People in finance, accounting and business understand the concept of profit and loss and can probably recite exactly what it means from their sleep. The concept of profit and loss is widely used to determine the performance of a business at a specific point in time.
It is used to measure the standing of the business based on its operations, and the people that directly monitor it can easily determine the financial future of the business based on it.
However, how often do the very people that understand profit and loss of a business and make decisions based on it apply this very concept to their personal lives? How often do we ourselves evaluate our financial performance and make decisions based on it?
When it comes to our personal finances, we tend to allow the direction of circumstances to determine the outcome of our financial standing, instead of leaning towards a similar approach to that of businesses.
Imagine a world where people manage their day-to-day financial lives as though they were managing a business, preparing personal financial statements, evaluating personal financial performance, and making decisions based on these.
While it may be considered a bit of a stretch to manage your personal finances as a business, it would not hurt to have a look at where you stand from a financial perspective and make an informed decision on how to either improve it or maintain it.
The application of business principles to your financial life opens your finances up to new revenue streams, new ways to analyse the reduction of the costs associated with making the revenues and new ways to improve cash flows. The same way people in finance, accounting and business can step back and analyse the business using its financial statements, you will be able to do the same with your finances.
Apart from financial performance, businesses are also able to use their financial statements to identify risk areas and come up with ways to mitigate these risks. The same can be applied to your personal finances and continuously give you an upper hand when it comes to risks that may affect your finances.
Picking up a book on managing the finances of a business and applying some of its principles to yourself will be beneficial, however keep in mind that even businesses fail.
Consultations are sometimes required to resuscitate failing businesses, and these may also be required to assist in a dire personal financial problem, therefore do not take financial literacy for granted. Get as much help running your personal financial business as you can take.
*Justine Domingues is an aspiring CA (NAM) with a drive to make financial education widely available. She is the founder of Financial Zula, a YouTube channel that focuses on making financial education available. For more information, please check out Financial Zula on Youtube.
