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Run your finances like a business

By Kemberley Washington ·
Thursday, January 24, 2013
Posted: 7 am ET

Few of us think of our personal finances as a small enterprise. But just like any business or government agency, we must watch our bottom dollar.

How do you run your personal financial house? Do you raise the debt ceiling to meet needs? Or do you operate on a budget and save for rainy days?

Whatever method you use to operate your personal finances, you must run things like a small business.

Get organized

Do you know who you owe? Or better yet, who owes you? If your bills or financial documents are scattered throughout your house, it is a recipe for disaster. Get organized.

There are many benefits to organizing your financial documents. You will be better prepared to support claims if the Internal Revenue Service comes knocking. You also will be able to gather documents quickly if you have to evacuate suddenly due to a natural disaster such as a hurricane or earthquake.

Know your departments

Just as a business may have separate departments, your personal financial house may have various departments. First, identify the different income sources you receive and separate each area into a department. These income sources may include a part-time business or hobby, rental investments, consulting income or other sources.

Operate each department separately. Create a budget for each area to have a better understanding of the income and expenses associated with each. Next, create a filing system to easily track essential financial documents. Finally, use separate bank accounts to easily identify financial transactions associated with each.

Try your best to have each department take care of itself. For example, money earned from rental income should be used to pay rental expenses. Also, try to operate your personal financial house so that one department does not have to rely on another. This way, if a renter does not pay on time, you are not dependent on the income to make ends meet.

If you do well by your finances, they will do well by you.

Remember: your choice, your future!

Kemberley Washington is a certified public accountant and business professor who writes a personal finance blog at Follow her on Twitter and on Facebook.

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January 26, 2013 at 11:31 am

It's a great idea to treat your personal finances like a business. However, this would require one to understand how a business handles its finances. Thinking about this, I must point out that business do not save money, per se. Sure they restrict cash for certain purposes but the primary responsibility of a business to hoard a bunch of cash and do nothing with it. Never the less, there are some things we can learn from businesses.

One thing is businesses use credit, but they use it in a way different than most people. Many people use credit to finance things that don't give a return, ie a new living room set. While businesses use credit to finance things that give it a return, ie to fund a new factory. Business also use credit to keep positive cash flow. Also, business try to manage cash flow, by negotiating longer payment terms to their suppliers and shorter terms for receipt.