Treat Your Personal Finances Like a Business
First allow me to say that what I am about to say type is going to be a little shocking. (No, this isn’t about the uptick in the market: I am not impressed, the Dow is only 30 companies. Check the LIBOR rates…as this stays above 2% or so, banks are still shaky.)
What I am referring to is a conversation I had with a very close friend of mine while we waited for his car’s tire to get patched. I was telling him some of the ins-and-outs of the market, what it meant for us, who will win the election and who we are going to go to war with after pull out from the Middle East. My money is on South America but you’ll have to email for that conversation…
I started by telling him that, for us, since we are not at risk with FDIC in place and that we are young, it is a great time to save and invest in index funds and ETFs. Those aren’t going to go anywhere and we would be ahead of the game. I also advised that he should keep an eye on gas prices as those should average below $3 before the end of the year. (The reason behind this, in my humble opinion, is that the oil companies want to keep their head low while the markets are ablaze and make sure that we have enough money to buy their car juice.) I thought this was pretty sound advice but he had another argument.
Rather, his boss had another argument, …His theory (not my buddy, his boss) was that you should spend as much as you can while you are young and start to save when you are older. Obviously, my eyebrows raised quite a bit, because he followed that with, “because when you are young and burning through your money, you will be more motivated to work harder and get a better job and/or promoted.”
I think the key thing there is the motivation part. I fully agree that you should spend a significant amount of your day, especially while you are young, trying to get ahead and move up in the world to realize your full potential. The fundamentals, for me anyway, is that this is not the optimal way to save/make money by burning through cash so that I feel more pressure to make more down the road. In fact it kind of goes against everything this site is about to its core. (MilkYourMoney.com wants to get you to make the most with what you have as well as find new ways to get more of it.) I don’t want to struggle in the event that I have to switch jobs either, knock on wood.
It got me thinking though, I realized that your personal finance is really kind of like a business. You are that business. If you had a standard business, wouldn’t you try to save the most money you could while at the same time try to make as much as well? Doesn’t every business model you can think of try to do this? If not, then why are there lay-offs? Why are there sales? Where would marketing be? Would you have to negotiate your car or home purchase? Sure you have to get through some initial capital expenditures, but thats kept to a minimum as well. There tons of people that have the only job of cutting costs at any level. The more money they save, the more money that company makes. It was Lincoln that said:
“A penny saved, is a penny earned.”
The reason why this model is the realistic case is because of competition. Granted, you aren’t competing with anyone else in the long run (by the way there is no prize if you get to the end of your life and have the most money, just very happy heirs), but you should be always be striving for improvement.
I think you should be able to have it both ways…save and invest as much as you feel comfortable with, but still try to kick ass at work or look for a job that you feel you deserve. You can still enjoy life to the fullest while optimizing your potential.
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Comments
I really enjoyed this post! Its refreshing to hear another young person talk about investing in themself, and I like your idea to look at your self as a buisness. To many people are worried about the now and not the future (I will admit I am a reformed nowist!). Its easier to learn from someone elses mistakes so I hope many people read this post and start saving now! If they are in debt they should go to http://current.pic.tv/ and check out the posts about getting out of debt! Very helpful information on both site! I look forward to reading moe from you in the future! Thanks for the great info!
I agree completely. Review your billa as if they are personal financial statements……(actually, they are!)
Great blog
F
What a weak argument from that boss!! Want motivation because you have little money? Put it in retirement accounts and at least you’ll have something saved for the future. We have to get out of the spend-first mindset!!