In entrepreneurship, one of the first rules you learn is not to mix your personal and business finances.
Well, we’re here to tell you that going too far in the other direction isn’t the best course of action either.
If you’re not one of these people, chances are you know someone who is. When they’re not working on their business, they’re investing their profits back into it. As a result, their financial planning takes a backseat to their business operations.
Want to learn how to manage your finances the right way? Start with these three effective tips.
1. Create an Emergency Fund
Your first rule of business should be to create an emergency savings fund. As a general rule, your fund should have 3-6 months’ worth of living expenses. Ideally, you want an even larger fund to account for any fluctuations in your cash flow.
Let’s say you lose one of your biggest clients and have to take a pay cut. Can you estimate how long your emergency savings would last? If you’re satisfied with the estimate, it will be much easier to focus on running your company.
This is also why you shouldn’t lock up your fund in long-term CDs or risk it in the stock market. The only function of your emergency fund is for it to be there in the case of an emergency.
2. Plan for Retirement
When it comes to managing your finances, saving for retirement will always be worth it. The easiest way to do so is to set up a SEP IRA. Other tax-advantaged retirement plans can be solid options as well.
Planning for retirement is also a good method of diversifying your savings. You have many investment options to choose from, from bonds and stocks to money market funds.
Keep in mind that saving for retirement can make sense even if you don’t have any employees. Depending on your qualifying factors and income, you may save more money as a self-employed person than as an employee.
3. Automate What You Can
This tip feeds into what we talked about at the start of the article. When you spend too much time managing your business finances, your personal obligations will take a hit.
These obligations can include business loan payments, mortgages, credit cards, and so on. Check with your bank to see how they handle paying bills of fixed amounts. If you can, set up alerts for any accounts you have to review before paying.
Struggling to control your finance managing process? If so, consider using third-party solutions to simplify these activities. For instance, ENGAGE offers plenty of FinTech solutions that could help any business.
Other Financial Planning Tips
As an experienced business owner will tell you, financial planning is a juggling act. If you can take care of your personal finances, you’re more likely to be successful in your business. These three tips will give you a leg to stand on—after that, it’s all up to you.
Want to know more about planning your finances? Keep checking out our Business section!