Finance, both in business and our personal lives, can both be complex. Debt, equity, valuations, EBITDA, are just a small sample of the kinds of terms involved. However, things become much simpler when we think of finance in inflows and outflows.
In personal finance, if our earning (inflows) is greater than our spending (outflows), all is well. The bigger the difference between inflows and outflows, the better things are. The same applies with revenues and costs in business.
This extends to other contexts as well. For example, businesses succeed when customers acquisition is greater than customer churn. And, sports like soccer have goals scored (inflows) and goals conceded (outflows). However, soccer coaches can spend all their time optimizing for average distance run and average number of passes. Managing by complexity and proxy metrics is an easy trap to fall into.
So, every once a while, it is worth taking a few minutes to look at the big picture. For our finances, it could just be a few minutes every week to understand how we’re spending relative to how much we earn. As long as that difference is positive, things are good. Of course, we should then ask ourselves about how we can save and invest more.
But, the main thing in business and life is to keep focus on inflows and outflows. And, our job is to keep the main thing the main thing.
A Learning a Day 