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Being an entrepreneur is much more demanding, both physically and mentally, than most people realize. Most entrepreneurs work well over 40 hours a week, and most don’t make 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 stay focused on your business, it’s important to look ahead and plan accordingly.
Retirement will eventually hit you head-on, and if you’re not prepared, it could be a rude awakening. There are also surprises he could face in running his business that he should 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 to 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’re starting a business. The more efficiently you can manage both your business and your personal life, the more money you can continue to reinvest in the business and fuel its growth.
Many entrepreneurs focus on looking successful instead of becoming successful. Avoid big houses, fancy cars, expensive dinners and other unnecessary expenses.
Create a budget that contains the bare necessities along with a little extra for entertainment (you have to get out and have fun once in a while!) When you have a plan in place and follow it, you set yourself and your business up for success.
Related: This $40 Personal Finance Masterclass Should Be Required Learning for Entrepreneurs
2. Invest in quality insurance products
When you’re your own boss, that leaves all outside responsibilities on your shoulders, and one of the biggest is insurance. Don’t try to take shortcuts when it comes to protecting yourself and your business.
Get a solid health insurance policy that covers you and your family, and make sure you have life and disability insurance. It’s always better to prepare for the worst possible scenarios rather than trying to save a few bucks.
One thing many business owners overlook is business insurance. It doesn’t matter if you have a global business with thousands of employees and sell millions of physical products per month, or if you are an independent entrepreneur. Protect yourself with a business insurance policy that covers liability for whatever you sell.
3. Allocate money to a monthly emergency fund
Most business owners do not have a set aside reserve that will allow them to operate for several months without income. The Covid-19 situation forced many businesses to close permanently because they couldn’t keep the lights on.
Deposit money into a business savings account each month. Hopefully, you will never have to touch these funds and they will continue to accumulate over time. But, in the unfortunate event that you need to stay afloat for a few months during a dip, it will help keep you afloat.
It’s a good idea to have at least 3 months of operating expenses saved to cover everything, assuming there will be no incoming revenue. If you can, 6 months of reserves is ideal.
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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 causes of stress in real life has to do with debt.
Mountains of personal debt, from credit cards to home and care loans, can take your attention away from your business. Avoid debt at all costs, and if you absolutely must put some expenses on a credit card, do your best to pay them off quickly.
Many entrepreneurs try to live beyond their means, and if they would just cut back early and focus on building a successful business, the money and financial freedom would come faster.
Related: Personal Finance and Covid-19: The Changing Times of Saving and Spending