Why are you talking to me about my personal finances? 😳
One of the things we’re passionate about is dealing with the “whole picture” of being an entrepreneur. It’s why we write about things like sleep, stress, and nutrition, on top of stuff like building MLPs. 💫
Personal finance is a big picture thing that impacts your ability to be a successful entrepreneur. If you nail it, you’ll have more flexibility, security, and peace of mind running your business. 😌
If you don’t...well, it can be hell. 😨
Starting a company already puts life in hard mode. You don’t want to make it even more difficult.
We’re not claiming to be a financial advisors 💼
But there are some tried and true ways to sort out spending and saving. The tips below are habits we’ve tried out and seen other entrepreneurs put into practice.
1. First, figure out how much you’re spending and where. 💸
If you want to quit your day job, one of the first things you need to grasp is how much you’re currently spending on food, rent/mortgage, subscriptions, and so on.
This does two big things:
- Tells you how much you need to maintain your current lifestyle
- Helps you pick out what you’re willing to sacrifice
You have wants, and you have needs. If you’re going to put aside more cash, you have to cut back on wants. Maybe you could eat out less. Maybe you could even survive without Amazon Prime, Spotify or Netflix. 😱
Use Mint to track what you spend, or sit down with a handful of highlighters and your credit card statement.
2. Create a flexible budget you can stick to. 📊
You could Dave Ramsey it, and keep cash in envelopes (my personal budgeting system is essentially a digital version of this). But try a flexible budget first.
- Create a few basic categories--food, rent, entertainment--and a max monthly amount for each category
- Give yourself a few months to figure out what’s realistic
- Plan ahead for travels and major holidays 🚙
- Adjust your budget when you overshoot it
- Don’t give up when you blow it for a month (or two) 🔥
The overall goal here is to keep your expenses below your income. ⏬Then you can put extra cash toward savings, paying off debt, retirement, or your company. 🚀
Tools like Mint, Simple, YNAB, and a plain ol’ free spreadsheet can help you create and manage a budget.
Here’s what my personal budget looks like in Simple. I create expenses (left) and goals (right) and either automatically move money into them at a certain time each month or move money in manually. As transactions come in, I mark them as spent from a given category, and the total for that category will go down. If I don’t have enough in that category, I have to move money from another category. Notice I’m not doing a great job this month. I have $146.48 that I’ve spent, but I’ve already blown through most of my budget.
3. Tackle high-interest debt before you take a pay cut 💰
Before you quit your day job, or sink money into a new venture, make a big dent in any high-interest debt you have, like credit cards. Especially if you’re starting a SaaS business, it could be a while before you pay yourself a decent amount. Your debt probably won’t move much during that time, and you don’t want to rack up another years’ worth of high interest.
This flowchart from the r/personalfinance community is an incredible guide to help you prioritize spending.
4. Build up savings you can lean on 📈
Even if you do make money in the first few months of running your business, your income could jump around a lot. Make sure you have some savings--even if you have alternate revenue streams--to cover you. Keep in mind that emergencies and unexpected expenses aren’t things that might happen; they’re things that will happen. 😷
5. Whenever possible, give your future self a hand 👋
- Automate payments, so you don’t rack up fees or damage your credit score
- If you have a business or want to take on investors, keep your accounts separate.
- Set up a recurring calendar event to review your budget. 📅Especially if you hate dealing with finances.
- Ask other entrepreneurs who they use as financial advisors or accountants. Even if you don’t need either of these right away, it’s good to have options when you need them.
- If you have a partner, spouse, or family, bring them into these discussions! 👪 Finances can be a huge source of relationship tension, and that makes them really hard to talk about. But as we’ve mentioned before, you need a damn good support system to do this thing well. Don’t go at your businesses, or your finances, alone.
Can you start a startup without following these tips? 👀
Of course. Loads of people have created successful startups and broken all the rules. But those folks are the exception, and they’ll be the first to tell you how hard it is.
It’s not uncommon for a founder to get into debt. And when losses pile up, anxiety and depression usually follow. Starting a startup is plenty difficult enough without that looming over you.
Give yourself the best possible shot at this thing. Keep your personal finances healthy, so you can focus and deliver on a kickass business.
What personal finance tips have worked for you as a founder?