Organize your finances like a company

I'll start with a disclaimer. I won't tell you to start using complex charts and large sheets, or even to note every cent you receive or spend. The goal of this post is to share with you a simple mindset I've been using for months that has helped me a lot to organize my finances. However, if detailed tracking works for you, keep it. Everyone has their own preferences. Simplicity is mine. Finance is an essential part of a company. Money management will determine if a company can live for years or weeks. Every quarter, thousands of companies send their reports to investors. The numbers give an idea of the current state of a company and what its future might look like. Not only the numbers matter, but the reasons behind them. A manager should be able to answer hard questions, such as "why are the expenses increasing?". The investors are expecting the answer to decide if they will keep or stop investing in that company. Now, let's change the focus to our life. Are you a good manager of your money? Are you taking your financial life seriously, like a company does? I'm not saying you need to live strictly like a company. It's just a mindset: regular reviews and honest answers. Let me ask you some questions, so it will be easier for you to understand my point. - What is your average monthly expense? - In comparison with the last month, do you have more or less money? - What are the top three categories where you spend the most? Food? Kids? Subscriptions? - What % of your monthly income is left after paying all your bills? I think you got my point. It's very important to be able to answer questions like these. Now, maybe you are thinking: "It's not easy to answer these questions. I would need to check all the lines of my bank statement, do many calculations, organize them in a big table. This isn't worth spending my time on." Yes, I agree with you. Something too complex may not be worth doing. However, what I'm saying is not complex. It's pretty simple actually. Let me explain. Organize the data You don't need to do complex calculations or spend hours analyzing your bank statement to have a big picture of your money. It's much simpler than you imagine. Open a notes app (or a blank document) and write these two things: 1. How much your monthly income is and where it comes from 2. Name your fixed expenses (e.g. rent, credit card, car, kids school, streaming subscription, etc.) Start with fixed expenses only. You can add more categories later when you want more detail. Now, put them into a simple list for each month. For example, January: Income - Salary: 4,000 Fixed expenses - Rent: 800 - Credit card: 1,000 Summary - Total fixed expenses: 1,800 - Left after fixed expenses: 2,200 (55% of income) This is the minimum enough to keep your financial life organized. Copy the same structure for February, March, and so on. You can keep one note per month or stack the lists in a spreadsheet. If your bank app categorizes your expenses, use it. Take your last month's statement and note the total of each category. For example: Food: 600 Clothes: 170 Online shopping: 70 Health care: 25 Your list for that month might look like this: Income - Salary: 4,000 Expenses - Rent: 800 - Credit card: 1,000 - Food: 600 - Clothes: 170 - Online shopping: 70 - Health care: 25 Summary - Total expenses: 2,665 - Left after expenses: 1,335 (33% of income) With this data you have good indicators of your financial situation. If you want, you can use spreadsheet software that allows you to generate charts from this data. They help you see month to month if you are meeting your expectations: if your expenses are increasing or decreasing, which categories are taking most of your money, and so on. Acting as a company owner Once you have the data, you need to take action on it. A CEO will not be happy with just charts and tables, and neither will you. Data is just the starting point. Based on the numbers, a CEO will think: - What can we do to increase income? - What can we do to decrease expenses? Is there anything we can cut off? - How can we better distribute the money? Is there any expense category that is costing more than it needs? These questions above are discussed, generally, in monthly or quarterly meetings. And you can do the same. I do it on the first day of each month. I sit on my chair, fill in the current month's list with income and expenses, then I ask similar questions to myself. I use charts when I have them to compare with previous months. I check if my expenses are increasing, if there is anything unusual, and so on. In my case, a 30-minute meeting with myself is enough to have a big picture of my situation. If you have never done this before, your first month may take longer. Don't underestimate this moment. It helps to take it seriously, like a CEO would. During these few minutes you will decide how the month will be: if the ice creams and pizza will be cut off or if you can go to a good restaurant with your wife without problems. Conclusion Having an organized financial life is not hard or complex. You just need to start with the basics: know the inputs and outputs. From there you can improve the level of detail. There are many apps that help you with that. What worked for me was organizing things myself on paper or in a simple list before relying on an app. Starting from simplicity helped me understand the numbers better. Like a company, managing money is an essential part of our lives and we need to care about it, since our goals and the life we want to build depend on it. Use that monthly review as a compass that shows you if you are in the right direction. If you aren't, no problem. Act like a GPS, recalculate the route, and proceed. See you next time.