Running Your Household Finances Like a Business

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Have you ever known someone who was great at running a business, but lousy at running their personal finances?  Unfortunately, that’s been me for the majority of my adult life.

When it comes to spending company money, I’m frugal, thoughtful and borderline tightwad.  When it comes to spending my own money I’m very much the opposite – frivolous, impulsive and borderline spendthrift.

It was only when I adopted the same strategies that have made me successful in business to my personal finances that things began to turn around.

Here are a few ways we now try to run our household finances like a business.

Record Every Expense and Assign It a Category

Businesses go to great lengths, and expense, to adopt a financial system which allows them to track every outgoing expenditure, assign it a category and report those expenditures by category each month, quarter and year.

In our personal household we have found the most success when are disciplined about recording every single outgo from our monthly budget – from our mortgage payment all the way down to an afternoon candy bar from the vending machine.

There are many ways to accomplish this, from using automated tools such as or other budget programs and elaborate Excel spreadsheets, to the simplest form – a pencil and legal pad.

While our method is the most labor intensive, we have found it provides us the best results.  We record all daily expenditures in a household ledger book.

The book features columns for:  Date, Item, Debit, Credit and Balance.  

We also assign each expense a category, such as:

  • House (mortgage, repairs, investments/upgrades)
  • Vehicles (gas, insurance, maintenance)
  • Food (groceries, fast food, school lunches)
  • Investments (retirement, college funds, sinking funds)
  • Medical (dentist, doctor, health insurance)

You can make the categories as broad or as specific as you like – whatever works best for you.  We keep our household ledger book and a small calculator in a central location in our home and update it each night before retiring.

Monitor Your Cash Flow

Like any business, our goal is to stay cash flow positive.  That is, we aim to earn more than we spend on a monthly basis.  Failure to accomplish this goal results in the accumulation of debt, or the draining of cash reserves.

This approach has helped me from becoming too overzealous about things like debt reduction or investments.  In the past, when I obsessed over carrying any sort of debt, I would often make large payments to service those debts to pay them off faster.

That’s a noble goal, however if too much is spent on paying down debt you may find yourself short on cash for regular monthly expenses, and you have to borrow more money to cover the difference.  It’s a vicious cycle.

Establish a debt repayment and investment schedule that works well for you given your monthly income.  Avoid going cash flow negative in an attempt to speed up the process.

Diversify Income Streams

Any good business recognizes they cannot hang their hat on a single product, or line of products.  The key to surviving ups and downs is to have multiple income streams from a variety of sources.

The same goes for your personal finances.

Consider the following hypothetical situations:

Example Household #1 Sources of Monthly Income

  • Salary from full-time job
  • Interest on savings in money market account

Example Household #2 Sources of Monthly Income

Naturally, Household #2 is far more likely to survive a reduction in any one source of income by relying on income from others.  Household #1 is likely living paycheck to paycheck.

Reduce Operating Expenses

Any good business is always looking for ways to reduce their overhead expenses.  While some expenses are fixed and may be considered a cost of doing business, others are variable and may be influenced heavily by streamlining, sacrificing and downsizing.  The same is true of personal expenses.

Consider your current monthly budget.  What are your top five expenses?  Which of those expenses could you dramatically reduce and how?

  • Mortgage.  Downsize into a smaller home.
  • Car payment.  Sell expensive vehicle and pay cash for used one.
  • Utilities.  Adjust the thermostat.  Cut the cable.  Drop land line phone service.
  • Food.  Stop eating out. Clip coupons.  Buy staples in bulk.
  • Insurance.  Shop car insurance.  Qualify for better health/life insurance rates by improving health.

Grow Slow and Steady

In business, and in our personal lives, explosive growth is so highly rewarded we often try to give the appearance of such growth prematurely.  We invest in bigger homes, and fancier cars and expensive wardrobes in an attempt to appear successful.  Those things are fine if you can afford them, but chances are you cannot, especially early on.

When just starting out, or recovering from past financial sins, it’s best to grow slow.

Buy a modest home, or rent the first few years.

Make do with your existing car even if you could technically qualify to lease a newer one.

Save cash for expensive items like furniture, or vacations.

Reinvest in your home buy upgrading to energy efficient appliances, upgrading your insulation, planting trees, and other things that will drive down your monthly expenses going forward.

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