Business Principles For Your Personal Finances

While I was navel-gazing one day, I had a thought.  A lot of principles that apply to business can also be used in our personal finances.

Not just obvious things like ‘make more money’, but also in less obvious areas, like our philosophy and mindset.

And when you apply them properly, you basically start running your life like a well-managed business – with you as the CEO.

So let’s run through them, and consider how you can use these principles to create the outcome you want.

And as you’re reading, keep asking yourself: “If my life was a company, what would I change after this article?”

Principle #1 – The Power of Focus

In essence, this means spending your precious time on what matters most. Said another way, investing your effort into what’s going to give you the biggest payoff.

Good businesses and successful people don’t try to please everyone.
Instead, they prioritise through the power of focus. Quite often, they’re ruthless at cutting things which don’t add value to their business or their lives.

What does this mean for us personally?

Well, our health, our home life and our ability to earn income is probably where most of our focus should be on our financial journey. Everything else can take somewhat of a back seat for now.

You can dedicate more time to other things later, once you’ve made solid progress and got your snowball rolling. But without that initial intense focus, progress is likely to be slower than you like.

In the meantime, we need to focus on the key areas that will drive our results and make our lives more enjoyable. This is the 80/20 rule in action.

As you devote more time to less things, your results in those areas will be better. And that’s going to result in less time and money wasted on things you don’t care as much about.

So principle one is simple: pick a few priorities, and happily ignore the rest. That’s how you move the needle faster.

Principle #2 – Check Your Process

Examine how your life and finances are currently running.

Could you do things better? Is your investment plan running smoothly? What about your free time – are you trying to cram too many things into a limited number of hours?

Think of this as doing a quick “systems audit” on your life.

Maybe you would benefit by simplifying your investment strategy. Or maybe by automating your investments and investing monthly no matter what, rather than agonising over whether it’s a good time or not.

In your personal life, maybe simplifying your schedule could make you happier.  Being overly busy makes us stressed out and frustrated.  Even now, I have to be careful not to try and fit too many things into a given day.  Otherwise I end up super grumpy and it feels like my freedom is gone.

So maybe instead of trying to plan another epic holiday, what if you used some annual leave to have some extra free time instead?

Use this time to relax, read a book, get outdoors for a while, or catch up with a friend. As mentioned in another episode, I did this towards the end of the FI journey and it’s something I highly recommend.

This way, you get to keep your juicy income, while cutting back your hours.  And you feel less need for holidays because you’re more relaxed and less burnt out, so it can even save you money.  Not to mention travel can sometimes be exhausting, leaving you more in need of a break than before you left!

The truth is, in our busy world, we often commit to too many things. And in the end, we don’t end up enjoying it because we’re rushing off to the next activity!

So, if your life is feeling a bit cluttered and stressful, how could you simplify things?  Which activities could you drop, delay, or outsource?

Principle #3 – Maximise Efficiency

Small efficiencies can make a big difference to a business and to your wealth over time.  This point is often dismissed by some in the finance space as ‘small-minded thinking’.  But I’d say dismissing it is being ignorant to how compounding works.

Here’s a little story about oil tycoon John D. Rockefeller, who by the way, was obsessed with efficiency and not coincidentally built probably the most powerful company of all time – Standard Oil.

Quote from the book Titan, the Life of John D. Rockefeller, by Rob Chernow.

“Rockefeller was relentless in ferreting out ways to cut costs. During an inspection of a Standard Oil plant in New York, he observed a machine that soldered the lids on cans of kerosene destined for export. Upon learning that each lid was sealed with 40 drops of solder, he asked, “Have you ever tried 38?” It turned out that when 38 drops were applied, a small percentage of the cans leaked. None leaked with 39, though. “That one drop of solder, said Rockefeller…”saved $2,500 the first year; but the export business kept on increasing after that and doubled, quadrupled–became immensely greater than it was then; and the saving has gone steadily along, one drop on each can, and has amounted since to many hundreds of thousands of dollars.”

And keep in mind this is the early 1900s, equal to many many millions of dollars in today’s terms.

So, small amounts build up over time to become large sums. Put another way, a large sum of money is simply lots of small amounts of money bundled together.

I know I hammer this point regularly. That’s because incremental savings across the board can make a big difference. So watch out for small, regular expenses.

Your “one drop of solder” might be: switching supermarkets, getting a more efficient car, or cutting a subscription you barely use. These things feel so tiny, until you add a bunch of them together and compound the money for 10+ years.

Principle #4 – Balance Profits and Morale

The goal of a business is to increase its profit over time. But doing so at the expense of workers usually ends up being unsustainable.

A successful company will aim to keep workers happy, leading to better output and customer service, hopefully creating satisfied, loyal customers. In turn, this helps the business flourish and shareholders are rewarded, with increasing earnings and dividends.

It’s similar to our personal finances. If we try to boost our household profit – our savings rate – so much that it hurts our morale, we’ll become like disgruntled workers.  We won’t enjoy the process and may fall off the wagon.

The ultimate goal is to have a high savings rate while still having a good life. That’s definitely possible, but it’s also a balancing act.

Businesses look for areas of waste and aim to minimise them or find other solutions. They look for places where capital or resources aren’t being used effectively. We can do this too – while keeping an eye on the quality of our lives.

