Every entrepreneur should prepare their personal finances because you may never know what can happen to your business.
Entrepreneurship is an extremely demanding life choice that requires a high commitment of time and resources to succeed. As such, there is not much time left to manage personal finances on top of staying healthy, sleeping and spending time with loved ones. You probably became an entrepreneur in order to do what you love while building a stable wealthy financial future for yourself. But, if you spend all your time focusing on your company’s finances and growth that you neglect your personal finance, you could severely compromise your future. Perhaps your business may suffer too.
So, here are five (5) practical personal finance strategies that every entrepreneur should use:
I. Set Goals
I am a firm believer in goal setting. Therefore, won’t stop championing it as a great strategy to focus and work out your personal finance. So, ensure that you set specific and achievable goals. They will serve as a powerful motivator to keep you on track and give you a framework upon which you can measure the success of your efforts. Being consistent and following through, will help you achieve those goals.
Solid Strategy:
A. Budgeting – This is the first step to any solid personal finance plan that has a shot of success. Budgeting with a possibly invariable income can be quite challenging, but not impossible. There are several approaches you can use. The first being the most widely used, is you take your monthly income, subtract the necessary expenses. Then distribute the rest to personal savings, investments and perhaps discretionary spending. The second, a better path for entrepreneurs, is to work on minimizing personal expenses as much as possible. Once you know exactly how much you need, set it as a benchmark to work with. Then simply make the amount of money to reach that cost and have more leftover to save or invest.
II. Think Long-Term
Adopt long-term personal finance plans intended to optimize for the long-term. Though most of the personal-finance strategies that we use are focused on building daily, weekly and monthly habits, as entrepreneurs, those actions need to optimized for the long-term. The further ahead you can plan, the better off you will be in a few decades. Entrepreneurship is a long-term game, so cast long-term.
Solid Strategy:
A. Investments – To have a solid long-term plan in place, you’ll need to invest whatever you set aside. This will go a long way to help catapult you into a successful financial future. So, take the time to establish a solid plan. Particularly a retirement plan, since you cannot guarantee the perpetuity of your business. Invest your money in a good pension fund, also consider placing your money assets and securities into a brokerage platform. Whatever you do, diversify your investment portfolio in stocks, bonds, mutual funds, REITs, and much more.
III. Reduce Risk
Starting a business and depending on it entirely for your livelihood, can be quite risky. Therefore, the last thing you want is this risk pouring into other areas of your life. Though some forms of risk are unavoidable, it is your job to reduce the risk you face as much as possible. This can be achieved by keeping your financial life in balance.
Solid Strategies:
A. Emergency Fund – What if your business goes through a tough period – can’t turn a profit, or you need to cut back a little, or even goes under completely? These are some of the worst-case scenarios for most entrepreneurs. As such, we need to be very realistic about the looming threats that we need to prepare for. Setting up an emergency fund that can cover about 6 months to a year of your expenses will greatly help you survive the tough times. So, if you don’t have an emergency fund, establish one. Set aside a bit of money every month until you have accumulated a significant amount to cover at least six months of your expenses.
B. Insurance – The best way to reduce financial risk in your life, is by utilizing the right personal insurance products such as home, asset, personal liability, health and life insurance. Make sure that you get the best deals possible. Do whatever you can to lower your risk profile as much as possible. This is assuming that you have already insured your company for liability insurance and similar policies.
C. Diversify Your Income – Multiple income streams – not just your business – reduces the risk associated with having a single income stream. That is, protection if one source becomes unavailable or declines in value. Several income streams increase the total amount of money you make. Thereby increasing financial flexibility and putting you on the fast track to financial independence. The most common alternative income streams are investments that pay dividends/interest income, rental income, weekend gigs etc. Remember, the more diversification in channels the safer your money will be.
IV. Strive For Stability
Entrepreneurs perform better when they are stable: they are more confident, make better decisions and are more productive overall. Stability will help you compensate for the volatility of the lifestyle entrepreneurship creates, allowing you to perform at your best.
Solid Strategy:
A. Debt Reduction – debt is quite problematic for entrepreneurs, particularly when taken to start a business. It’s like having another boss that is super demanding and stressful. Striving for stability means getting your debt under control by making it work for you, not the other way around. Thus, only take on good debt i.e. debt to invest in an investment that grows in value and generates long-term income. As for the bad debt you may already have, aim to eliminate it by making an excess of the minimum payment each month to systematically reduce it.
V. Continuously Learn
Entrepreneurship is about continuous growth and learning, this is the same for personal finance. Therefore, commit to continuously learn new things and new ways to employ your money to work for you. Now and then, adjust your goals as you make more progress, gain new information and even change strategies when you become more confident in your abilities. As an entrepreneur, never stay comfortable for too long. Strive to improve and make even more progress.
The Bottomline
Once you have set-up these personal finance strategies, make time to regularly hold yourself accountable to the higher-level plans you have set. This way, you’ll remain on track for the long-term financial goals. They will provide you with better financial protection, and ultimately success as an entrepreneur. Remember, financial stability means a smarter and more capable entrepreneur.
Image credits: To by PICHA Stock from Pexels.
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