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How to Run Personal Finances Like a CEO

Keeping an eye on growth and cash flow will benefit your bottom line

Their budget is a team effort


Try running your personal finances the way business industry titans run companies

En español | Running a household budget is often a lot like running a business.

Just as CEOs have to control costs, generate income and focus on economic results, so, too, must you — if you're going to effectively manage your household finances.

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And if you're planning for retirement or already living on a fixed income, you likely can learn some important skills from America's business titans.

Here are six ways to run your personal finances like a CEO.

Focus on the bottom line

Every quarter, CEOs of publicly traded companies have to answer to Wall Street about financial performance. While lots of numbers get analyzed, the most significant one is often a firm's net income.

This is often referred to as the bottom line because it's the last figure on a company's income statement.

"For individual investors, their bottom line is a calculation of their net worth," says Bill Losey, head of Bill Losey Retirement Solutions, an investment advisory firm in Greenwich, N.Y.

Losey explains that the simple way to figure your net worth is to add up everything you own (your assets) and then subtract everything you owe (your liabilities). The result is your net worth.

Hopefully, it's a positive number. But even if it's not, it's crucial for those 50 and older to start regularly monitoring their net worth.

"Your net worth should be tracked at least annually, preferably every quarter," he says. "And it should be constantly growing."

Pay attention to cash flow

CEOs know they can't run their businesses based on their stock prices or what Wall Street does on any given day. Instead, they focus on cash flow — or how much money is moving in and out of the business.

You, too, should worry less about wild swings in the stock market and their short-term impact on your portfolio. Instead, focus on your cash flow, which you have more control over.

To get a handle on cash flow, take a hard look at your outgoing expenses and determine which are needs versus wants.

"Cutting out cable TV, monthly memberships you're not even using or anything that requires a subscription is an easy way to improve your cash flow," Losey says.

Make sure your household runs at top efficiency

In the business world, CEOs often perform efficiency reviews. That's a systematic analysis of various divisions or functions in order to operate at maximum efficiency, cut fat and make sure company profits aren't being wasted.

To accomplish this, business leaders usually have rank-and-file staff or middle managers reevaluate spending or squeeze additional discounts out of vendors and suppliers.

You can do the same thing in your personal life if you're willing to negotiate with the companies with whom you do business.

"Cable, cellphone, banking services and insurance. Those are the four areas where I tell my clients all the time to negotiate better pricing," says Shannon McLay, founder and president of the Financial Gym, a financial planning company in New York.

Most of the time, those who do negotiate get a better deal, she says.

McLay says retirees and boomers are especially well-suited to save money by negotiating. "Companies count on your being complacent because they know that older customers who've been with them the longest are typically the least likely to call for a discount," she says.

Plan for growth

Typically, CEOs know that their company will likely outlive them. As a result, they like to plan for the long-term growth of their businesses.

If you're age 50, 60 or even older, now is the time to ensure that your assets and money likewise outlive you — not the other way around.

A key to this plan is having the right investment mix. "People have this assumption that once they hit 60 or 70, they should now automatically have everything in fixed-income investments," McLay says. But that represents old-school thinking — when people didn't live as long, she says.

The Census Bureau reported that in 2014, the number of people living to age 100 or more in the United States reached a record 72,197 — up from 50,454 in 2000. Back in 1980, only 32,194 Americans were centenarians. "You've got potentially 30 or more years to live, which means your retirement accounts need to be invested more aggressively," McLay says.

They also need to keep up with inflation. With ultrasafe fixed-income investments earning merely 1 to 2 percent annually, "you can't live on that. You have to add growth investments," she adds. And that means keeping some money in, say, stocks or mutual funds investing in stocks.

Don't use the wrong benchmarks

Companies frequently benchmark themselves against competitors in the industry, especially market leaders or firms that are known to employ best practices.

But when it comes to your personal finances, know the downside of comparing yourself to others. It does you no good because everyone's circumstances are different.

"You won't see Apple comparing itself to McDonald's," McLay says. "So beware of trying to benchmark or compare yourself to others who probably aren't even in your same situation."

Get it in writing

Finally, no CEO today would ever seal a deal based on a handshake alone. You can be certain that a responsible CEO would immediately back up any informal agreement in writing.

So don't get burned in your personal financial dealings — with family, friends or others — by failing to put the terms of any transaction down on pen and paper.

See also: Set boundaries when lending money

Whether it's a loan to a relative, an investment you're making in a colleague's start-up or a home repair company you're hiring to renovate your bathroom, make sure you spell out the terms in writing so there are no misunderstandings on either side.

Lynnette Khalfani-Cox, The Money Coach(R), is a personal finance expert, television and radio personality, and regular contributor to AARP. You can follow her on Twitter and on Facebook.