For example, we may decide to move to a smaller house with fewer bedrooms, or move close to work to eliminate our commute.  Here, our quality of life and happiness will remain largely unchanged.  In fact, it’ll probably go up – commuting is reported to be a large drag on life satisfaction!

Here, we’re simply reallocating our resources to balance savings, efficiency, and morale at the same time.

So think of it like this: you want your “company” AKA your life, to be highly profitable, but also a nice place to work (even if it’s not perfect).
As I’ve said before, if the FIRE journey is making you miserable, you’re doing it wrong.  Put another way, if you hate your own plan, it’s the wrong plan.

Principle #5 – Go Capital-Light

Many successful companies in the modern era are what’s called capital-light businesses. This means they aim to avoid having lots of cash tied up in owning various assets and infrastructure.

The idea is that each dollar of capital can be used more productively invested in the right areas of the business, rather than owning offices, factories, or tons of plant and equipment. This also gives the business more flexibility to adapt to changes they may experience.  Basically, they own very little, lease a lot of stuff, and maximise how hard their money works.

What does this mean for us?

Well, for one, tying up a substantial sum of money in the form of home ownership may not always be the best idea.  In fact, renting and investing can sometimes (not always) result in faster progress towards FI and a more flexible set of finances.

We can take this capital-light approach to many areas of our life: car ownership, furniture, exercise equipment, technology and all our possessions.

The point isn’t to own nothing.  It’s to question whether the amount of savings we have tied up in these things is efficient and in line with our goals. Sometimes it is, but many times it’s not.

Every dollar tied up in ownership of possessions is a dollar not being used for the ownership of assets.  Is what you own giving to you, or taking from you?  The hidden drag of maintenance and opportunity cost cannot be overstated.

You might find that it’s more effective (or even more enjoyable) to own very little and instead invest all your surplus cash into productive assets that grow and produce income. This way, each dollar of capital is working as hard as possible for you.

Ask yourself: “If this was a business, would I really have this much capital sitting in this one thing?” If the answer is no, that’s a sign to re-evaluate.

Principle #6 – Focus on Cashflow

Most business owners focus relentlessly on finding ways to grow their future earnings. They’re not obsessing over the current ‘market value’ of the business, or what each asset they own is currently worth.

As individuals, we can do the same.  Move away from values, and focus on cashflows. And this becomes even more important as you get closer to stepping away from full-time work.

So, rather than getting caught up in the current market value of our house and investments, we should focus on what those things are producing (or can produce) for us.

The reality is, your freedom is built on your usable cashflow versus your expenses.  It’s nice to have a pile of assets, but it’s far more powerful to have streams of income you can tap into when you need it.

There are many ways we can build more future cashflow for ourselves.  By learning new skills and freelancing or starting a side business.  Or of course, our investments, like shares, paid off property, or even other things like peer-to-peer lending or term deposits.  We could even start our own small business or rent out rooms in our house.

This is ultimately what FI is: your personal “company” generates enough cashflow that the owner – you – isn’t forced to ‘clock in’ and work becomes optional.  You just monitor things as your cashflow machine spits out coins all year.

Principle #7 – Research and Development

This helps businesses come up with new ideas or products, find ways to do things better and keeps the company keep moving towards its mission.

For us, this can mean finding new savings ideas, lifestyle tips, or new ways of thinking.  It could be learning more about investing or mapping out a plan for how you’ll use your future free time once you can pull back from work.

Part of this is also reassessing you’re still on the right path to meet your objectives.  Just like companies go through change, so do our Financial Independence plans.

Your life circumstances will change.  Your values and priorities might shift.  And your investment strategy will evolve. This is all perfectly normal. So don’t be afraid to adjust your plans as you go.  In fact, it’s the only sensible thing to do!

If I had stubbornly stuck with investing in property and tried to avoid selling to maintain as big of an asset base as possible, I would still be working today.

But I swallowed the pride that many property investors have, kept an open mind, and realised that switching my approach was going to get me to my ultimate goal faster.  And that’s why I’m here chatting to you instead of driving a forklift around a dusty warehouse.

As humans, we like to believe we’re pretty smart.  But nobody has it all figured out.  We’re all just making our way through the darkness as best we can, learning and adjusting as we go.

So part of your “job description” as CEO of your life, is ongoing curiosity: keep learning, keep tweaking, and don’t be scared to pivot when you realise a new path might fit you better.

Summary

To sum up:

Focus your time, effort and energy on a few key areas of your life at a time.

See if there’s a better or simpler way to do what you’re currently doing.

Always respect the power of small savings.

Aim for high savings AND quality of life.

Consider owning less to invest more.

Build your future earnings streams.

And finally, keep learning and make adjustments as you go.

When you look at it through this lens, financial independence is just the natural outcome of running the company of YOU really well for around a decade or two.

I hope these principles help you make better executive decisions as you work towards wealth and a freedom-based lifestyle.

Here are some resources you might find helpful:

📘 My Book
Your complete guide financial independence in Australia.  Available on Amazon, Spotify and Audible.

🏡 Mortgage Broker
Deanna and her team have helped me and many readers with home loan strategies over the years (including debt recycling). Check them out.

💼 Financial Advice
For those wanting personalised guidance with strategy, super, tax, or retirement, I can connect you with someone I trust. Find out more.

If you use the above services, this blog may receive a benefit at no extra cost to you. I only recommend things I use myself and genuinely believe in – thanks if you choose to check them out.