Making a “Profit and Loss” Statement for Your Own Life

I remember the first time I heard someone use the analogy that you’re the “CFO” of your own life.

Being the former corporate apologist I am – sporting a deep-seated obsession with climbing the ladder and taking names – this metaphor resonated deeply with me.

Imagining myself in a well-tailored skirtsuit stomping around a hypothetical boardroom in red-bottomed heels, I repeated it to myself: The CFO of my own life.

There was something so intoxicatingly powerful about turning “responsible with personal finance” into a “Chief Executive” of something – of anything – and I was in.

While that metaphor feels a little silly to me now that I’m no longer fixated on being absolutely drunk on corporate power 24/7, I think there’s value in taking a step back from your day-to-day life to view your decisions through the objective lens of a business.

What are your assets?

Rather than approaching this question from a purely financial standpoint, think about the two most valuable things that you have – the two most valuable things that you often have to give up interchangeably, in order to get more of the other.

Time and money.

You can spend money to buy back your own time, or you can spend time to get more money.

How you spend both matters.

Setting up a P&L statement

A P&L, or Profit and Loss, statement is designed to demonstrate (a) sources of income as well as (b) costs associated with doing business.

In your life, the “doing business” piece is simply being you.

How much does it cost to run the business of your life?

How much does running the business of your life earn you?

How much time does it take to run that business?

Time and earning

Let’s think about time and money as equally valuable in this equation:

You have 168 hours per week.

Hopefully, you’re spending 56 of them sleeping (that’s 8 hours per night). I’d say that’s a pretty valuable use of your time, given what we know about the benefits of getting enough sleep. For the purposes of this P&L statement today, the sleep portion is non-negotiable.

That leaves you with 112 waking hours per week to do whatever you want, or 16 per day.

Now, we know that two of those 16-hour chunks – Saturday and Sunday – are yours entirely, so let’s say you’ve got 32 straight waking hours that totally belong to you.

Then, of course, you have to hand over 40 (maybe more, maybe less) to your employer.

All in all, when you subtract working hours, you have 72 waking hours per week left to do whatever you want.

Now, let’s say in exchange for those 40 hours per week, you’re paid $50 per hour.

$50 per hour equates to a salary of $100,000.

Your time is worth $50 per hour, according to your employer.

(I know this feels like a demented algebra problem, but stick with me.)

What are your liabilities?

When we look at a P&L statement, we have to assess all the things we pay for to run our business.

If your “business” in this sense is your life, then it might look something like this:

• $22,754 – income tax, annually

• $18,000 – housing, annually

• $12,000 – living expenses, annually

• $6,000 – fun stuff, annually

That’s obviously a super rough, high-level breakdown – but you get the point.

Our “profits” from living our lives and spending 40 hours per week working is $100,000.

Our “losses” from living our lives and spending money on our operating expenses (i.e., what you need to live) is $58,754.

And don’t forget the time loss – assuming you work 40 hours per week and get three weeks of vacation, it costs 1,960 hours of labor per year to run this “business” called your life.

If someone showed you those books as a business, what would you think?

In other words, if I told you:

“Hey! I’ve got this business that generates $100,000 of income per year, and costs about $58,754 per year and roughly 2,000 hours of work to run. What do you think?”

You’d probably say, “Well, I guess you’re profitable – you’re profiting about $40,000 per year. But that doesn’t seem very efficient.”

Think about it.

Would you work 1,960 hours per year and spend $58,754 to earn $100,000?

You might, since you’re still getting ahead, but you may feel like you’re having to hustle pretty hard for a relatively small payoff.

What do you notice about the breakdown?

You may notice that the biggest category is taxes, at $22,754. That may not feel like an obvious place to focus, but how could you recoup some of your own money and pay less in tax?

Well, contributing $19,500 – the annual maximum contribution limit – to a 401(k) would defer taxes on that amount, thereby lowering your tax liability from $22,754 to $18,422. An automatic savings of $4,332 for simply leveraging a different account.

You also might notice that you’re spending as much on living expenses & fun stuff as you are on housing – does that indicate that potentially one of those categories could stand to be lowered? Potentially.

The point is, if you start to look at your P&L statement objectively as if it represented a business instead of your life (earning an income and spending that income), it may reveal some oddities to you or areas where your behavior doesn’t make sense.

What if you’re not making $100,000 per year?

For starters, most of us aren’t. Only about one-third of American households make more than $100,000 per year, so don’t feel bad if you don’t fall into that 33% group.

But remember – treat it like a business. If your income is $50,000, that’s your business’s profit.

Your “business” makes $50,000 per year.

You trade 1,960 hours per year for $50,000, before taxes.

If you’re spending without considering your position objectively and diplomatically, your breakdown may look like this:

• $8,140 – income tax, annually

• $12,000 – housing, annually

• $12,000 – living expenses, annually

• $6,000 – fun stuff, annually

That’s a “loss” of $38,140. In other words, it costs $38,140 to run the business of your life.

Would you give 1,960 hours and $38,140 for $50,000? Again, probably not. You’d probably be less inclined to make that trade, because when you think about it like a business and consider the margin profit, you’d probably think that working nearly 2,000 hours in exchange for a profit of $12,000 doesn’t make much sense.

It all begs the question: What do you have to show for the amount of your time that you’re trading for money?

While our lives are different than businesses and we need the income to pay for them, the point is that you’re still trading many hours of your life for money. When you think about your life like a business and compare profits to losses, it can put your life’s “profit margin” in perspective.

I remember the first time I did something like this a few years ago. I realized I was making $52,000 per year and saving about $5,200 (in my employer-sponsored retirement account).

The rest of my money was going out the door.

I remember logging out of my bank account, pushing away from the computer, and thinking:

“What do I have to show for the fact that I sit at a desk all day, during the best part of the day, during the best part of the week? A few thousand dollars a year?”

The whole thing felt like a sham, or like a game that I was really losing.

My focus changed from earning enough to have a little spending money on the weekends to increasing the profit margin of my life

If I was going to give 2,000 hours per year to an employer, I wanted something to show for that time – specifically, I wanted money in the bank. I wanted proof that all the time I spent sending emails, making slide decks, and attending meetings wasn’t merely going to paying for overpriced drinks and a roof over my head.

I started working more hours, but doing things that had a higher rate per hour. I tried to find efficiencies in my life, instead of just throwing brute force hard work at things. The first two years were a lot of trial and error; now, I feel like I’ve started to finally hit my stride. A little bit like running an actual business, no?

I started cutting costs in areas where I was wasteful, like eating out too much and not contributing enough to my 401(k) – the easy tax savings bought back thousands of dollars per year from my losses column.

Conclusion

Thinking about your life like it’s a business can help contextualize your effort and income in a way that’s harder when you’re just thinking about yourself as one individual person trying to get by.