to reach that goal.

• Automate your plan by setting up a pre-authorized contribution, an automatic transfer to each account every payday (or another schedule that works better for you). That way, you don’t see the cash and won’t miss it.

Exit strategy: What’s your retirement plan?

Companies and business owners must plan for the future with a succession plan for when they can’t or no longer want to be part of the day-to-day operations of the business. Today most Canadians expect to live much longer than ever before. But it’s not at what age you’ll retire; it’s at what income.

Start your RRSP as early as you can and contribute monthly. It’s worth getting your maximum tax break by contributing your limit. If you don’t have any available cash, consider an RRSP loan; the interest cost will likely be more than outweighed by the compound growth over time. And you can use your tax refund to help pay off the loan. You can also carry forward any unused contribution room.

A tax-free savings account can also be an excellent complement to your RRSP, especially at the early stages of retirement savings and when you’ve reached your contribution limit. A financial advisor can be invaluable in helping you work out a retirement and overall financial plan that reflects your personal goals and circumstance.

Achieving financial wellness in both your business and personal life involves a lifelong pursuit of learning. For more advice articles on small business and personal financial planning visit BlueShore Financial.