Think of managing your family finances like running a business

Think of managing your family finances like running a business

What does it mean to manage your family finances like a business? If we do some quick mapping from the terminology of personal finance to more formal business terminology, we can see that personal and business finance are the exact same from and accounting perspective:

Paychecks = Revenues 

Things you buy = Expenses

Things you own = Assets

Things you owe = Liabilities 

Your net worth = Equity

Accounting equation is

Assets = Liabilities + Equity. 

“Equities” in a personal context are Assets, but “Equity” in a personal balance sheet sense is essentially your net worth. So on a personal Balance Sheet, Equity is what you have in Net Worth when all of you Debt is paid off. 

On the other hand, if you were to imagine a personal income statement, once you take your regular paychecks and other income and subtract out what you spend in a month, what you are left over is your personal net income. 

So since your personal finances can be seen in the exact same way as a businesses, really everyone should be running their households like a business. Everyone could incorporate their families or create general partnerships (with unequal voting rights for the parents) and run that for-profit enterprise. Lifetime cumulative net profit BTW is called an Inheritance.  

So talk to Aum and let us help you think about the personal profits you are creating and how you will distribute them to yourself.