As you read this, some of you may be thinking that you are not that financially or mathematically knowledgeable, so how can I be a CFO? I have known CFO's of successful businesses that did not have a financial background. The key to their success as a CFO is that they took charge of setting the road map for the company while knowing how to ask the right questions and relying on other's technical knowledge. For your personal finance, it is setting up and taking charge of your road map and possibly supplementing this with the knowledgeable advice from financial professionals.
The CFO role is about taking charge of one's financial future. People get in trouble by letting others control their finances without taking an active oversight role. Over the years, there have been many investors left in ruins when their financial advisor with total control of their assets decided to leave town in the middle of the night. Also, there have been millionaires who spent all their money because they expected their financial advisor to warn them if their spending habits got out of hand while their financial advisor got paid by keeping them happy and did not want to get fired for saying "no more". Thus, even if you do not have a financial background, it is important that you take control of your finances.
The qualities of a good CFO are:
Every CFO will have some traits of a penny pincher and spendthrift. Controlling the day to day expenses is a delicate balance. In order to save, there has to be some cost control (penny pinching) so that expenses are less than income. And, there has to be some spendthrift in the CFO as well because all work and no play (spending for fun) can lead you to getting burnt out.
It is blending the two that is the key. Yet, we more typically come from one of these two traits (penny pincher or spendthrift). These traits are driven by our emotions. To overcome these traits the first thing that you need to do is understand where you have acquired these traits from.
Being a penny pincher was needed for those who lived through the Great Depression. As time passes, this generation is having less of an influence on today's society. We can see this by looking back to the 50's and 60's when most people only bought what they could afford. Credit cards did not exist. In comparison, today many people buy what they want and putting a sizable balance on their credit cards. The difference between buying what one could afford to buying what one wants can be seen in the sizes of homes these days. Even with smaller families, the size of an average home has increased significantly. We have transformed from being a nation of savers to a nation of spenders.
Penny pinching can be good in moderation. Yet, when taken to extreme it can manifest lack. Some examples are:
Overall, being able to save a few pennies is better than spending on a whim. Yet, it should be done in balance with spending and investing.
The spendthrift is one who spends money like there is no tomorrow. Some prosperity teachers believe that prosperity centers around how deserving one feels, prosperity comes to those who feel deserving (which it does to a point). This logic is over-stretched though. It continues to say that in order to feel deserving, one should spend at the level of what they feel they deserve (e.g., to be a millionaire, one should live like a millionaire). This is where marketers focus their energy on. They want you to feel that you deserve their product (e.g., the sports car). Their motto live for today and tomorrow will take care of itself.
As Americans, we have moved towards being spendthrifts at the time we complain that we can not make ends meet. According to the Washington Post, the average size of houses in America has increased 55% to 2,330 square feet from 1970 to 2005. In addition, 36 percent of home buyers under the age of 35 rank having a home theater as important or very important. At the same time, many families feel the need to have two wage earners to survive in this world and wonder if they will have enough for their retirement.
Yet, a spendthrift has its advantages. A good CFO knows when to spend. CFOs need to spend on good investments such as educating its workforce or spending money on a new business venture. He also knows that if he cuts too much of the extras (in either pay, benefits and fringe benefits) that the workforce may revolt at him being too cheap and decide to leave. In our personal life, it is getting an occasional spa treatment or a new set of golf clubs to treat ourselves (and avoid our internal revolt that may lead to a weekend spending spree).
Lastly, what we focus on (may) will expand. If we are continuously watching our pennies then our focus is on lack and our lack will expand. Saving on the morning cup of coffee to cut a few cents may lead to resenting the job that does not pay enough for us to enjoy the simple pleasures of life. This resentment will then grow to the point where we hate going to work and it will expand to not getting the next promotion or losing the job because the manager does not want to promote those who hate coming to work.
The key with these archetypes is to balance the energy. We need to save for our retirement. And, along the way we need to have fun and enjoy the fruit of our labor. Yet, if we live high on the hog now, the hog may be lean for retirement. The key is to find out what you really need versus what you want. In looking at your budget, how much of it is really a want? Remember, is a house or a car a need or a want? To some extent cars and houses are a need when we are talking about basics, but many have bought a bigger house or a nicer car making it more of a want. Then be grateful for what you have and for what you are saving to have a comfortable retirement.
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