On today’s vlog session, I’ll be discussing the following topics:
Being the CEO of your personal finances and visualizing your financial future.
A business functions under the following formula: Revenue – expenses = profits
A good CEO works with each component to generate profits for the business.
Let’s take the first component. Revenue – this is the income of the business. It involves monitoring revenue streams of the business and projecting income growth.
You should be doing the same, because without income, there wouldn’t be a formula to work with. Project out your earnings, decide how to manage your current income more effectively or how to increase your current income.
The next component is expenses. This is critical because CEOs watch expenses very carefully. And when income sources are limited, sometimes the only solution to reaching profits is to decrease expenses. On a personal level, this translates to being very careful about spending. Determine needs vs. wants. Then plan your spending so that you’re not creating a huge amount of debt now, but rather, spreading it to match your receipt of income.
Profits is the amount left over after all expenses have been paid. A good CEO manages cash by investing in short-term instruments and will plan the use of that money for large capital purchases to enhance the growth of the business.
Your profits should be what’s left at the end of the month to be put to work for you. This strays from the typical employee attitude of spending their entire paycheck. Then, spending more as they earn more.
By keeping this formula in mind, as the CEO of your life, you can have a sharper focus of how you’re generating personal profits.
Visualizing your future financial self*
The ability to envision your financial future is dependent on several behavioral factors.
Similarity to future self: This determines the degree with which a person feels similar or dissimilar to their future self.
Positivity of future self: This factor determines whether a person feels positively about their future self.
Vividness of future self: A person’s ability to vividly envision their future is a key factor in determining savings behaviors as well as the ability to delay immediate gratification.
To set yourself up for a better financial future, make an effort to develop your visualization habits. To the extent that you can vividly imagine your future financial life, you can bring your mind’s vision to reality.
My future financial self
My retirement is several years away but it’s so vibrant in my mind that I feel like I’m living in my dream home already. I can almost taste it.
I see myself having lazy mornings and then moving on with my activity-filled days (similarity to self).
I had an idea of where I wanted to live and did some research on the area. At first I used Google Maps, then decided to take a day trip and visit. I picked out my property and the home I’ll be building.
Guess what? My mind automatically stretched itself to think about saving toward all the things I want in my future life. My inner compass is pointed in that direction as I can clearly see the color of the house, its exterior trim, and how I’ll be decorating each room. I’m going to need money for all the new furniture and light fixtures that I want, so it’s time to save up.
My calendar will be filled with walking, running, biking, playing badminton, and doing yoga. I’ll need those nice cross-trainers. More saving.
I’m already planning which room will be a guest room versus the exercise room. It might rain, you know, and I’ll have to stay inside to exercise.
Then, I’ll sit on my back porch and stare at my garden. Yes, the garden. With a waterfall, wishing well, and year-round blooming foliage.
And I’m happy (there’s my positivity factor at work).
While I’m caught up in that moment, the left side of my brain kicks my right brain out of the fantasy as I remember that the landscaper needs to be paid.
That means I have to make some budgeting decisions and boost my savings – today!
All dreaming aside, visualization is free. Start connecting with your future self.
*Zepp, Philip P. and Heckman, Stuart J. 2018. “Clients’ Perceptions of Their Financial Futures Predict Choices.” Journal of Financial Planning, May, 2018: 38 – 47.
Exercise Your Financial Control