As a business owner, you should never mix you business and personal finances, but this is something most entrepreneurs have a difficult time with. A lot of business owners spend so much time running their business, working on their business, and investing profits back into it that they lose sight of their personal finances. A lot of entrepreneurs are brilliant, but are not careful when it comes to managing their own money. In fact, business owners tend to get a bit lazy with their personal finances – spending too much, not saving for retirement, making risky investments, and more!
If you’re a business owner, it will pay to get smart about your personal finances. Here are some tips to help you:
Build An Emergency Fund
It is recommended that you have 3-6 months (after taxes) in emergency savings. You may even want to have a larger savings fund for the business incase of a downfall, seasonal change, or other fluctuation.
We also don’t recommend investing your savings in the stock market or locking this money up in long term investments. Make your emergency money easy and accessible when needed. Knowing that your family is protected in case of emergency will allow you to better focus on running your company. An emergency fund will give you peace of mind and allow you to make the right, confident decisions in your business.
Manage Your Personal Credits
You need to make sure your business has good credit, but that you also have good personal credit. You MUST pay bills on time, even if it is only the minimum on your credit card. You should also pay attention to your credit ratio, which is the % of available credit limits that you’re actually borrowing at any given time in the month. If you can keep this below 30%, this will improve your credit score and help you with getting approved for personal loans.
Save For Retirement
Small business owner often invest profits back into the business and forget about retirement altogether. Instead of doing this, saving for retirement can help you diversify your savings into a wider array or investment options: stocks, bonds, ETFs, and mutual funds. Your business is most likely your biggest investment, and you don’t need to invest every dollar back into it.
Invest Appropriately For Your Risk Tolerance
We recommend that you diversify your portfolio of assets that are appropriate for your risk tolerance. Depending on your investment goals, you might want to invest a large percentage of your portfolio in stocks, so you can capture more of the long-term growth until you retire. Stocks can be risky, but generally have the best potential for return on investment.
Seek Professional Help
Financial advisors can help you make informed decisions about your personal finance.
If you can make these improvements to your personal finances, you will most likely be able to focus on running your company with the right mindset. Having peace of mind about your personal finances will be truly priceless.