Be Your Own CFO (Part 1): The Dreaded “B-word”
|April 28, 2007||Posted by Roshawn Watson under Personal Finance|
By: Roshawn Watson
As the semester’s end draws near, I have been extremely busy (oral and take-home exams, multiple assignments due, presentations, proposal due, etc). In group projects, members have failed to contribute and even plagiarized published articles. Additionally, some faculty have been inordinately insensitive to my other obligations, assigning new work at the last minute. Moreover, my checks to the state and federal IRS (2006 taxes) just cleared for an amount that makes me want to vomit. In fact, I have to file and pay quarterly estimates now. Yuck! Although I am making it just fine, I am no where near satisfied.
As I was telling my friend William, “it is time to move from good to great and awaken our inner geniuses. Everyone wants success, but you can do better!”
Perhaps, it is the fact that I am about to focus on only one research project for the next couple of years, or maybe its nostalgia over the last motivational book I read. Regardless, after my quarter of a century on this earth, I want more to show for my life than just a few material possessions and a couple of degrees. I encourage you to think expansively and establish a legacy that will last generations. Dare to attempt the extraordinary like: opening up your own school in a poverty-stricken area or feeding hundreds of children and widows personally. I have friends who have done both, but such great ambitions are rarely realized without a written plan.
Base the plan on the principles of those who have excelled. In business, one of the highest ranking executives is the Chief Financial Officer. Generally, CFO’s manage the financial risks, perform financial planning, maintain appropriate records, and report to higher management about the company finances. With an average yearly salary of $418,772 and usually a coveted seat on the board of directors, these individuals are among the most powerful officers within a corporation. Now, I have already written about the managing financial risks aspect of their jobs with past blogs: emergency fund and minimizing debt.
The parallels of my personal finance advice to running a business are intentional.
For example, a personal emergency fund is analogous to “retained earnings” for a business. Similarly, failure to limit liabilities is the primary reason nearly half of businesses fail within the first four years. Excelling financially usually requires basic but essential skills. Another critical aspect of the CFO’s job is financial planning, which brings me to the dreaded B-word: budget.
Most would not erect a building without architectural plans or drive across country without a map. Similarly, it is an absurdity to try to reach financial goals (i.e. retiring with dignity and having substantial sums to give away) without living on a budget. A budget is really just a written plan of what you will spend your money on.
Although budgets identify how your money behaves, remember that YOU control them. They can be as constrictive or as free as you desire.
The one big caveat is they must be written because typically only written budgets truly become your accountability partners. For example, seeing how that trip to Colorado would put you in negative cash flow for the next two months is different from knowing it ethereally. Because budgets also help you identify positive cash flow, living on budgets initially feels like a raise. They help you play money detective. Surely, most have had a month (or two) where they could not account for where a modest chunk of money went. My friends, budgets will help you identify strains on your finances, so you can remedy the problem.
Ultimately, following a written budget may be the most important plan you ever make for your family. If you doubt its importance, consider the following analogy. The majority of people that you see running are physically fit, not the ones who appear to need the exercise. The runners are physically fit because they run, not the other way around. Likewise, the people who do well financially typically do it on purpose. I challenge you to get fit financially by following a written budget today. Make an executive decision to achieve success beyond your wildest imagination.
Copyright 2012, Roshawn Watson, Pharm.D., Ph.D. All Rights Reserved.