Getting the Most Out Of Your Money
We have been discussing the concept of lean production and how its principles of efficient use of resources can be applied to your finances. Lean refers to a system of manufacturing which was pioneered by auto makers Toyota, which has helped to make the company very profitable.
One of the components of lean production is the elimination of wasteful practices in the process of creating a product or service for sale. There's a lot to be gained from adopting the lean philosophy in your personal, professional and financial life, if you want to be successful with your own goals.
Last week we looked at getting lean with your most precious resource - your time -- by becoming more productive at work, getting the most out of your commuting time, using technology to improve your output, and making the right choices when spending your time to generate an income.
Today we will look at how you can utilise another important resource more efficiently to help you to accomplish your goals. In theory, money is not really in limited supply like time, which is finite, but you still have to ensure that you make the best use of your funds to get the optimal return.
Operate an efficient money production line
Imagine that your life was like an assembly line at a manufacturing company. Just like the person in charge of production, you would want to ensure that none of the raw materials were wasted and that you got as much finished product as possible out of your machinery time and employee effort.
Let's review the Japanese words for inefficiencies - muda means idleness or wastage of resources when trying to complete a task; mura is the unequal or unbalanced use of different resources; while muri means the excessive or unreasonable use of a resource which could put it at risk.
In order to get the most out of the money you earn or have on hand to further your goals, you need to eliminate these types of inefficiencies. Your aim, like that of a profitable corporation, is to utilise your financial resources in ways that will allow you to get an optimal return on your money.
Don't squander your financial resources
One of the areas you may need to address is the wasteful use of money in your current spending. Do you try to find the best shopping deals to cut back on your grocery bills? Do you conserve on your usage of utilities such as light, water and petrol in order to get the most while spending the least?
Do you habitually use credit cards or payroll loans to finance consumer purchases? The interest you pay on debt actually represents money that has been inefficiently expended; you could have channelled those funds into productive use instead of making the financial institutions richer.
Inefficient use of financial resources also occurs when you money sitting idly in a non-interest bearing account, or funds that are not generating as much return for you as possible. You can get better interest rates on your money by simply switching from a savings account into a fixed deposit.
Try to maintain your money balance
You also need to determine if there is an imbalance or unevenness in your use of money. Are you spending your funds too heavily on some areas while ignoring other important ones? Preparing a detailed budget will help you to see where you may be inefficient with your allocation of funds.
Use a budget calculator like the one found on www.financiallysmart.org to itemise your compulsory bills and non-essential expenses over the course of a year. Are you satisfied that your expenditure items are all worthwhile, or do you need to eliminate some of your spending excesses?
Your money choices may help you with, or hinder you from achieving your goals. Consider whether you could become leaner by directing more funds into savings and investments for your future needs such as buying a home, putting your children through college, or planning for retirement.
Don't overload your money capacity
You also need to assess whethers you're putting yourself under financial pressure by having unreasonable expectations of what you can accomplish with the money you have. You need to be realistic about the kind of lifestyle you can afford based on the income you earn, and try to live within your means.
Let's say that you want to buy a newer car to reduce your repair costs, but the loan repayment that would be required would jeopardise your ability to pay your other bills. Don't think that you'll be able to catch up if you stretch to get the vehicle; you'll only overburden your budget with that debt.
You also have to make the right decisions when investing your money. You could lose your funds by trying to get improbable returns from get-rich-quick schemes or chancy business plans. Be practical about what you can gain given your level of experience and your ability to absorb risk.
Cherryl is a money coach, business mentor, and founder of Financially S.M.A.R.T. Services. Her upcoming book, "The 3 Ms of Money" will reveal all the secrets she learned about financial success. Get more advice on money and business matters at www.financiallysmartadvice.com and www.entrepreneursinjamaica.com. Email comments to firstname.lastname@example.org.