Finance Coach - Vol. 17

Finance tip: Mindset Assets vs liabilities.

Many people think about this concept quite straightforwardly - their possessions are their assets, and what they owe others are liabilities. I think about them quite differently. For me, an asset is something that makes you money, while a liability is something that loses or costs you money. Now, this flies in the face of some ‘conventional’ wisdom, as others will say that your car is clearly an asset, for example. The way I look at it, if you use your car to make money, then it’s an asset, but if all you use it for is transport, and you fork out dearly every month for that, then it’s actually a liability. But you need your car to get to work, you say, and you earn money there! Yes, but do you need a fancy, fully-kitted out sports car to get from home to work? No, you don’t. An entry-level, reliable one will be just fine. On the subject of liabilities, I do carry some debt. But all of it is ‘good’ debt, as I have used the money I have borrowed to start businesses that make me more money than the debt costs me. Thus, for me, those debts could even be seen as assets! Now, I’m not telling you to go and sell everything you own, but just keep this thought process in mind next time you’re looking at a big purchase…

Business tip: Management

Follow the 80/20 principle. Also know as the Pareto principle, this law states that 20% of all the things you do produce 80% of the total results, and vice versa. The trick, as an effective manager or businessperson, is to identify the 20% that produces the most results, and focus on those areas. This could be the 20% of customers that bring in 80% of your business, or the 20% of your marketing-spend that brings in 80% of your qualified leads – whatever it is, identify it and refocus some of your time spent on the other 80% of things you do, to capitalise on the areas identified. You don’t necessarily have to drop the ineffective 80% completely (and you often can’t), but look at perhaps delegating that work to someone else who has the capacity or initiative to make the most out of it. Being the best manager you can, or building your business to it’s full potential, depends on it…