Run Your Personal Finances Like a Company
How company earnings reports and accounting practices can help you better manage your cash.
It’s earnings season on Wall Street. Company share prices wax and wane as the expected and the unexpected collide, traders blessing or cursing analysts as trades the size of your mortgage flutter through the exchanges at lightning speed. It’s an undoubtedly tumultuous time. But there’s a lot you can learn about the dynamics of earnings season, and company accounting in general.
One individual who’s taken this to the extreme, is Mike Merrill. In 2008, Mike decided to turn his life in a full stock market simulation, issuing 100,000 shares at $1 each in the equivalent of an IPO. Each of these shares held voting rights, and shareholders get together to vote on decisions in Mike’s life, such as the recent “Weight Loss Buyback Program” or “No More Tights”, which prevents Mike from going to watch any more superhero movies. Mike is definitely taking things to the extreme, but imagining how your life would behave on the stock market isn’t a bad idea when making personal finance decisions.
For example, taking it to back to the very basics, investors like to see profit. If your personal budget is running a deficit, especially one that you can’t justify as short term in your hypothetical earnings report, then your personal share price is going to go down. Health in the company is synonymous with health in yourself, this has been reflected a lot of times in Mike’s experiment, but if you’re letting yourself eat junk food and do no exercise, you’re increasing the risk of future health related expenses.
Consider cost cutting measures, when a business is encountering a deficit, it always examines how it can cut costs, and you should be the same. Would it be cheaper for you to take the bus rather than drive? Grow some of your own fruit and veg to offset your food costs? Quit a habit like smoking or fast food to minimise non-essential spending? These are all comparable to cost cutting measures in businesses like closing unprofitable stores, bringing manufacturing within the company, optimising your logistics network.
The comparisons go into the technical side too. While you’re eating your breakfast or taking a shower, imagine presenting the hypothetical earnings report of your personal company to an imaginary conference of shareholders. How would they feel about your finances? What assurances would they want to stay confident in their investment?
We don’t all have to go as far as Mike Merrill and give ourselves a real group of shareholders, but learning to be an investor in your own brand is a great lens through which to make life improvements and manage your personal finances.
