We hear a lot about businesses writing off expenses or saving on taxes, but how about the way they manage their money and use it wisely? Here are a few tips and tricks businesses use to streamline their budgets that you can apply to your household. (For more, check out 6 Months To A Better Budget.)
TUTORIAL: Budgeting Basics
Track Your Cash Flow and Expenses
Businesses track their cash flows by accounting for where the money comes in and where it goes out, so that they can see where they make money, where they spend it and to look for trends in their growing business needs.
Households can do the same, because even if you have a budget and you stick to it, knowing the details of what you spent your money on could be valuable information to analyze and perhaps use to change your habits. (For more advice on where you should put your cash outs, read Top 5 Budgeting Questions Answered.)
Use Credit Wisely
Businesses who can use credit wisely can earn interest by keeping the money in their pockets until the last moment. A good example is when they have to pay a vendor - many businesses are given payment terms such as "net 30," which means they are required to pay the invoice within 30 days or incur an interest penalty for going over the time allotted.
Many businesses hold onto their cash and allow it to accrue interest in their favor until the last few days before the invoice is due, when they pay it off. It may not seem like a lot, but if you are a business that has to pay million-dollar invoices, earning even 1% on a million is $10,000 a year or approximately $833 a month. If you have many invoices owed in the millions, you can see where the savings really rack up for businesses.
Households can follow a similar principle by not paying in cash for purchases, but putting it on their credit cards to earn points to use towards vacations or even groceries or getting some cold hard cash back. Then when the statement arrives, pay the card off in its entirety so you don't incur any interest charges. By using credit wisely and to your advantage, you can earn a little extra on the side in points or cash but you haven't paid any more than you should have. (To help you avoid more debt, see 6 Major Credit Card Mistakes)
Another way to use credit wisely would be if you had to buy a hot water heater for $5,000 but they tell you "no money down for six months," which is essentially an interest-free loan (to purchase the heater) of $5,000 for six months.
Keep the $5,000 earmarked in your bank account and if you are earning 2% interest on that $5,000, you will be around $50 richer at the end of that six months when it comes time to clear the bill. It may not seem like a lot, but every little bit counts and adds up over time. (To more information, check out Delayed Interest: Buy More, Pay Much More Later.)
Analyze Your Spending Habits and Make Changes
Well-run businesses observe how they spend their money and try to find the best deal for what they need. No business wants to pay more for a service they don't really use to the fullest or can avoid needing, so why should you?
A good example for households is paying for banking fees. If you have a budget set aside for "Bank Fees" of about $20 a month, tracking where those bank fees are being spent can make you see where you spend the most in fees. A common bank fee is when people don't anticipate how much cash they need in a month, and are caught without money in the middle of an area where your bank doesn't have a branch or if there are only stand-alone automated banking machines (ABMs) available.
If you are paying $1.50 (or more!) each time you want to take out a $20 bill, why not anticipate your cash needs and go to your bank once a month to take out all the cash you think you'll need. Or, consider switching to a bank that doesn't charge any fees.
Another area where you could cut back is spotting trends in your impulse spending. For instance, when you go grocery shopping, do you always pick up a latte as a treat for the weekend? Or do you always take everyone out for ice cream after a baseball game? Once a treat becomes a regular occurrence, it ceases to be a treat and turns more into a habit that you should either decide to cut back on, or budget for accordingly rather than feeling like you're always strapped for cash each month. (To save more on your banking, read Cut Your Bank Fees.)
The Bottom Line
While you may not be able to write off meal expenses, managing your money as if you are a business that has to really watch the profit margin and the bottom line can ensure you come out in the black rather than in the red. (For more on how you can save more, see 5 Money-Saving Shopping Tips.)
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