Why you need to be the CFO of your life

Minding your own financial business

You wouldn’t expect a business to succeed without careful attention and sound fiscal planning, so why should you expect your personal finances to thrive without the same care?

Take a look inside any successful, growing company and you’ll see that the business owner or CEO has put a lot of thought into managing the business’ growth and finances. They’ve likely worked with a Chief Financial Officer (CFO) or a team of business consultants, spending countless hours hashing out numerous and detailed plans for the company’s future.

As part of those plans, they’ve put people and systems in place to manage the company’s financial health. Without knowing the assets, fixed and operating costs, expenses, and day-to-day cash flow, the business would quickly derail.

The same can be said for your personal finances. You need a plan to get you to your goals.

While being proactive at work or in business, too many of us are reactive when it comes to our personal finances. Imagine what’s possible if you take the same fiscal principles that make a successful company a profit engine and apply them to your personal life. Now you become your own personal CFO.

Build a plan

As you go through life, you're going to set – and reach – many different milestones. You may graduate from school and start a career. You might marry and have children. You may become a home owner, then move to investing in other forms of real estate. You could start a business and see it flourish. Or you could retire and enjoy the fruits of your labours. And just as you’ll achieve many milestones, you’ll also be bound to hit a few bumps along the way.

A well thought-out financial plan can help you prepare for most of these, as well as realize other goals, such as a post-secondary education for your children, to purchasing a vacation home, or travelling the world.

However, it won’t magically fall into place. You do need to set some goals and map out a strategy that includes the right balance. If this feels daunting, don’t worry. A financial advisor can help you select a mix of banking services, loans, investments, and insurance that’s right for you.

Monitor your cash flow and examine your financial statements closely

In a business, every nickel is accounted for. Depending on your financial situation and goals, you may need to track expenses, no matter how small. This way you’ll get a clear picture of your actual spending habits and can adjust accordingly.

Check your monthly account statements closely to spot red flags. If you're already banking online, it's easy to do. You can view all your transactions in real time anywhere, anytime giving you greater speed and control over your finances.

Don’t be afraid to budget

Nearly everyone has set up a budget at some point, but despite the best of intentions, either they’ve deviated from it or given up altogether. This is because it feels too restrictive – like cutting back.

Businesses don’t succeed by cutting back – they succeed by expansion and investing in growth. You can do the same by allocating expenses according to what will truly serve your overall lifestyle goals. Budgets let you take the information you gather from expense tracking and use it to plan for the future.

Practice conscious spending

Conscious spending means actively choosing where your money goes – just as you would with a business. Spend extravagantly on the things you love, but cut costs ruthlessly on the things that don't matter.

This is regular practice in a business, where every dollar has an audit trail. People are less likely to spend mindlessly when they know there’s accountability built in.

Think of savings as profit

The math here is quite simple. If a business spends more than it makes, it can't turn a profit and will soon be out of business. The same applies to your household. Of course it's not easy to save money, but like many good habits, once you start and stay with it, you'll be surprised how fast – and easily – it will grow.

A couple quick tips:

• Set a major milestone, like having $100,000 in your RRSP by the time you reach a certain age and then calculate how much you need to save each month to reach that goal.
• Automate your plan by setting up a pre-authorized contribution, an automatic transfer to each account every pay day (or another schedule that works better for you). That way, you don't see the cash and won't miss it.

The exit strategy – what’s your retirement plan?

Companies and business owners often take the long view with a sharp eye on the future. That begins by creating a succession plan for passing the torch to the next generation of leaders and owners. Most Canadians today can expect to be living much longer than ever before. But the question is not at what age you'll retire, it's at what income.

Start your RRSP as early as you can and contribute monthly. It's worth getting your maximum tax break by contributing your limit. If you don't have any available cash, consider an RRSP loan; the interest cost will likely be more than outweighed by the compound growth over time.

A smart tip is to use your tax refund to help pay off the loan. You can also carry forward any unused contribution room.

A TFSA can also be an excellent complement to your RRSP, especially at the early stages of retirement savings and when you’ve reached your contribution limit. A financial advisor can help you work out a retirement plan – as well as offering overall financial advice – that reflects your personal goals and circumstance.

Achieving financial wellness in both business and your personal life involves a life-long pursuit of learning. Explore more of BlueShore Financial’s advice articles for ideas and insights on small business and personal financial planning.