The concept of a burn rate is pretty important for companies just staring out.  It refers to the rate that a young company is “burning” through the cash that venture capitalists or other investors have put up.  And sometimes it’s pretty large.  One startup I worked for burned cash at the rate of 1.5 million dollars a month.  It’s been sold to another company now.

Of course with a start-up, the burn rate refers to the amount negative cash flow for a company.  A start up can get away with that - for a while at least - while it’s trying to move towards a profit.  Startups can get away with that (or at least they do sometimes) but you and I can’t.  That’s why it’s important to know how much of our income we “burn” every month, so we don’t burn too much.

Finding a burn rate is simple is one does a monthly budget.  Add up all the bills, and all the expenses and that’s your monthly burn rate.  I calculate my minimum payments on my cards, and try to include a twelfth of my annual payments, such as homeowners association dues, car registration and the like.  Sound simple, and it is.  But I have this feeling that not many people really know how much they spend each month.

Knowing your personal burn rate is important for two reasons.  First, I’ve gone on about how imporant an emergency fund is for personal financial safety.  Most experts seem to indicate the need for three to six months of savings in your emergency fund.  That’s almost impossible to figure out unless you know how much money you use in a single month.

Second, knowledge of your burn rate lets you know if you really are operating with positive cash flow.  I found that when I didn’t know how much I was spending, I was apt to overspend and charge items, planning to pay for them later with money I’d never have because my burn rate was too high for my income.

Yesterday, I posted about my money mistakes.  Well, I don’t want to be all negative, so here’s my list of financial hits…

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Writing this blog has given me the chance to reflect on my previous financial follies - hence the name.  I’m not doing that to extend the misery, but rather to identify and correct the problems I’ve had so I can fix them in the future.  Here’s what I came up with:

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I’ve offered up a few posts on taxes so far, ranging from filing, spending my refund, my plans to not get a refund next year and my thoughts on refund anticipation loans.

But today at 2:00 Eastern Time, someone from H&R Block will be answering tax questions for the Washington Post.  Get in a question if you can, or just go there and read other questions.  I’m planning on visiting and reviewing the questions and answers when it’s over.

I’ve posted about outsourcing - the process of sending jobs in the US overseas - in one form or another in the last week or two.   That’s not only a narrow topic, but it’s also considered a political topic by some.  I will agree that the battles over this are fought in state and federal congress as often as they are fought in the board room, but the main impact ends up on you and your job.  And that impacts your income.

FMF just wrote and excellent article telling why your career is so important.  Anything that affects your career (such as outsourcing) affects your income affects your potential to build your net worth.  Some of you might be thinking that you don’t have a J.O.B. because you own your own business.  But the fact is that you business is your job and it can still be affected.  No matter what you do, someone is looking to eliminate your job - and your income.

Now income isn’t everything, but as I mentioned before, net worth increases with the proper utilization of income.  And if your income takes a hit, so will your plans to use that income wisely.  So I’ve learned to keep growing in my career - learning new skills and looking at ways the market will change in the future.  Because I know that change is inevitable.