As I discussed in the welcoming post, this blog is meant to
give simple solutions and to help people become more rational regarding their
economic decisions. I don’t want to go deep into economic terminology or
theories. Thus, as you will soon find out this first post-tip has nothing to do
with economic aspects. It is only about recording and updating your economic
situation. Strange may seem but this is the simplest thing to do and it will
add the most value to your effort to manage your finance.
As a consultant and financial analyst I have visited many
companies and organizations. In my short experience I found out that those who
keep a good track of their qualitative (operations, performance) and
quantitative (incomes, expenses) measures usually are the best performing.
Discussing this aspect with my senior managers and employers I found out that
they think the same. I don’t believe that this fact is a coincidence. High
performing big organizations have to keep track of their records, it is not a
choice; it is a fact of vital importance for their sustainability.
Keeping track of what you are doing have many benefits. By this
simple way companies can value themselves and find easily which are the domains
that they perform best and where they should improve. They get the chance to know
their strong and weak points, and if you have to make a managerial decision,
first of all you have to know where do you stand and where do you want to go.
It may seem a simple advice but I can assure you that there are many institutes
that do not record their performance in a structured way. They lose time and
money searching from inside information that should be available in an instant.
They use old-fashioned systems to keep their data when their competitors invest
and evolve in this domain. A friend of mine working in the banking domain told
me once that what diversifies the banks today is their recording and tracking
information systems, thus their ability to track and get the market or inside
information needed as fast as possible.
Concerning the households, ask yourself whether you or any of
your friends keep track of your household expenses. I consider most of you know
where your incomes come from (unfortunately only from your job) but I assume
you cannot answer what happened to your last month salary. What was the
percentage of this salary was deposited to the bank and where did you spend the
rest of it?
Try to make your household a top performing company, start by
doing this: KEEP TRACK
Why you should do it?
When we perform a strategic management program or a
turnaround strategy plan what we always ask first is what is going on in the
institute. You see yourself or your household struggling to make it through?
Ask yourself why? Is your income very low or are your expenses high? What are
the sources of your expenses? Which part of them is fixed (rent, insurance,
loan) and which variable? Which of the variable parts are of vital importance
and which is of less importance? Do you have big loan payments? Would it be
possible to re-negotiate your loan or mortgage? Do you have credit card debt?
Can you repay it? Ask your accountant where your taxes come from. In general,
before you act find the source of the problem. This is the most important first
step. Structure your finance map. Get insight on your organization performance.
I have seen individuals that their economic situation was so complex that they
were unwilling to start thinking of it. You have to do it because none else
will do it for you. Manage your credit cards and record your spending. Start
with small steps and you will see how the whole situation becomes more
understandable.
In later posts I will give in detail information on how you
can start recording your incomes and expenses in a proper way. Just think for
yourself what you possess and what you owe (balance sheet) and later what is your
monthly income and expenses look like. For me the most difficult part is to
keep track of the expenses but maybe using your credit or debit card might help
since all the transactions will be recorded for you at once.
This first step might look hard in the beginning but as you
get used to do it, it will get easier. Remember, you don’t have to be super-efficient
especially in the beginning. Make assumptions, you know more or less how much you spend
for the super market every week. Multiply it by 4 and you have your monthly
expenses for supermarket. Is it naive? It is better than nothing and believe it
or not, most of the companies use these naive straightforward measures when
they need to make assumptions for their budgeting and forecasting reports
This in my opinion is the first step to move towards your
financial sustainability. As I mentioned before you have to know where you
stand to proceed with any possible change. In the next posts I plan to give
some more detailed information on how you can build up a small balance sheet
and income report for yourself in order to visualize your economic situation.
