Many entrepreneurs neglect their personal finances even though their businesses are doing well.
They are focused, determined and make money – but their own savings and bank accounts are a disaster.
So what’s going on and what should they do about it?
They’re so focused on investing in their entrepreneurial dream that they forget to create security for themselves.
Here are seven steps you must take if you are an entrepreneur.
1. Save for Your Retirement
Yes, I know what you are thinking. You are probably thinking that your business is your retirement savings.
If that’s your logic, I hate to break it to you that you’re putting all your eggs in one basket, and if something unlikely happens – let’s say a global pandemic – that puts your business at risk of bankruptcy, you’ll be facing old age with cat food for dinner.
There’s no way around it. You have to build a proper retirement fund in an account with tax benefits.
2. Build Up Savings
When Bill Gates was a young man building Microsoft, he lost a big client. He faced a business crisis and a personal crisis because he had hired friends, their wives and their extended family to work for him. He was afraid that he would have to let them go.
Warren Buffett advised Gates to build the firm’s cash savings equivalent to a year’s worth of the company’s spending.
Think about that for a moment. What would it mean to you if you could keep your business afloat for a whole year? Even during a giant lockdown?
You should also create savings and buffers with your personal finances. You should have at least two kinds of cash savings:
- An emergency savings account for things like a car repair or a new fridge.
- An ‘independence’ savings pot with 5-6 months of salary. This will give you peace of mind and make it easier for you to make bold decisions and focus on your business.
3. Keep Your Company’s Finances Separate From Your Own
Don’t do crazy things like cash out your retirement savings to invest it in your firm or to cover a loss in your firm.
Choose a company structure that separates your personal finances from the destiny of the company. Make sure that you cannot personally be held financially responsible if the business goes bankrupt. Talk with a lawyer about that.
Separating your business and your personal finances also means paying yourself a decent salary. So many entrepreneurs pay themselves less than the experts they hire because they are focused on reinvesting in the firm.
You have to pay yourself a fair share so you can begin to build up assets other than your firm.
4. Build Up Assets
Yes, let’s talk about assets. What are they?
They are money machines that increase your net worth while you sleep. This could be rental property, bonds, shares or even pinball machines.
The best kind of assets are, in my opinion, shares in publicly traded companies. You get to become a co-owners of other people’s businesses without having to do the actual work like recruiting, planning and executing. The daily management will take care of all that nitty-gritty stuff that you deal with in your own business.
As a business owner, you have tremendous advantages over other shareholders because you are used to thinking about running businesses – and stocks are exactly that: businesses.
When deciding what to invest in, look at the whole business and evaluate it as if you were about to buy the whole thing and run it yourself. Does it seem well run? Is it protected from competitors? Does it actually make money? Is it growing? Do you believe in the product or the service that it makes?
5. Set Strong Financial Goals for Yourself
You probably have sound business plans. But do you have any plans for your own money?
It’s time to view your own life and personal finances through the professional lense you employ at work. Be accurate and ambitious.
What about working on becoming financially independent even before you’ve reached your goals with your business? Would that be a goal worth working towards? What kind of relief would it be if you knew that you are safe financially?
6. Use Professional Help
You probably use accountants and lawyers to make sure that your business is running smoothly.
When it comes to your business, you probably already know that it’s more costly trying to do everything yourself instead of outsourcing and hiring experts. You can’t afford to make mistakes with the annual report or screw up some of the legal work that’s supposed to protect you.
You also need help setting up your personal financial goals and routines, so get in touch with a financial advisor and get some help cleaning up the mess.
It’s money well spent.
7. Keep Learning
The people who are most successful in life never stop learning. They keep studying new tools and gaining new knowledge that they can use in business and in life in general.
People who think they learned everything at school will never make it big. School’s job is mostly just to teach you how to learn and follow instructions. The rest is up to you.
It’s important that you keep acquiring the knowledge that you need to have in order to solve the next problem you encounter or to manage things better.
Use coaches, take online courses, take offline classes, listen to webinars and join mastermind groups.
Learn from the people who already know more about investing or running a business than you. It will give you a fast track to success.
The investment you make in yourself and your knowledge will be the best investment you make. You are, after all, your biggest asset. If you want to learn how to invest in stocks, get some knowledge.
Don’t forget to read the e-book that will set you free. You can get it here.