What Can Mom And Dad Investors Learn From Corporate Finance?

by Pam on July 13, 2012

What is corporate finance?

Most, if not all companies are created to make money.  Corporate finance deals with the financial decisions that are made by the company, and the goal is always to maximize the value of the corporation while keeping risks low.  In essence, the goal of those working in corporate finance is to maximize shareholder value.

Who does corporate finance?

Professional such as accountants and financial analysts perform the tasks of corporate finance within big companies and firms.

What are some of the responsibilities of people who do corporate finance?

People who are part of the corporate finance team for any given firm are responsible for managing the money forecasting – determining where it will come from and where it should be spent in order to maximize returns.

How do they do this?

They continuously look at spreadsheets that detail profitability, expenses, and cash flow.  They try to find ways to free up capital, decrease expenses, and increase profitability.  If the company wants to make a big expenditure, it will have to be run by the professionals in the corporate finance department first.

So, how does corporate finance apply to my own personal finances?

Well, if you think about it, these principles of corporate finance can work for your own personal finances as well.  It all starts with having a financial plan. Treat your own personal finances the same way as you would treat your business finances.  Here are a few suggestions to do just that:

1.  Use a corporate finance account.  Rather than being careless with your personal money, consider ways that you can maximize your savings and decrease your expenses, and use a corporate finance account to help you.

2.  Pay attention to where your money is going.  Just as in a business, you would be mindful of any money that is being wasted, be equally as mindful with your personal finances.  If you discover that you are spending money on things that you don’t really need or even really want, then adjust your spending accordingly.

3.  Create your own money forecast.  Determine where you want to be in the next 5 years, 10 years, and even the next 20 years.  Calculate how much you are saving now towards your goals, and determine a forecast based on your savings projections for the future.  If you are off track, adjust your savings accordingly.

4.  Take advantage of accountability.  Just as a business has a team that has to approve big expenditures, be accountable to your spouse if you have one.  Make big spending decisions together and that way you will be less likely to make a bad spending decision.

5.  Always count the cost.  Before spending large sums of money, be sure to count the true cost to you, just as you would for your business.  Consider all factors and repercussions and then after weighing these, make a final decision on what to buy and how much to spend.

Although you may have never thought of your own personal finance as a business, it really does help to think of it in that way as you will be much wiser and more cautious with your money and will reap the rewards of being a good saver and a smart spender

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