This is a guest article by Jon the Saver, a personal finance blogger at Free Money Wisdom. His mission is to spread financial wisdom and help people get their financial lives under control. In his down time he loves a mean game of Scrabble and spending quality time with his fiancee.
I’m probably the only personal financial blogger who works in the construction industry. It may sound like a strange combination, but it actually makes sense. There are so many financial aspects to construction, it blows my mind.
To give you some background, I currently work for a Fortune 500 general contractor in the heavy civil industry. We work on large scale projects like highways, bridges, and power plants. I graduated college with a degree in Construction Management and love what I do. How many people do you know can say that? Well, I can and I’m proud of it! I love the ability to go out on a project site and then be able to come back indoors. I would hate cubicle life and feel like I’m wired for construction.
To say that the construction industry has revolutionized my personal finances is pretty bold. As bold as it may be, it’s true. I have always had big picture personal finance principles as my foundation, but construction has really taught me a lot about personal finance, some of it from studying long hours in college and some of it from getting my work boots dirty in the field.
Let’s dig our boots in and explore this revolution.
1. Execution without planning will result in failure
You can try to execute, but if you don’t have proper planning, it’s doomed to fail. In construction this happens when someone doesn’t do his job and forgets to plan accordingly. This could be as simple as a missing checklist or as serious as not ordering enough concrete. Another big one is planning for safety. You never want injuries on your job site. If you don’t engineer out the risks of an operation, how can you be confident in your execution?
Effect on finances: This is everything from proper retirement planning to education on personal finances. I mean, why do you read this blog? Probably because you want to plan for your future. Planning is everything. If you have a good plan, you’re destined for success.
2. 80/20 rule applies to your finances
I’m a huge believer in the 80/20 rule, also known as the Pareto Principle. I first heard of this rule from a professor in college. The basic idea is that 80% of your results come from 20% of your work. More and more I’m finding this to be true. There are only a handful of decisions that are really going to affect you on a construction job. Things like a concrete pour are extremely critical, whereas a meeting on the door paint may be pushed to another week.
Effect on finances: Very few of your decisions will really have a big effect on your finances. I would say the top two decisions that fall into the 80/20 rule are living a debt-free life and saving 15 to 25 percent of your income for retirement. Now, there are others, but those two come to mind right now. Take the 80/20 rule and apply it to your financial life. You might even start to feel less stressed.
3. Where are you headed without a schedule?
A construction project is 100 percent schedule-driven. Without an organized schedule, how will you know what will be happening the next week? How will you know when to mobilize big equipment? These issues are solved by keeping an in-depth schedule and maintaining it. Most of our meetings on a job site are schedule-related, and there is good reason for that.
Effect on finances: Your retirement timeline will determine what your savings goals and personal schedule looks like. Knowing this timeline will also tell you what percentages you want to be in various asset classes for stocks and bonds. For example, a 20 year old should be invested in 20 percent bonds and 80 percent stocks. Now, take a 50 year old. This person would want to be invested in 50 percent bonds and 50 percent stocks. Knowing your schedule has a huge impact on your investment decisions.
4. Know your costs
On a construction project, knowing your costs will make or break your bottom line. Everything down to the office supplies need to be accounted for. Not only is this a good practice for keeping good records, but it ensures that you get paid by the owner. Without a record of your costs, your boat is going to sink and sink fast.
Effect on finances: When you relate this concept to your finances, this means keeping track of all expenses and where your money is going. Knowing where your money is going is crucial to saving effectively and ensuring you don’t fall into the trap of debt. If you don’t know where to start for tracking your costs, I recommend Mint.com.
5. Protect your assets
As a general contractor, we own much of our heavy equipment, everything from bulldozers to mobile cranes. Part of the responsibility of owning these pieces of equipment is to protect our assets. We maintain this equipment and always keep the moving parts up to date. A broken bulldozer is useless in the eyes of a general contractor.
Effect on finances: This one is more human related. Part of personal finances is keeping your body and mind healthy so you can enjoy your retirement or enjoy your hard earned money now! I’m always trying to explain this to people. Your body is your greatest asset. Without it, you’re in for some serious repercussions. Eat healthy and exercise on a weekly basis. You want to enjoy your “glory years” right?
Who knew that construction had so many lessons that you could apply to personal finances? I hope you enjoyed this post. Now you know it’s not so crazy to be in construction and love personal finance!
Updated November 20, 2011 and originally published November 18, 2011.