Personal finances are one of those things that you’re not taught enough about before you enter the real world. Whether you’re just stepping out of the nest or you’ve been on your own for a decade or more, sound financial advice is hard to come by, and the best practices aren’t always intuitive. This necessitates the adoption of radically different habits than what you currently have, and the best way to facilitate the shift is to think of your personal expenditures as if you are running a business.
Once you know how an accountant or business owner would systematize your finances, you will never have to worry about keeping track of your finances as long as you stick with the regimen.
Look at the Big Picture
Successful business owners are often their own accountants, and they plan a long-term strategy before they’ve ever set up shop. They look at the formulas and strategies that other successful people have set out and they test what’s applicable to them to see what works and what doesn’t. If something is useful but sub-optimal, they modify the technique to better suit their goals.
Examine your goals so that you know what you’re trying to accomplish. This will make it easier to arrange your finances in a way that suits your long-term interests. Next, prioritize; know where your money is going in order of importance. Non-essential purchases should be placed at the bottom whereas your bills and your retirement fund should be at the top. Since this can be a lot of work, it’s a good idea to set up an automatic payment plan with your bank or credit union.
Learn the Tax Code
Lots of people are missing out on tons of tax breaks, and they don’t even know it. In fact, if you ever do any work at home, you may even qualify for some of the same tax breaks that businesses get. Just as an example, if you have a block of space within your home that’s set aside exclusively for work, you can reduce your amount of taxable income by a certain percentage. If you devote a closet entirely to business supplies, you can also write that off. There are lots of little things that add up quickly, especially compounded over the course of many years.
Whatever you do, keep meticulous records of your expenses all year round. If you don’t start saving receipts until a month before your taxes are due, you are going to miss out on some huge breaks that you would otherwise be qualified for. You will want to consult with a professional first, and then make a list of the most lucrative tax write-offs so you always have a reference on hand.
Also keep in mind that you may be able to save money if you file your taxes quarterly as opposed to annually. You don’t have much to gain if you have an employer that withholds a certain amount of your paycheck for income tax, but if you are self-employed or you do a lot of contract work, then you will end up paying much less over the long haul. This is exactly the kind of thing that allows businesses to go from making ends meet to making incredible profits, so while you won’t earn more for your efforts, you will be able to do a lot more with what you have.
Treat Yourself Like Your Own Employee
If you were to hire a professional to handle your finances, what would you expect from them, and what would the optimal result be? Don’t accept anything less than that. You are the biggest asset you have, and you have to take yourself seriously before you can exercise any authority over your own finances. The best business owners are incredibly disciplined; they understand the risk and reward ratio of everything that they do.
When you can objectively examine the short term and long term consequences of every action that you take, you will be able to tame the financial beast and practically put your personal finances on auto-pilot.
Andrew Griffin is a freelance blogger who writes financial advice on behalf of Accountant.org. This is a great site where you can find everything from accountants in your city to the latest financial news.