At Money Boss, my goal is to help you master your money and your life.
This is the core idea: Manage your personal finances as if you were managing a small business. If you can make You, Inc. a profitable going concern, you’ll be able to achieve your financial goals. The bigger your profit, the quicker you’ll achieve the things you want to achieve.
Everything I write here at Money Boss will build upon the following foundation.
The Core Idea
You are the boss of you. You are in charge of your life and your money and your happiness. If you want things to change, you have to do the work and make the changes. Nobody cares more about your money than you do. Your attitude must be, “The buck stops here.” You must be your own CEO and CFO — both in one person.
What do I mean?
The Chief Executive Officer is the head of a business. She makes decisions and sets the vision and represents the business to the world at large. But the CFO gets things done. He’s the hands of the business. He manages things behind the scene — particularly money. Both are vital to the success of a company.
The best way to achieve financial success is to decide to become the CFO of your own life, to become the Money Boss. If you imagine that you’re running a company called You, Inc., it becomes easier to make smart decisions with money. At the same time, you have to act as CEO of You, Inc. You have to set a vision for you life and make decisions about how best to achieve your goals.
A money boss acts as both CEO and CFO of her own life.
To become a money boss, you need to:
- Craft a personal mission statement.
- Arrange your life to reflect this mission.
- Boost your profit (i.e., savings) to achieve your goals more quickly.
Seems simple, right? It is simple — but it’s not easy. There’s a lot that goes into these phases, especially the last one. Let’s look at the three steps a little more closely.
Craft a Mission Statement
I used to be a big believer in goals. The older I get, the less concerned I am with having lots of little things I’m trying to get done. That said, I do think it’s important to have large, overarching goals that help you decide what to do and when to do it.
As a money boss, you have to be clear on what your personal mission is.
Businesses have mission statements to define their purpose. Here are some examples of actual business mission statements:
- Google → To organize world’s information and make it accessible.
- Wal-Mart → To save people money so they can live better.
- Harley-Davidson → To fulfill dreams of personal freedom.
As a money boss, you should have a mission statement too. With a mission statement, you can make better decisions with time and money. Here’s an example of my own personal mission statement:
I want to be the best person I can be, both physically and mentally. I want to sample all the world has to offer. I want to use my skills and experience to share what I learn with others.
Note there’s nothing about having a fancy car in my mission statement, so I don’t drive a fancy car. There’s nothing about owning a big home, so I don’t own a big home. Instead, I’ve tried to make my life match my mission. I travel. I take classes. I spend money on personal training. I devote my time to reading and writing.
How do you find your purpose? That’s a BIG question, one with many answers. There are all sorts of exercises to help you with this, and because it’s such an important step we’ll explore many of them at Money Boss.
For now, here’s one typical activity designed to help you determine your mission. Answer the three questions below. Take your time. Go slow. Be serious and sincere.
- Imagine you’re financially secure. You don’t have to worry about money ever again. What would you do with your life and time if money were no object?
- Now imagine you have your current life and financial situation. Your doctor tells you that you have only 5-10 years left to live. You won’t suffer, but you’ll die suddenly in a few years. What would you do with the time you have left?
- Finally, imagine your doctor shocks you with news that you’ll die tomorrow. In 24 hours, you’ll be dead. What did you miss in life? What did you not get to be or do?
Use this exercise — and others like it — to help craft a personal mission statement. Then use this mission statement to develop a plan of action and to organize your life and finances.
My mission statement steers my direction in lots of ways. Based on it, I do Crossfit to stay in shape. Because travel is important to me, I’m on a year-long RV trip at this very moment. To share my knowledge with others, I speak at conferences and create websites like Money Boss.
Arrange Your Life to Reflect Your Mission
After you have a mission, it’s up to you to re-arrange your life to pursue that purpose. This process is different for different people.
- For me, that means life on the road right now.
- For my brother, his mission means providing a safe and secure suburban home for his family.
- For my friend Mr. Money Mustache, his purpose means living in a place where he can walk/bike to everything. (Often on an electric bike he built himself!)
- For a guy I met last spring in Sedona, Arizona it meant quitting the rat race and moving into a travel trailer so that he could give wilderness tours.
Because everyone has different missions, it can be tough sometimes to give specific advice. That said, there are some common steps that most folks ought to take as they pursue their purpose.
- Organize your time. Make time for your money and your mission. You must make time for what’s important. If you don’t, nothing will change.
- Organize your space. Make space for money management. Dedicate a desk or drawer to finances. If you don’t have a place where you take care of money, it’s too easy to ignore it.
- Optimize and automate. Get rid of unused or extra accounts. Find better accounts. Don’t just stick with what you have. Automate good behaviors and create barriers to bad. Make it easy to do the right thing.
As a money boss, you’ll probably want to create a budget. Everyone hates budgets, even me. But successful CFOs have budgets for their businesses, and millionaires have them more often than not. (Seriously, they do.)
The key to creating a successful budget? Don’t micromanage. Use a Big Picture budget instead of a detailed one.
