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Being an entrepreneur is a lot more demanding — both physically and mentally — than most people think. The majority of entrepreneurs work far more than 40 hours a week, and most don’t make nearly as much money as they would if they were working a corporate job in a comparable field.
Entrepreneurs are also responsible for all of their financial obligations outside of the business, including insurance, savings and retirement. While it can be easy to remain laser-focused on your business, it’s important to look to the future and plan accordingly.
Eventually, retirement will face you head-on, and if you aren’t prepared, it could be a rude awakening. There are also surprises that you could face while running your business that you need to be prepared for. Being prepared for the worst-case scenario is always the best approach.
The entrepreneurial path can be rewarding, and it can also be extremely stressful and full of challenges. Here are some personal finance tips that’ll help you navigate through the entrepreneurial journey and prepare you for the future, as well as protect you along the way.
1. Create a personal monthly budget
It’s important to be disciplined when it comes to your finances, especially when you are starting a business. The leaner you can run both your business and your personal life, the more money you can continue to roll back into the business and fuel its growth.
Many entrepreneurs focus on looking successful rather than becoming successful. Avoid large homes, fancy cars, expensive dining and other unnecessary expenses.
Create a budget containing the bare necessities along with a little extra for entertainment (you have to get out and enjoy yourself on occasion!) When you have a set plan and stick to it, you set yourself and your business up for success.
2. Invest in quality insurance products
When you are your own boss, that leaves all outside responsibilities on your shoulders, and one of the most important is insurance. Don’t try to take shortcuts when it comes to protecting yourself and your business.
Get a strong health insurance policy that covers you and your family, and be sure to have life and disability insurance in place. It is always better to prepare for the worst possible situations rather than try to save a few dollars.
One thing many entrepreneurs overlook is business insurance. It doesn’t matter if you have a global business with thousands of employees and you are selling millions of physical products a month, or you are a solopreneur. Protect yourself with a business insurance policy that covers liability for whatever it is you sell.
3. Allocate money towards an emergency fund monthly
Most business owners don’t have a reserve saved up that would allow them to operate for several months without revenue coming in. The Covid-19 situation forced a lot of businesses to close for good because they couldn’t keep the lights on.
Put money into a business savings account each month. Hopefully, you will never have to touch these funds, and they will continue to build over time. But, in the unfortunate event that you need to tread water for a few months during a dip, it will help you stay above water.
It’s a good idea to have at the very least 3 months’ worth of operational expenses saved up to cover everything, assuming there will be no incoming revenue. If you can, 6 months of reserves is ideal.
4. Avoid personal debt at all costs
To build and run a successful business, you need to eliminate as many stressful situations as possible. This allows you to focus more on the tasks at hand. One of the biggest real-life causes of stress involves debt.
Mountains of personal debt — from credit cards to care and home loans — can pull your focus away from your business. Avoid debt at all costs, and if you absolutely must put some expenses on a credit card, do everything possible to pay it off quickly.
Many entrepreneurs try to live beyond their means, and if they just cut back in the early stages and focused on building a successful business, the money and financial freedom would come faster.