5 Tips To Manage Your Personal Finances As An Entrepreneur
Entrepreneurs are generally well-versed in various business aspects, such as planning, marketing, and sales. They have bright income-generating ideas and have a solid foundation for their business ventures. Furthermore, successful entrepreneurs possess the discipline and hard and soft skills to help drive their teams to success.
Entering and flourishing in the business sector can be challenging yet rewarding at the same time, especially if you start to see positive returns. But career aside, how should you manage your personal finances as an entrepreneur? Find out the answer below.
- Come Up With A Personal Financial Plan
One of the essential processes entrepreneurs constantly perform to ensure their business remains afloat is financial planning and analysis (FP&A). But what is FP&A? Essentially, it’s an analysis that involves drawing up a detailed plan based on financial goals. It entails capturing, analyzing, planning, and forecasting the company’s financial aspects, allowing them to make well-informed decisions that can propel the business forward.
The same goes when planning your personal finances. Develop a holistic financial plan as an entrepreneur by categorizing your finances into business and personal. While you may already be a pro in the business category, personal financial planning involves dealing with your personal needs and expenses, including your family.
This step is critical as many entrepreneurs tend to use their personal savings to grow their businesses. It’d be worth noting that this practice comes with risks, such as having nothing left in your personal savings account when a crisis strikes. Hence, it’s essential to consult trusted financial advisors to help you with all aspects of personal financial planning and how you can separate business assets.
- Boost Your Asset Protection
Asset protection is a critical topic in personal finances among entrepreneurs. This aspect must be a priority in your personal financial plan and management to prevent wasting money and efforts when facing litigation.
The common legal vehicles to help protect your personal assets include trusts, partnerships, and corporations. Generally, these asset protection strategies involve legal ownership, management, and liability protection. For instance, limited partnerships consist of general partners and limited partners. The general partners manage all partnership affairs with personal liability for obligations and debts. On the other hand, limited partners don’t have personal liability for obligations and debts.
- Address Financial Planning Factors
As part of managing your personal finances, you must also address other financial aspects, such as the following:
- Estate Planning: Plan how you would want your wealth and other assets to be distributed once you pass away to protect your family from probate. Consider hiring an estate planning lawyer to help in drafting a will.
- Educational Planning: You can also take this time to allot a percentage of your income to fund children’s education. You can inquire about educational plans from different providers for comparison.
- Insurance Planning: Determine the best type of life insurance as a long-term investment to protect your family financially if anything happens to you. You can consult an insurance advisor for expert advice.
- Retirement Planning: You can set aside a fixed amount or income percentage for your retirement account. That way, you can enjoy retirement without worrying about finances in the future. You can also talk to a reputable financial advisor to help you manage your finances and allot a portion for retirement.
- Limit Personal Expenditures
It can be easy to get thrilled when your business is doing good. Moreso, if you have unexpectedly high returns in a short period. However, it’s not recommended to be lax and spend money restlessly. Even with good revenues, limiting unnecessary personal expenditures, such as shopping and luxury vacations, can help you stay on top of your finances and manage it efficiently. While you can still reward yourself for your success, the key here is to be smart in your expenses.
That’s when budgeting comes into play. Allot a budget for essential things, such as your groceries, electricity, home heating and cooling bills, mortgage, and other recurring expenses. Also, don’t forget to set aside a percentage for your savings. And if there are enough funds to spare, you can devote a budget for family trips and other leisure and recreational expenses.
- Separate Business And Personal Bank Accounts
Business management involves many elements, including taxes, receivables, procurement budgets, etc. For this reason, it’s advisable to have a separate bank account for your business and personal savings. Otherwise, the overlap can cause confusion and conflicts, especially for business partnerships.
- Personal Bank Account
You can set a percentage of your monthly net profit for a solo-owned business in your personal savings account. Consider the money as your salary for a job well done. And because that’s your personal money, you can budget and spend it however and whenever you like it.
- Business Bank Account
Your business bank account serves as your savings intended for your operations. This account allows you to withdraw money to buy equipment or pay employees’ salaries. Moreover, you can also pull money from this account to use for claims and legal matters that your business insurance doesn’t cover.
There are various ways you can protect your hard-earned money from your business ventures and investments. It all starts with knowing how to manage your personal finances, which includes proper planning and implementing best money practices. However, if you’re facing personal finance issues as an entrepreneur, don’t hesitate to consult an experienced financial advisor for expert guidance.