I’m a fan of a budget framework called the Balanced Money Formula. It uses only three categories. You aim to have your after-tax income fit within the following:
- 50% or less spent on Needs (basic housing, clothing, food, insurance)
- 20% or more routed to Savings (debt reduction, emergency savings, retirement)
- Less than 30% used for Wants (everything else)
The Balanced Money Formula works well as an initial target. You’ll probably be out of balance at first, but if you rearrange life to meet this Balanced Money Formula you’ll find your financial worries will fade and you’ll make progress toward your financial goals.
Really, though, I think you should aim to save more than 20%.
You see, savings and profit are two words for the same thing. In business, the difference between earnings and expenditures is called “profit”. In personal finance, the difference between what you earn and what you spend is called “savings”. Like I said, two different words for the same thing.
Just as a company works to boost profit, you should work to boost savings.
How much should you save? Most financial advisors recommend saving 10% of your income. The Balanced Money Formula says 20%. You’ll achieve your goals much more quickly if you increase your profit. I meet many people who save 30% or 50% — or even more.
A true money boss saves half of her income. That’s right: I believe you should aim to save fifty percent of everything you earn. I want you to trim your Needs and Wants so that you’re putting as much into savings as possible.
Because a high degree of personal profitability is the key to the entire Money Boss philosophy, we’ll spend a lot of time here talking about how and why you should do this.
For now, here’s a quick example of the power of profit:
- With a 10% profit margin/savings rate: For every nine years you work, you can take one year off.
- With a 20% profit margin/savings rate: For every four years you work, you can take one year off.
- With a 50% profit margin/savings rate: For every one year you work, you can take one year off.
- With a 75% profit margin/savings rate: For every one year you work, you can take three years off.
I’m not going to explain the math behind this example right now (although I’ll bet you can figure it out on your own). It’s enough to understand that the more you save, the more time you can devote to the things that are important to you.
The greater your profit, the better able you are to pursue your mission statement.
Is a 75% saving rate impossible? No! I meet people all of the time who do this, and in a variety of ways. Let’s talk about a few ways to boost personal profitability.
Boost Your Personal Profitability
Not every path to profit is equal. Some are more or less difficult. Some have greater or lesser impact. Most financial advice centers on easy stuff with small payoff: clipping coupons, using library, etc. These are all good things, but they’re not going to make you rich. The key to achieving high personal profit is to focus on Big Wins.
If you get the big stuff right, you don’t have to worry about the small stuff. For most people, the three biggest financial factors in their life are their home, their car, and their job. Because there are so few Big Wins, it’s important to nail them.
Here’s how to make the biggest difference to your financial future:
- Pay less for housing. Your home is likely your largest expense. Most Americans spend one-third of their budget on housing. No amount of coupon clipping can match cutting housing costs. You should aim to spend a maximum of 20-25% of your budget on housing. It’s okay to rent. Choose to live somewhere with a low cost of living. Don’t “buy as much home as you can afford”; buy the minimum comfortable space you can find. Nothing will boost your profit as much as cutting your housing costs!
- Trim transportation expenses. Transportation is usually the second biggest expense. Most Americans spend 17% of their budget on getting around. AAA says the average car costs 60 cents per mile to operate (or $9000 per year). You could cut that to zero today by selling your vehicles. That’s probably unrealistic, but most of us can drive much less. If he cut his driving in half, the average American could save an extra $400 per month. How do you do this? Choose a fuel-efficient vehicle. Buy used instead of new. Live near your workplace. Walk, bike, take the bus.
- Increase your income. You can only cut costs so far, but income is theoretically unlimited. Do what you can to maximize how much you make. Learn to negotiate your salary. Work overtime. Take a second job. Better yet, go back to school so you can qualify for a higher-paying career. Start a side business. Sell the stuff you no longer use.
There are many other ways to boost your profit, of course, but none of them have the kind of impact you’ll get from focusing on the Big Three. If you can increase your income while cutting your housing and transportation costs, you’ll make big strides toward becoming a money boss.
The Bottom Line
At Money Boss, we’ll explore techniques for maximizing personal profit. We’ll focus on housing, transportation, and income, but we’ll also talk about topics like these:
- Recurring monthly expenses. Getting rid of ongoing expenses makes a big difference to cash flow. Kill subscriptions (cable, Netflix, etc.) and replace them with free or cheap alternatives (library, radio, etc.)
- Conscious spending. Make your spending match your mission. Cut back hard on the things that aren’t important to you so that you spend lavishly on things that do matter. For instance, I don’t spend much on cars and I don’t have cable television. Why not? I want to put my money into travel instead.
- Personal responsibility. Take total ownership of your financial life. Nobody cares more about your money than you do. Double-check advice from experts (even me). Thoroughly research financial decisions, especially big ones. (The average person spends more time researching TV purchase than car purchases!) Set goals and make choices that are congruent with who you are and how you want to live.
The Money Boss attitude and philosophy is mostly about psychology. Smart money management is always more about mindset than about math. The math is easy. It’s mastering impulses and emotions that come hard for most people. I hope to teach you tools and techniques that will help you take control of your money — and the rest of your life.
And those, my friends, are the basics of the Money Boss philosophy. There’s a lot more to cover, of course, and we’ll spend the next several years exploring what it takes to master your money — and your life. Let’s have some fun doing it!