Run Your Life Like a Business – 5 Ways to Do It

Run life like a businessTake a second to think about the average American consumer. For the most part, people float through life making money, spending money, racking up credit card debt, waiting for that proverbial raise that never ends up being as good as hoped, only to simply spend more money once that raise is achieved. Think of what our economy and stock market would look like if major corporations were run this way? What if the budding 1950s McDonald’s had spent every dollar of burger and fry revenue on needless uniform updates, accessories, corporate cars, or fancy vacations for executives. The McDonald’s we know wouldn’t exist today.

Instead, it painstakingly allocated profits towards value creating activities – offering simple, affordable, and tasty meals, perfecting assembly line style kitchens, and pioneering the franchise business model. Year after year, profits were reinvested to generate greater profits, so the value of the enterprise grew immensely.  It grew from zero to a near $100 billion market capitalization company with $25 billion in revenue. That’s a lot of hamburgers.

Successful businesses understand what it takes to drive dollars to the bottom line. They allocate resources towards ventures that generate a positive return on the dollars spent.  They build or buy complementary businesses in order to develop additional sources of revenue. They cut needless expenses.  They hire a winning team of motivated achievers.  Most importantly, however, they never lose sight of their primary goal – to build value for their owners and stakeholders.

Regardless of the personal wealth we hold, we have the capability to act as owners of our own business each day on our journey to financial freedom.  Our life is our business, so we should run it like one.  Let’s discuss the details.

1.) Maximize your revenue

Do you have a day job? Good!  Maybe you run a small businss. Great! In either case, consider this your primary source of “life revenue.”  American businesses try to grow revenue at a rate that exceeds nominal Gross Domestic Product (GDP), and hopefully your income is increasing at a similar rate. 4-5% per year would be great, as this kind of growth will outpace inflation, meaning your real income is increasing.  Do you own stocks, mutual funds, or ETFs? Consider any dividends earned as alternative sources of revenue to your personal business of life. Perhaps you own an income-generating real estate investment. Yep, count rent income received as more revenue.  Personally, my wife and I generate additional revenue through both of these avenues…easy money!

Everyone who has a blog these days, loves to talk about “side hustles.” I don’t actually have anything like that yet (I’m blogging for the love of it, folks!), but perhaps you do. For example, a teacher friend of mine has a side tutoring business. He’s built it from word of mouth, and now has quite a loyal following. He also does umpire work in the summer for local baseball leagues.  Calling him a hard worker doesn’t even begin to explain it.

Getting married?  Does he or she have a job too? Well don’t tell your husband or wife-to-be I said this, but think of this union as a corporate merger…ha!   We now have two parties with productive and complementary sources of revenue joining forces and sharing resources.  Since you’re moving in together, housing, food, and utility costs will be undoubtedly cut.  In corporate jargon, we’d refer to this activity as achieving corporate “synergies.” Good stuff.

In any case, your ability to generate income for yourself is key to building wealth.  Do what you can to keep it flowing!

2.) Drive down costs

Hopefully by now, this is all beginning to make sense. It’s not rocket science really, but for many, it’s still surprisingly difficult.  We already mentioned the synergies above that came from marriage and household consolidation. Let’s go further. Let’s keep cutting the proverbial fat from the budget. Ideally, we’d like to align our total cost of with the primary source of revenue. Yep, what I’m telling you is that you should strive to live off only one source of income. Who in the world does this? Well, people who get rich do this. Realistically, this means that whovever has the highest income, use that for normal, daily, recurring expenditures…housing, utilities, food, etc. Any additional sources of income will be first added to savings and investment, and second allocated towards one-time “surprise” needs (e.g. car needs a radiator, air conditioner blows up, sink hole eats your garage, whatever).

In order to make this happen, you’re going to have to dig deep and reassess what’s important. As I’ve always professed, frugality is key.  To be rich, you can’t spend like you’re rich.  For example, a couple years back, my wife and I took a deep dive look at our expenses. We altered a few things to save a few hundred dollars a month.  Check it out the story here.

The corporate mindset is to eliminate redundancies, needless extras, and wasteful spending.  Although I’m not advocating living in a tent and surviving off grubs, do what’s reasonable to cut costs to the maximum.

3.) “Hire” a team of smart, motivated and dedicated professionals.

In business, hiring the right people is a huge key to success.  I know, I know…obviously you can’t hire your friends and family.  But what you can do is surround yourself with people who inspire, challenge, encourage, and motivate you. Remember, though, that friendship is a two-way street. You must offer the same support and encouragement to your friends and family that they give to you – Golden Rule first and foremost here.

