Small Office Home Office Tax Tips

Differences handling money: how an owner thinks

Dec 14, 2009 Business Expenses

Many people believe money is the embodiment of material wealth and allegedly personal freedom. Regardless of our sophistication and education, we are typically swept up with this misrepresentation. We seek financial well-being anywhere we can find it. Those of us without real cash reserves or large disposable incomes mistakenly replace what we lack in funds with expensive lines of credit. We leverage what we have in order to acquire what we seek to possess.

Unfortunately many of us confuse what we want with what we believe we need. We accumulate indiscriminately. We oftentimes compound matters by purchasing material goods that have little or no long term value with leveraged cash obligations that increase over time. Herein is the beginning path of many a person to their eventual financial doom. Unfortunately in order to accumulate wealth in our society, we need capital. We need to grow our money through investments of appreciating value; we need discipline, luck, time, and a particular mindset.

Our personal response to money determines how successfully we can use it to the best advantage. Notice how the inherent concept in this last sentence was to USE money toward some further end. Money does not, in itself, give us wealth and freedom; it is actually only a vehicle to achieve it. We need to understand the emotions that affect our decisions about how we use money in order to improve ourselves and gain a greater prosperity and well-being. Few people would argue that if we ran our lives like a home-based business, our emotional approach as a successfully owner/operator to money would probably have a more utilitarian perspective.

The secret here is that money looks different to a business person; “capital assets” are used to finance business goals. Money is a “means” to some “end”. It is not typically perceived as personal reward. The successful sole proprietor of a home-based business tends to mentally separate what is in their “pocket” from what is in the “business operating account”. Similarly, lines of credit leverage the business’ capital resources to increase future financial returns. Responsible management means anticipating investment returns that will exceed the total costs of the credit used. If you run your life like a successful home-based business, you don’t charge your personal 10-day vacation on a credit card! Think of yourself not as consumer but potentially a producer of value. You take a 10-day business trip and, while there, develop new business contacts. Cash expenditures serve some financial purpose and are routinely goal-directed; money is spent to build value rather than just spend cash. This change in mindset especially in these hard times is a critical secret if one wants to gain financial success and personal freedom.