Free Family Finance

As I write this post, I sit in my neighborhood Dunkin’ Donuts. I stop here as a part of my daily routine – 7 days a week. I love there coffee. One large with cinnamon, cream, and sugar [$1.97]. It is the sole reason for my visit.

I recently made an adjustment to my routine, a move that would cut my coffee budget in half. I started bringing my own cup. Yes, a ‘refill’ only cost $.97 (including tax), plus saving all of that styrofoam probably has some insignificant environmental ramifications. So, now my coffee budget is down to $30 bucks a month.

But I pushed on. If I bought all of the proper quality ingredients, surely I could replicate this intoxicating goodness in the comfort of my own home. My hope was to further reduce my coffee budget, but my efforts were interrupted.

If you know anything about fff, you know we are not big on credit cards. Beyond that, we don’t get all wrapped up in credit card reward programs. Historically, it just doesn’t pay off. But, for a guy like me, this one seems too good to be true.

Admittedly, I have an American Express Blue Card. I got it along time ago – in my more foolish days. In a conservative estimate, I probably haven’t used the card 5 times in the last 3 years. I don’t even carry it in my wallet. However, last week Dunkin’ Donuts sent me an interesting offer via email.

In conjunction with any American Express Blue card:

“For every 4 times you shop at a Dunkin’ Donuts store in a calendar month, you will receive a $5 Dunkin’ Donuts card.”

“The more you go, the more DD cards you can earn through 3/31/11!”

Huh! If my arithmetic is correct, and I’d like to think that it is, I can dominate this offer. If I visit DD every day for an entire year, I will have spent $354 on coffee. However, if I do so while utilizing this offer, I will have earned a $5 DD gift card 91 times. That’s $455 worth of gift card credit. That translates to 1.28 years of free coffee. Thus, over the next 2.28 years, I can drink Dunkin’ Donuts premium coffee for only $12 a month – a savings that couldn’t be matched by brewing my own DD at home, especially when considering the shortcoming in quality.

And that’s how I intend on drinking my beloved Dunkin’ Donuts coffee for an entire year, for free.

Dave Ramsey often presents a simple question to folks who call into his radio program. “If I hired you to manage your finances, what would you do?” Almost every time, the solution is made abundantly clear.

Its interesting how differently people run their lives from how they might run a business. Although the same principles apply, emotions creep in. Personal finance becomes just that – personal.

If we ran our lives like businesses, I think we would find ourselves in much different places. Much better places. In this series, we will look at how we can run our lives more like businesses and benefits of doing so.

Only Spend Money On Things That Make Money

I believe this is the area with the biggest divide between businesses and individuals.

Well-run businesses have three types of expenses.

• First, there is ‘mandatory’ expenses. These expenses have to be paid – no matter what – with no foreseeable future benefit. Taxes are a great example.
• Next, you have ‘investment’ expenses. This might include licenses, office rent, payroll, etc. These are not mandatory expenses. They are expenses you pay for a current or future benefit. You pay your employees because they help you perform more work. You don’t have to pay them, but you want to pay them because they enable you to sustain a higher level of output.
• Last, there are ‘want’ expenses. These expenses are not mandatory and they don’t have an additional future benefit above a ‘investment’ expense. You may ‘invest’ in a company car, looking forward to the promise of your salesmen making personal connections with prospective clients and subsequent sales. If this investment can be met with a Chevy Malibu, to purchase any nicer vehicle, the additional cost is a ‘want’. It doesn’t satisfy the investment with any greater promise of future benefit. It is just nicer. It puffs our ego. It makes us feel fancy. But it doesn’t help us achieve the ‘investment’ goal with any greater success. In fact, the additional cost makes the ‘investment’ return harder to realize.

Good businesses focus their expenses on the first two types. They proactively guard against ‘want’ expenses. However, individuals spend a tremendous amount of money on ‘want’ expenses. Many individuals choose ‘wants’ over ‘mandatory’ expenses – which is foolish. Additionally, individuals will often choose ‘wants’ over ‘investments’. They will flounder in their attempts to save for a down-payment for their first home, in the name of new clothes/dining out/entertainment/etc. If you can’t afford your mortgage due to a hefty car payment, you have also fallen victim.

To that end, if we want to run our lives like a good business, we must prioritize our expenses. We must satisfy ‘mandatory’ expenses first. We must look to ‘investments’ before ‘wants’. There is a time and place for ‘wants’, but it must be after ‘wants’ & ‘investments’. This principle is key to building wealth.

Dave Ramsey often presents a simple question to folks who call into his radio program. “If I hired you to manage your finances, what would you do?” Almost every time, the solution is made abundantly clear.

Its interesting how differently people run their lives from how they might run a business. Although the same principles apply, emotions creep in. Personal finance becomes just that – personal.

If we ran our lives like businesses, I think we would find ourselves in much different places. Much better places. In this series, we will look at how we can run our lives more like businesses and benefits of doing so.

Managing Operating Capital

As the old adage goes, “It takes money to make money.” But no businesses has sustained itself without managing how that money is spent. On the business side, we’ve heard it called Accounts Receivable & Accounts Payable. What money is owed to us and what money do we owe others. Its the financial heartbeat of a company.

At home, our finances are not much different. Except at home, we call it a budget. I would venture to guess most of us only manage half of our budget. That half, of course, is the income side of the budget – the accounts receivable. If we don’t get paid, we get pissed. But few of us truly manage the outgoing side. I like to call the opposite of income, ‘the outcome’. After all, that’s what it will be.

How closely to we monitor our bills? Do we explore ways to minimize those bills? Do we project expenses? Do we ration our operating capital among the various departments – housing, food, entertainment, etc?

There is an old saying about business plans, “They are outdated before you pick them up off of the printer”. This is because business plans must be fluid. Life happens. As soon as you print a business plan, the world has continued to turn around you. Your plan has been lying there stagnant, if but for only a moment. Your budget must be subject to the same fluidity. Life happens and the budget must ‘happen’ with it.

Your budget must be a living, breathing organism. I challenge you to take your budget seriously. It must continually improve. It must prepare for the unexpected.

The budget must be the heartbeat of your finances. It must control how money is pumped through your business – The Business of You.