Typically in life obsessing about anything is bad. However, I do believe that there are some financial obsessions that are healthy both for you personally and your small business. Many individuals, families and small businesses are just plain bad at managing their finances. Some people just don't understand accounting or bookkeeping so their finances tend to get the back burner. Avoiding managing your finances is a huge mistake and will always come back to haunt you. Here are five financial obsessions that you really should keep in mind and try to follow.
Obsessing Over Saving Money
Too many people live paycheck to paycheck and never save any money. Any savings no matter how small is just a good habit to get into. What happens is that when you start to make more money you will already have developed a good habit of saving money. You should then start to save more money in more ways. Cash is king so having a healthy cash savings account never hurts. You should use it to make a down payment on a house or to further educate yourself. You should also start some type of retirement savings when you are young. Investment vehicles such as a ROTH IRA or an employer plan such as a Simple IRA or 401k are great options to consider. You should treat your savings and investments like any other bill. Automate your savings to ensure that it happens each month. It is so easy to skip saving money when you don't treat it as a bill or automate the process.
Obsessing About Avoiding Paying Interest or Unnecessary Fees
I hate paying ATM fees, bank fees and interest. I refuse to pay ATM fees and would rather use my debit card to buy something and get cash back if necessary. I try and avoid cash all together as it can be lost, leads to bad spending decisions and does not earn you rewards like credit cards can. I avoid unnecessary bank fees like the plague. When I set up any bank account I always sit down with a banker, personally introduce myself and I get their card and contact information. Then I explain that I would like to open an account but that bank fees are 100% absolutely unacceptable. They always have a solution for me. On top of that I now know someone personally at the bank that I can call if I do get a bank fee and 99% of the time they will reverse the fee.
I personally only believe that paying interest is acceptable on two items; a house and an education. Both are big ticket items that most people cannot afford to pay cash for. Additionally both items are an investment that you hope appreciates and not depreciates. Paying interest on depreciating assets is a huge mistake that you should avoid. Buying a car is where many people get roped into paying interest on a depreciating asset. My simple rule for buying a car is to never pay interest on it. My recommendations are to buy a good quality used card for cash or buy a new car at 0.00%. Also, remember that 0.09% does not equal 0.00%. Many people get suckered into a car because they really want it, so they do whatever it takes to get it. I think cars are a waste of money so I don't waste unnecessary funds on them by paying interest on them. Many people may argue that nobody has enough cash to buy a car outright; re-read step one...obsess over saving money.
Obsessing About Maintaining Your Finances
Many people may run a pretty tight family or small business from a financial perspective but they don't maintain their finances. Tight bookkeeping procedures will keep you on track financially. I maintain both my personal bookkeeping and my business bookkeeping on a weekly basis. I would estimate it only takes me about an hour per week to do both. The best tip I can give you is to maintain your bookkeeping on a regular basis and reconcile QuickBooks on a regular basis. Reconciling all of your accounts that have a monthly statement is the only way to ensure you have properly accounted for everything in your financial life.
Obsessing About Constant Evaluation of Your Finances
Maintaining your bookkeeping and finances on a regular basis is a waste of time if you are not evaluating your financial situation on a regular basis. Many people wait until year end passes to even think about bookkeeping. Year end bookkeeping is a term that I don't think should exist. If you are only updating your books once a year and evaluating your situation once per year then you are fighting a losing battle. You should constantly be reviewing your current financial situation and looking for areas you can improve in. That may mean increasing revenues or decreasing expenses.
Obsessing About Outsourcing Your Weaknesses
One last thing you should obsess about is outsourcing your weaknesses or things that you dislike. Understanding the concept of opportunity cost and implementing it into your life and business is crucial. Take me for example, I have a plumbing and drywall project that I could be working on, but instead I am writing this blog and other people are handling my maintenance project. Why? Because I am a small business owner; not a plumber or drywall guy. I am not very good at plumbing and drywall and my time is much better spent working on my business. I know that if I take on the plumbing project it will take time away from working on my business and in the end it will end up costing me money not saving me money. It is a hard concept that many people struggle to not only understand but to implement.
Those are just five simple financial obsessions that I use in my life and business. There are many other good financial habits that you should follow. I know that the list would not be the same for everyone as well.
What things do you obsess about in your financial life?