Think of your Home as a Business

If you think of running your personal finances as a business, you’ll create a viable, secure situation for your family.

A business must make profits to survive. This means the business must make a return on the assets it employs, such as people to run the business, a factory to manufacture products, and a delivery system to bring products to consumers. If the business borrows money, it must be used to improve profits in order to justify taking out a loan. If there are no profits—if the business takes in less than it earns—it will go broke.

Your home is the same in many ways. Your savings are your profits, and if you don’t have any, you will not survive. This means you must earn a return on the major assets you employ: your home accumulates equity over time, your car derives income because it provides transportation to and from work, and you make investments that provide a return on your savings. If you borrow money, it must improve your savings (profits). Thus you use a mortgage to buy only the home you can afford, you don’t tap equity in order to buy depreciating assets, and you never use credit cards.

You create an environment for your children that will set them up to be productive members of society—you want them to become people who are resources, not people who use resources. You can’t do that if your financial life doesn’t foster savings and serves as a poor example.

Unlike a business, you operate your home with the vision of going out of business. Your kids will be on their own someday and you will be engaged only for as long as you continue to work. You must have a source of income planned after you close up shop. The revenue in your post-work era is your retirement savings—and if you don’t get right with your finances, you’d better plan to be in business for a really long time.