Also, you don’t have to know someone personally to hire them to your team. Read blogs of others in your industry to push you further. Read books by authors you trust on topics that interest you and support your wealth building goals.  For example, I glean a lot of inspiration from reading another like-minded finance blogger, Gen Y Finance Guy ( He’s incredibly motivated and consistent, and his posts are extremely educational.  I’m also constantly reading about my favorite topic in the investing world – value investing.  I maintain a wish list of books on I find that books not only provide me with valuable insight on investing, but they also keep me excited and fired up about the topic.

I’m at my happiest when I’m learning and growing. Surrounding  myself with the right people and right literature keeps my spirits high.

4.) Focus on the goal – maximizing value.

In the corporate world, major companies focus on building book value  (aka net worth) by retaining excess earnings. Generally speaking, corporations attempt generate earnings of 10% or more on this book value figure, which is often referred to as Return on Equity.  Each year firms strive to grow their net worth by 10% or more, which can be done by generating more revenue, cutting expenses, and/or paying down debt.   Whatever excess earnings the firm generates beyond the expenses to run the operation are either invested in securities, re-invested back into the business, or paid out as dividends to the owners of the busines.

Run your personal finances the same way.  I like to think of my net worth as my book value, and I’m trying to consistently grow it year after year. As I’ve referenced above, the simple act of spending less than I make, paying down debt, and investing excess earnings in assets that grow in value over time has allowed me to grow my personal net worth at a rapid pace. It’s not rocket science. It just takes dedication. Compound interest is an extremely powerful thing, indeed.

So, be better than corporate America. Strive to exceed a 10% growth rate annually on your net worth.

Also, it helps to monitor your progress by having a system, which brings me to my next point…

5.) Maintain informational financial records

Public companies must issue quarterly financial reports in the spirit of transparency with the investing public. It helps investors and corporate stakeholders understand the inner workings of the business, and most importantly, monitor the progress the corporation is making over time.  Monitor your financial progress as well. In addition to regularly monitoring bank and credit card accounts through online access, I use and to track financial progress. I love the net worth tracking tool, as I can analyze where and how my net worth is growing (or shrinking) over time. I can track debt paydown as well investment account growth. I can also set up budgets, and Mint will categorize and track spending to make sure I’m within the budget threshhold.

A word of advice as you track your net worth over time – don’t get discouraged by the ups and downs of the stock market, that may impact networth drastically.  As you probably are well aware, the stock market suffered a major downward correction during the third quarter of 2015, and personally, my net worth decreased by over 10% in a matter of weeks.  Don’t let setbacks like this get your down.  Hunker down, continue reducing personal expenditures and allocating capital towards your investments. Additional savings can buttress short-term downdrafts in your stock portfolios within 401Ks, IRAs, and brokerage accounts. Focusing on long term net worth changes rather than short term performance can help curb your emotional response. Over the long term, the direction of your net worth will be up, way up! Stick with the program.

To conclude, each one of us has the capability to grow his or her own financial value in life. A growing net worth is a testament to our hard fought ability to minimize expenses and allocate excess income towards value-enhancing activities – like investing in stocks, mutual funds and real estate. So emulate the corporate profit motive that forms the foundation of our capitalistic system.  Keep up the good work!

Please comment and let me know if you have any questions on any of this.  I’m always happy to help!

Also, make sure you sign up for my free e-book, describing the 15 Ways to Achieve Financial Freedom!


Teaching Children about Money

photo 3Lucky for me, my wife is a 5th grade teacher.  Why? Well, for starters, she has a natural knack for handling the intricacies of child behavior and thought. This should come in handy when we have children of our own!   She understands children…knows what makes them tick. She takes great pleasure in getting them excited to learn and inspired to explore topics that will undoubtedly shape their views on the world around them. Although I have little personal experience (besides remembering my own childhood), I understand that a child’s mind is incredibly malleable and stretchable.  To this end, a teacher must painstakingly craft curriculum and lesson plans to best capture the hearts and minds of a budding class.  That’s a huge job, and quite honestly, my wife has a ton of responsibility.  I’m so grateful that she is in the position to guide pre-adolescent thought.

As part of her mathematics curriculum, my wife has created a program called Math Masters, in which members of the community are invited to come to the classroom and discuss how math is utilized in their daily career.  After all, we’re trying to teach these kids that math is actually extremely practical, right? Lucky for me, each year I’m one of these Math “Masters”.

