Successful businesses spend a lot of time planning – creating a business model, a business plan, a strategy, and a mission statement. They want to define their main purpose and goals partly so that everyone in the company can stay focused on the reason for their work and not get distracted by other worthy but non-related tasks.
A new business owner will make a lot of decisions long before making his or her first transaction – will the business provide products or services (or both)? If so, which ones? Once the business is set on selling widgets, will the company concentrate on selling a lot of widgets at low prices or a few at a higher price?
Individuals can benefit from thinking through such details for their spending as well. Knowing yourself can help improve your financial condition. For instance, would you rather spend money on objects or experiences? I remember a conversation with a friend in college who didn’t understand why I always wanted to go on road trips. “I’d rather spend my money on something I can keep,” she said. I replied that I was happy to keep the memories.
When you do buy products, assuming you have a limited amount of money (as we all do), would you prefer too buy a lot of things for lower prices or a few things for higher prices? I remember another conversation I had with another friend, this time during my high school years. We had a great opportunity to go on a band and choir trip through Europe, during which I bought many souvenirs: overpriced t-shirts from the streets of Paris, small plastic dolls from each country we visited, and lots of Toblerone chocolate. Meanwhile, she purchased an expensive piece of Delftware from the factory in the Netherlands. Being two years my senior, she told me that when she was younger, she, too, bought a lot of small, cheap things, but her taste had since matured and she now saved her money to buy something bigger and nicer. Maybe I haven’t yet matured since I still tend to buy several less expensive items (albeit different ones!) rather than a few costly ones.
I have digressed a bit, but my point is that I know I generally prefer to spend money on experiences (or services) over things and several inexpensive items over a few expensive items. My friends knew that they preferred tangible things and a few high-end items, respectively. By knowing our preferences – our personal business strategies, for lack of a better term – we can benefit in several ways.
First, we can make spending priorities. Working with a limited amount of money, I know that I will have to save money by buying less stuff if I want to be able to travel or to hire someone to do some work for me so that I can spend more time making memories with my kids at home. My college friend knew that she would have to miss out on several road trips so that she could buy some of the things she wanted for her dorm room. Knowing these priorities can help us keep focused on our saving goals when we are faced with the opportunity to spend money on something that’s not a priority to us.
Second, we can know our weaknesses. I recognize that the little things I like to buy can add up. If I need to cut back on spending for whatever reason, I can focus on buying fewer things, particularly things I don’t really need. Likewise, my friend whose taste was more refined than mine, even in high school, might have to start shopping at discount stores when money gets tight. If she is careful about saving money on things whose quality doesn’t vary much, she may still be able to afford to buy a few pricier things she loves.
Consumers trying to get a grasp on their spending can follow business examples even more closely by creating personal business plans that cover topics like, “Where will I focus my shopping time – high-end shops or discount stores?” (as businesses ask, “To what type of consumers will market my goods?”) and “Who in the family will pay the bills, file taxes, choose investments, and make spending decisions in each area?” (questions that are similar to business organizational chart). And of course, both businesses and individuals benefit from setting specific financial goals and planning specific ways to meet those goals. Giving up one thing (maybe a taste of Toblerone from the grocery store) is much easier when you know you’re saving for another (perhaps a trip to Switzerland).
Image courtesy of Alex Osterwalder