Are You a Financial Bore?

When was the last time you took a critical look at the machinations of You, Inc.? How long has it been since you reviewed your entire debt load -- including credit cards, mortgage, car loans, and monthly poker game losses -- and figured out what percentage of your income you pay in interest? Did you increase your 401(k) contributions the last time you got a raise? Are you constantly looking for ways to cut costs in your daily operations? Do you think about the return on invested capital with every purchase that you make?

As the majority shareholder in the business of You, Inc., it's time to stop running your empire like it's a lumbering, static Blue Chip stock. Think scrappy. Think small. Think startup. Here are seven small-company maneuvers that can make a big difference in your personal financial empire.

Constantly review your books. Successful startups study their cash flow and balance sheets more often than Blue Chip companies. Start with your big budget categories -- shelter, transportation, orthodontia, and long-term savings. Set a time frame (a month, or even a week, for instance) during which you'll keep detailed records of how you spend every dime. You may be surprised at how some of your subsidiaries are frittering it away.

Keep a strong, healthy balance sheet. As a young business (you know, 45 is the new 34) you are trying to build a solid foundation. It goes without saying for individuals and fledgling companies -- debt is not becoming. Ignore bankers' rules for acceptable levels of debt. Tackle double-digit interest rates (mainly credit card debt) with a vengeance. On the plus side, try to buy assets that will appreciate in value. Things like homes and higher education have benefits that pay dividends in the long term. Cars, however, typically do not appreciate.

Set clear goals. When you're small and the world is your oyster, direction is key. Don't just float along reacting to whatever life throws your way. Take some time to develop your 3-, 6-, and 12-month goals. Then look further into the future (five or 10 years or more) for a long-term action plan. If your future is already here, your money maneuvers may be a bit different than for the young sprites. The Rule Your Retirement Fools have some solid advice for scrappy seniors. Take a free peek.

Be aggressive. When you are treating your finances like a startup, you're striving to prove yourself. Put in the extra effort. That may mean cutting back on dinners out to bulk up your emergency stash of cash. Maybe it's spending a weekend re-energizing your portfolio (we have a few ideas about that, too). Be aggressive. Because if not now, then when?

Make calculated bets. At the same time, a startup needs to make conservative bets. For individuals that means watching your outflows and justifying every expenditure. Make sure that every dollar that you spend is a dollar that you need to spend and that there's a potential return attached to it.

Renegotiate. As your financial empire grows, start to renegotiate everything. Blue Chips have it lucky here in that their history enables them to get better prices on goods and services (like loans). When you want to expand (buy a new home or put your kid through school), look for the best terms that you can.

Stay true to your mission. Discipline and drive are hard to sustain when you've lost sight of what's important. The startups that work out are the ones that are passionate about their mission and let it guide them every step of the way. With every financial decision that you make, do what feels right to you.


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