My topic (of course) is investing and compound interest.  Yeah, I know, compound interest seems like a heavy concept for a 10 year old to wrap his noggin around. But hey, I’m not busting out exponential growth formulas like I did on my in-depth blog post on the topic. Anyway, before I get all philosophical on the topic of money and children, here’s a quick run down of what I discuss with the kids:

First, I provide the kids some fun anecdotal stories about Warren Buffett, discussing his love of math, investing, and general thriftiness.  For example, at age six, Warren Buffett would buy six packs of Coca-Cola from his grandfather’s grocery store for a quarter, and sell each Coke bottle for a nickel. How much profit did he make on each six pack sold? Yep, five cents. I also discuss how he worked hard as a paper boy, saving thousands of dollars by the time he graduated highschool.  Some of that money would help him start his first investment partnership when he began his career later on in life. The kids need to know that hard work and thriftiness definitely do pay off. Also, the students find it interesting that Warren bought his first stock at the ripe age of 11 (right around their age), and from that I go on to explain what a stock actually is. “Who here wants to be a business owner?” Everyone raises their hands excitedly. In any case, these discussions and fun stories warm the students up for the main event: the demonstration of compound interest.

I begin explaining the concept with a “snowman” approach.  “How do you make a snowman?,” I ask. Together we walk through it.  You take a snowball, and begin rolling.  “What happens to the snowball the longer you roll it?” It gets bigger the longer you roll it, of course. Not only that, but the speed at which it grows gets faster and faster, the longer you are rolling.  That growth is the exact same with investing.  The more time you have to invest, the more growth is experienced. You might say that time and compound interest are joined at the hip. Sure, it ain’t perfect, but the concept seems to get through to them.

photo 2Next, we demonstrate compound interest with M&Ms. Each child is allotted one M&M to start and then told to think of that M&M as having real monetary value, like the value of a stock. Every 7 years, the amount of M&M’s each child has doubles (we’re handing them out to the kids). We know this as the Rule of Seven, implying that with a return of 10% (roughly the modern day long term stock market average return), an investment will double every seven years.  I leave some of these details out for the kids, so as not to over complicate matters.  Assuming seven years have gone by, each child has two M&Ms and after 14 years each has four (obviously, we are speeding up time together so as to fit the course into a half hour time slot!).

As the kids fight the temptation to just throw the candy in their mouths, I instruct them that they now have a choice to make. They can either keep investing the M&Ms, or sell three of them in order to buy an XBox One gaming system (not a real one, of course, but they do get a fancy paper cutout of one). By this point, most kids are quick to refuse, correctly predicting the true cost of the purchase on their future wealth. Those that decide to “buy” the gaming system system are down to one M&M, the rest of the students having four.

chartSeven more years go by, and the kids that purchased the gaming system are back to having 2 candies vs. 8 for the M&M savers. Another 7 years goes by, and the savers/investors have 16 vs. 4 for the Xbox buyers. I then show them a chart of 70 years worth of M&M savings, and how much “wealthier” the students that chose to refuse the Xbox purchase have become by the time they reach their golden years of age; eight times wealthier to be exact!


line chartTaken one step further, I tell them, imagine that instead of one M&M, you actually invested $1,000 in a stock that also doubled every 7 years.  What would be the difference in money after those same 70 years? At this point, the kids understand that in order to multiply by 1,000, you put three zeros after each number.  Their faces light up when they realize that they’d have over one million dollars after 70 years, simply by being patient and having persistence.

Ok, ok, like I said, now’s my chance to get a little philosophical on you.  My 5th grade math lesson is just one example of an infinite number of ways to get through to children about the fruits of saving, investing, and most of all, having patience.  The younger they learn the art of saving and investing, the sooner they’ll grasp the reality of compound interest. And as we all know by now, time really does wonders for the prudent investor, no matter how much money he or she begins to invest with. So start ’em young!

If we don’t provide our kids with these tools of knowledge, we may very well be stripping them of their inherent right to lead a more financially-independent life later on.  Teaching our children the value of dollar through hard work, thrift, and investment, provides a wonderful multiplier effect as generations come and go – each generation better than the last.

Finally, teach them that with wealth comes a responsibility to give back to our great American society, whose capitalistic foundation afforded them the right and ability to build their wealth in the first place.

So tell me, how do you teach your kids about money?