The Personal Finance Habits of a Successful Entrepreneur
When launching a business, or getting started in a new field all on your own — money is everything .
This may seem a little counterintuitive to finding that happy lifestyle, though when starting out, money truly is something that you need to fall in love with and focus your life around, at least in the very beginning.
Your cash flow, income and debt can take a year or two to get the hang of if you’re new to being an entrepreneur, though with a commitment to being financially wise and making calculated fiscal movements, you’ll be on the right track to becoming a successful entrepreneur.
In this article, we’ll take a look at some of the personal finance habits of a successful entrepreneur and how you can replicate these in your own business or lifestyle.
Don’t Be Worried About Profit Just Yet
This is something that needs to be addressed first and foremost — profit and revenue are very different and should be treated as such. Even though this may not be a ‘habit’ it certainly is a mindset that is going to dictate how you live your life for a very long time as an entrepreneur.
To start, your revenue is not your profit. A single dollar, or five hundred dollars in revenue is not a dollar or five hundred dollars that can be spent or invested in your business. It might be keeping you afloat, but only if it’s utilised correctly.
Your revenue is the incoming cash you’ll be using to cover the costs of providing your products and services — and once these services are covered, then you have your profit.
Of course, this is business 101 for most people, though we’re not done yet.
When it comes to your profit, you’re going to want to find the most effective way to inject this back into your business after you’ve covered your living costs. In the first six months to a year, it’s incredibly wise to hang on to and reinvest and much of your profit into growing your business.
Once you’ve grown your brand to a stable level and it’s chugging along quite nicely, you can then move on to spending and having a little fun with your business’s profits.
Create an Emergency Fund
One of the most imperative things entrepreneurs will need to do is set up an emergency fund as soon as possible.
From the outset, you should have a secondary bank account dedicated to setting aside some of your income and building this cash amount for emergencies.
In the event you lose a big client, or you have a major bill come around, you’ll be able to continue operations and soften the blow with your emergency fund.
For some, this fund rarely needs to be used, though it’s always good to have. Some business owners often move these emergency funds into investments from forex, stocks and cryptocurrency to keep their money working for them.
That said, invest through a bank or an exchange like Independent Reserve to get the most out of your emergency fund — just be sure it’s a stable investment.
Develop an Intelligent Budget You Can Stick To
Regardless of what you may have heard about budgeting, in business finance, there’s nothing more important than having a financial plan .
In every finance-related thing you’re doing, you need to be able to track where a dollar amount is coming from, where it’s going and how it affected your business. This step may seem a little pedantic at first, though if you’re able to see the result of a dollar amount, and whether it resulted in profit or loss, you’re better able to plan for the future and predict and foster future growth.
To soften the blow from this somewhat tedious process — do it on a monthly or bi-monthly basis.
Sit down at the start of each month, or every two months and outline what your profit, loss, revenue and other expenses are and go from there.
At the end of each month, take a look at how you’re going and whether you’re in the green or the red and you’ll be far more confident and aware of what’s going on in your business.
In the end, you’ll be more calculated and able to make far more intelligent and informed business choices that focus on growth and success.
Hold and Invest Money for Tax
If you don’t already know, when you’re acting as your own boss and running your own business, there aren’t any accounting staff members to set aside your tax. That means you’ll need to do it on your own.
However, this also means there’s more leeway for how you set aside your money for tax.
Depending on what you’re predicting to earn, you may need to set aside 10 per cent, 20 per cent or higher for your tax bill.
With this percentage figured out, work to set aside this amount from your income each month, and move it toward a high-interest savings account or somewhere else you can rely on to earn you some extra income.
As we’re sure you’ll agree, since you need to set aside this amount regardless, it should be money that works for you.
With high-interest accounts, or even investing in a safe stock, these savings are earning with you.
Cut Down Debts As Soon As Possible
Another key financial habit of those successful in business is getting a hold of debt as soon as possible.
There’s a good chance that once you’re earning you’ll want to maximise your income and there’s no better way to do this than by killing off high interest loans and credit.
You could be shaving those 12 per cent or 20 per cent credit card interest fees by paying off your debt as soon as possible and saving yourself a tonne of extra cash for emergencies.