If you are a high-energy, laser-focused entrepreneur who is intent on your startup achieving jaw-dropping success, you might actually not be an expert when it comes to the way you handle personal finances.
This apparent contradiction may seem strange to some. After all, isn’t securing funding a huge part of any startup?
Well, yes, most of the time. However, the amusing stories of brilliant, serial inventors and innovators breaking exciting new ground — while simultaneously bouncing checks at a local restaurant — are legion. Clearly, there are plenty of go-getters out there who still haven’t bothered to learn how to balance a checkbook, let alone handle personal finances.
If that describes you, there’s no need to worry. Today’s digital economy is shot through with financial management apps. It features nearly limitless learning tools and fosters the development of highly specialized skillsets for outsourcing.
In fact, outsourcing personal finance to someone whose time bills out at far less than yours only makes good, bottom-line sense.
Whether you decide to hire a personal accountant or not, you will always want to have a handle on what’s being done with the money you take home. These nine simple practices will make all the difference as you set out to bring order out of chaos. More importantly, they will give you peace of mind. You can get back to changing the world for the better.
1. Start saving as if you really mean it.
Part of your personal financial freedom is setting aside a specified amount that goes directly to a savings account or investment fund. If your income supports a specified dollar amount every month, think of this as “making payments” to your financially secured future. If you can have that amount deducted from your take-home before you ever see it, so much the better.
Nowadays, newcomers to the investment market have a much wider range of options to consider than in years gone by. You can typically get started with a lot less cash and you have a wider variety of places to invest it, too.
For example, thanks to companies such as Rocket Dollar, you can now easily broaden your investments in your retirement account with things like cryptocurrency or real estate. While these investments may not be incorporated into more traditional retirement packages, these types of alternative investments exist so people can take advantage of newly-minted (but highly profitable) opportunities.
2. Set realistic, measurable, and clear financial goals.
This might be where you want someone else to help you out with how you handle personal finances.
Too often, busy people don’t take adequate time to consider how their financial goals might crash to pieces on the shores of reality. Things break. People move on to new jobs. However, a seasoned financial planner can help you set achievable goals and make allowances for setbacks.
The one thing you do not want to do is set overly lofty goals…and then miss hitting them every month. This common mistake results in frustration, distraction, and (very often) throwing good money after bad. Run your personal financial goals past at least one other person who knows far more about successful planning than you do.
3. Start tracking everything immediately.
As you embark on enhanced personal financial responsibility, you don’t necessarily have to make an effort to modify your habitual spending patterns. The key is to understand your spending patterns instead.
Budgeting apps like Mint can provide you valuable insights into exactly how you’re spending your money. Sure, it may feel like you just splurge on that iced coffee in the morning occasionally, but tracking it with a finance app may bring to light the fact that you actually splurge nearly every day of the week on it.
Your big-picture goal here is to capture data, in this case, data that reveals not how you think you spend your money, but how you actually spend your money.
4. Draw an unbreachable line between personal and business expenses.
Far too many forward-thinking people have acquired a Gray Zone in their thinking when it comes to personal finance. Namely, they begin to think of their lives and their business as one and the same. They are not.
You can save yourself a great deal of heartache now by adopting intentionally black-or-white thinking when it comes to expenditures. Either this is a business-related expense, or it is for personal reasons. Period.
This unyielding approach to your expenses can save you a lot of pain not only when you do your taxes at the end of the year — though it will certainly do that — it also draws a firm boundary between what can be seized or sold off should your company ever find itself in legal trouble.
5. Live beneath your means.
If you are starting your own business for the primary purpose of driving a brand new luxury car, smoking expensive cigars, and becoming known as a high-roller in Vegas, you might want to step back and engage in some personal reflection.
After that, consider the fact that you are far more likely to succeed with whatever you are doing if your overhead is (and remains) as low as possible.
Many entrepreneurial types chafe at the suggestion of keeping personal expenditures low. They forget that Warren Buffet lives in a modest house. The purpose behind living below your means is not constraining, it’s the opposite. Having extra at the end of every pay period frees you up to consider paying down debt quicker or other investment opportunities.
6. Over time, build up an emergency surplus.
In addition to setting money aside at regular intervals for an IRA or other investment strategy, you should set up a Personal Emergency Fund. This account should be equal to at least three months of your family’s operating expenses. This fund should be liquid — instant, easy access — and considered “untouchable.” Don’t go near it unless a true emergency exists.
Many entrepreneurs balk at this idea. Keeping this fund 100% liquid means that they make far less in terms of interest or return.
Again, the purpose of this fund is not to deliver a powerful ROI. Rather, it’s to keep you in your house and your family eating should something unforeseen happen. You should evaluate the amount of this fund regularly.
7. Keep the IRS (or other taxation officials) happy.
If you’ve done a good job of tracking absolutely everything — see Step No. 2 — then this guideline becomes much, much easier.
By keeping the IRS or other taxation authorities accurately informed and paid, you free up your entrepreneurial mind to 1) sleep better, and 2) expend more of your mental effort on building your groundbreaking business.
If you want to see a great business idea stopped dead in its tracks, pause just long enough to do a little online research. Look into various promising business ideas that perished (or were bought up) once a startup got into some trouble with the IRS. You can put off paying attention to the way you handle personal finances for only so long.
8. Shore up your weaknesses with newsletters, courses, and information.
You’re great at whatever you do, but not as strong in personal finance as you might like. That’s fine! No one is consistently awesome at absolutely everything.
Strength comes from admitting where you need training. Weakness festers and grows when we deny that we need help.
If there are areas of personal finance where you could be doing better, start looking around for personal finance courses, like Udemy’s, that teach these skills. Your local community college or career center might also have some resources that would help you level up.
Perhaps one day, you won’t need a personal financial planner because you will have acquired the knowledge you need. Win-Win!
9. Set up regular review sessions.
OK, so you are trying to make a significant change with regard to how you handle your personal finances. Great! Start out by accepting the fact that you won’t get it perfect your first time out.
Every good plan serves as a strong starting point, not a final destination.
Schedule regular times to review how you are doing with your personal finances. Review progress on the various changes you hoped to implement. Collect as much empirical data as you can.
Don’t allow yourself to be swept up in any emotion whether the results are good or bad. Maybe you can do that later, but initially, you simply want to write out an honest evaluation for your records.
Whether you do this once a month, once a quarter, or once a year is less important. The key is to have regularly updated data with which to chart your progress.