Personal Finance Budget
Essential for family members
So, why do we assert that a personal finance budget is essential... on a family business web site? Good question! And there is a good reason!
Actually, three great reasons...
Family business also used as the bank for family members
When we are called in to evaluate the financial conditions and problems of family businesses we have to look beyond the usual business problems... margins, markup, receivables turnover, inventory turnover, asset acquisition...
In many cases we find that the family business is also used as the bank for family members.
Quite simply, family members who can not or do not live within their means turn to the family business to cover their spending.
We cannot solve family business finance problems simply by setting up good business budgeting and spending controls... we have to go right to the root source of the problem and use the personal finance budget to eliminate the need for family members to drain the business.
Great tool to help family members and employees manage their finances
Even where the family members don't drain the family business, a personal finance budget is a great tool to help family members and employees manage their finances.
[After all, when an employee - family member or not - is having financial difficulties, that person is distracted and less productive and efficient at work in the family business. Mistakes are made, quality suffers, customers receive curt responses, the workplace atmosphere suffers... so, while you might not intervene directly into employee's finances, it doesn't hurt to be supportive...]
Using a personal finance budget to help manage debt - [reduce and eventually eliminate debt; stop incurring more debt] is essential. But the broader goal is financial independence, or financial wellness...
Financial wellness starts with a personal finance budget
The personal finance budget is at the core of a concept of financial wellness, which we first saw described by Chartered Financial Planner Kelly Reese.
In fact, Kelly's approach is "the book I wish I had written" - it is so basically powerful in bringing together a complete and focused picture. Too often, we admit that we have become bogged down in the problems of debt management and never broken through to the full picture of wellness. So, what is financial wellness?
In a nutshell, it is the concept of gaining the highest possible quality of life in the shortest possible time.
Kelly presents his ideas in the context of retiring quickly - and for many of us that might indeed be the "ultimate goal" whereas for others it might just be having a working personal finance budget - but we felt the concept of wellness was even more powerful since it connotes being able to do whatever you want to do... retire, stay on, start new businesses... whatever. But, what we think is really important are the three simple but powerful concepts he sets out as the basis for financial wellness. Let's look briefly at all three...
- Temporary lifestyle modification. If your lifestyle pattern has been producing a debt load or otherwise not promoting financial wellness, it needs to be changed. Particularly in debt management, giving up some things in order to reduce and eventually eliminate debt is essential. Family decisions will be involved here and Kelly has some great ideas for getting the whole family involved with the personal finance budget and needed changes.
- Residual business income. Here, the idea is to build an income stream that will help to manage the debt load. There are a myriad of ways to do this and Kelly offers a couple of excellent possibilities. Residual means that you build something that continues to pay in the future as a result of your present efforts - in other words, it is not one-time sales activity.
- Debt elimination. Here, the concept is to eliminate all but the necessary debt to support establishing the residual income business. The personal finance budget is a core tool here. And Kelly shows in great detail just how powerful the idea of compounding can be... instead of having consumer debt compound against you, you turn things around and create a "debt reduction avalanche" as you reduce debt at an increasing rate. It's not magic, but it is powerful...
We recommend Kelly's eCourse, including personal finance budget, for anyone who is interested in financial wellness, whether you are