Achieving financial success requires more than managing money in and money out, and budgeting for larger expenses. You might be able to budget for $5,000 worth of business expenses, however, the ability to budget doesn’t guarantee those expenses are necessary. If your expenses aren’t necessary, even though you budget for them, you’re wasting money.
Here’s how you can prevent that from happening:
Be cautious of traditional “success” advice
When you see an opportunity to purchase tools, equipment, services, or anything else that has the potential to improve your business, you’ve probably been trained to ask, “how can I afford this?” After all, this is one of the key phrases taught by Robert Kiyosaki, author of Rich Dad, Poor Dad. You don’t wonder if you can afford it. You aren’t supposed to think about anything else but how you’re going to afford it.
This practice is useful when you constantly think you can’t afford anything because it forces you to get creative and think in new ways. It’s not a useful practice when you don’t have a strategy in place to vet your desires to see if they’re actual needs first.
Ask a different question
Instead of asking, “how can I afford this?” Ask first, “how will this benefit my business?” Dive into this inquiry as deeply as possible. Don’t resurface or begin budgeting until you’ve got a specific answer.
For example, will the purchase increase your staff’s knowledge? Will it make the user experience on your website smoother? If the benefits aren’t quantifiable, how do you see it affecting you? For instance, if you spend $3,000 to attend an overseas workshop, what do you expect to get out of it?
Don’t budget for any expense until you know exactly how it will benefit your business.
Learn how other successful people make financial decisions
Learning from others is about more than following in their footsteps and performing the same actions. You have to understand their mindset and thought process if you’re going to integrate their wisdom into your life.
To help businesses learn from others, RISE put together a list and summary of six personal finance books full of advice and tips from financially successful people. These books include titles like Small Change: Money Mishaps and How to Avoid Them, The 7 Fruits of Budgeting, and The Millionaire Mind.
These books provide direct advice for people who are struggling. If you pay closer attention, you’ll understand the mindset that led to their financial success. Nobody becomes a millionaire by budgeting for every expense they’re interested in. Financially successful people spend an equal amount of time eliminating expenses that aren’t necessary.
Rather than just showing you how to divvy up the loan you just secured, these books will help you distinguish your own financial priorities so you can make smart decisions.
Cut, cut, cut
In addition to a tight budget backed by decisions to limit expenses, you’ve got to start cutting what you currently have but don’t need. In the past, this was easier because most unnecessary business expenses were one-time purchases. Like new office furniture, the latest tech gadgets, and equipment that promised to deliver better results.
Today, we live in a subscription economy where nearly everything is paid for on a monthly or yearly basis.
Tien Tzuo, founder of software provider Zuora, explained to Tech Radar that the subscription economy is derived from the consumer’s desire for services rather than one-off purchases. “Once customers taste streaming video rather than buying physical DVDs, says Tzuo, “using Zipcar rather than buying your own or storing business files in Box as opposed to on your own server, they want all their lives to work as simply as that. This is what we call the Subscription Economy.”
Tech Radar also notes the subscription trend is affecting every industry and it’s easy to lose track of these expenses. Chances are, you’ve got a few subscriptions. The question is, are they necessary?
For example, you might have 10 subscriptions to Photoshop for your employees, but are they being used? Perhaps you’re paying for 50 users with Infusionsoft, but only 30 are being used at any given time. Meanwhile, you’re getting billed for those unused accounts each month.
When you have multiple subscriptions, it makes sense to cancel user accounts you’re not using and add them back when you need them. Provided you aren’t locked into a contract with penalties for canceling.
You can still splurge once in a while
The key to managing your finances requires prioritizing necessary expenses, rather than budgeting for every purchase you want to make. However, as long as you prioritize necessities, it doesn’t hurt to splurge once in a while.