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Run personal finances like a business

By Muriithi Ndegwa, OGW, HSC, FKIM

Strategic plans, business plans, business models and annual budgets are some of the tools businesses use to manage their finances and any anticipated revenues.

When questions are posed to corporate thought leaders such as CEOs or Chairpersons, irrespective of the context, the responses are often laden with organisational leadership correlations. After all, it’s the one spectrum of life that they are mostly well versed in – leading and managing organisations. As a result, when asked on what would be some of the best practices in personal finance management, my response would be, “treat your personal finance like a business” where growth and sustainability is key.

Have a plan around finances

Strategic plans, business plans, business models and annual budgets are some of the tools businesses use to manage their finances and any anticipated revenues. At an individual level, come up with a household budget that considers recurring and anticipated developmental expenses. Organisations stay in business for longer than people who founded them because they have systems anchored on plans and so should an individual who intends to have his fortunes sustain and outlive him.

In planning, think long term. Businesses survive years and seasons because of foresight. For an individual, the realisation that a source of income is not always guaranteed should happen the first time they begin raking in revenue. Planning long term could include; saving more than you spend, investing in long-term low risk areas like stocks and bonds, and in real estate assets. At a personal level, periodic budgets and household financial planners are some of the tools available for utilisation. In this digital era, most smartphones come with apps or have options of downloading personal financial planners that can be personalised. These include Mint, Yoodle, Expensify and Spendee among others.

Insurance; because risks are inevitable

In business, organisations recognise that risks are part of life and appreciate that some risks can be severe enough to bring the business down. At a personal level, this fact is immutable. Evaluate risks associated with your financial subsistence, categorise them into severity and frequency and proceed to insure those that could be most severe and frequent. Luckily, there exists insurance products for almost anything you can think about including loss of income, property, loss of life and incapacitation. 

The beauty of insurance is that, the premiums are often a fraction of the value of the item or situation being insured. To make sense out of the myriad of options, available, an individual like a business can engage a personal financial advisor, most of whom charge a small percentage of the value of finances they are advising you on.

Cashflow is king

Akin to a business, personal finances need a healthy cash flow to among other things, service debts on time, build wealth and save for a rainy day. Businesses achieve this by spending less and this should not be different at personal level. While this is easier said than done, it is sacrifice that yields sustainability for businesses and ensures healthy relationships between an organisation and her stakeholders including employees, suppliers and customers.

People who have run successful organisations will tell you that discipline and sacrifice in times of abundance eventually translates to survival and sustainability in lean times.

Muriithi Ndegwa, OGW, HSC, FKIM is the Executive Director and CEO – Kenya Institute of Management Email: mndegwa@kim.ac.ke

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