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Tuesday, September 16, 2014

A Meeting of the Board

Posted by Dave on April 17, 2012

This is a guest post by Dave, who is also looking to retire no later than 45, but unlike Tim has no kids and doesn’t want any. Dave is from Ontario and is working towards his CGA certification.

My wife and I run our house like a business.  I wouldn’t say it’s a super awesome place to work, but the employees are nice and the environment is pretty relaxed, and I plan to stick it out until the end.  To a certain extent, my formal education made my household planning this way – a degree in Economics followed by an extensive education in business through the accounting classes I have been taking for the past 5 years, this level of thinking just sort of gets ingrained in my thought process.

There are a few ways that my wife and I run our retirement plan like it’s a business:

Profitability:

Much like a business, we are shooting for big profits each year.  Our profits come from our salaries and minimizing our expenses to achieve gains year year.  We try to earn more money each year to maximize our earnings each year, just like a business.

Meetings:

In order for our financial plan to work, we discuss how our finances are working and whether we’re both still happy with how things are going.  Every two weeks we receive a statement in the mail from our mortgage company, showing the amount we have paid down from paycheque to paycheque.  Because our mortgage is our main financial goal, this letter gives us the opportunity to discuss how that part of our plan is going.

Additionally, once in a while during car trips we will discuss how our plans are going.  Generally, I do this to ensure that my wife is still happy with our financial plan.  Between my wife and I, she enjoys “stuff” more than I do – mainly clothes (which seem to be of the “disposable” variety, as they are not built to last more than a couple of laundry cycles).  She seems to be happy as long as there is enough money for her to buy a couple of these disposable pieces of clothing a month.

Dividends (Eventually):

Currently, our business is in the growth stage, and everything we have is being invested in the end product (retirement).  At a certain point, these investments will start to pay dividends back to us (rather than being re-invested), at which point we will be financially free.  In a way we’re are a significantly poorer version of Apple – hold and reinvest gains for 15-20 years and then start paying it out.

I think that people generally get in trouble when they don’t treat their personal finances in a business-like fashion.  Where poor “investments” are made (aka: stuff), poor “credit terms” are taken (aka: credit cards), and little day to day thought is put into how or why the money is spent.

Do you think you treat your household finance as a business?  Do you think they should be treated differently?

Comments

4 Responses to “A Meeting of the Board”
  1. Andy R says:

    To further the analogy, some observations:

    What firm works well with co-CEOs?

    Are members surplus if contribution to bottom line falls?

    Is lack of positive bottom line cause to dissolve the partnership and wind up the business?

  2. Brian says:

    This is a good metaphor, I like it. Does it make home life too ridgid though? There should be some level of relaxation at home and if this is taken too far, then it’s as if you never leave the office, which isn’t healthy either.

  3. JMK says:

    Excellent analogy. Whatever your finaicial plan, regularly reviewing, and revising it where necessary are essential. The “plan” only works if everyone is pulling in the same direction. It only feels like a burden if the tradeoffs or sacrifices you are making involve your personal passion (but not your partner’s) or if the goal is not entirely your dream vision.
    We are in agreement that we want to travel anually with our kids and retire at 57/60. Yes the trips are causing the retirement to be delayed at least 3yrs but we’re in agreement that it’s a trade off we want to make. We’ve cut a ton of perfectly normal things out of our budget because they are unimportant to us, or at least not as important as the travel and early retirement. We regularly review our progress and question whether we are cutting the right things and in the right amounts, and if we’re achieving our savings targets. If we do make a spending decision that is at odds with our goals we do it as a team. When you have a plan and work together anything is possible.

  4. Dave says:

    @ Brian – We don’t feel that it is too rigid…for the most part we don’t really think about it (or at least I don’t). I just like to check in with my wife regularly to ensure that she is still okay with the way things are going.

    We still do plenty of fun things (that to some would seem like a waste of money), we just make sure that we are doing it with “fun” money, rather than “retirement” money.

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