Why You Need to Think Like a CFO When it comes to your personal finances, make every decision count.
Thanks to many years of modeling financial statements and analyzing performance ratios, I tend to think like a CFO when it comes to my personal finances. This means I have a comprehensive understanding of the ripple effect that good or bad financial decisions will have on my net worth.
One role of a CFO is to ensure profitability, despite fluctuations in revenue. This starts with the essential task of identifying the proper balance between fixed and variable costs. When managing your personal income, you must do the same.
I always put at least 20 percent of my take-home pay into savings; it's a nonnegotiable expense. To do this, I limit my fixed overhead to no more than 45 percent of my income. Allocating at least 35 percent to variable costs (food, entertainment, clothing, vacations) enables me to control my expenses and consistently meet my savings goal. It also prevents me from having to dip into my savings account if my income changes.