Entrepreneurs and business owners need to manage the financial health of their business, and many do it well. But when it comes to their own personal finances, many fall down, despite it being just an important. Here’s why and how entrepreneurs should keep (and stick to) a personal budget.
Keeping Your Personal Costs Down Protects Your Business
Starting your own business can be an exciting prospect, you have almost limitless possibilities in front of you, the ability to be the master of your own destiny, and the chance to have the freedoms you always wanted.
However, running your own business can be just as daunting, stressful, and confusing. Unlike in a traditional job, you have no boss or manager to tell you what to do or guide you in the right direction. People running a business for the first time are often the ones that need this guidance the most.
That’s why around 20% of new businesses fail within their first year and 60 % within their three years. Often, the lack of guidance has led to the businesses spending too much, not generating enough revenue, and becoming insolvent.
Yet, many business people would be able to keep more cash in their businesses if they cut down their own personal expenses. A lower personal burn rate means you’ll be able to draw a smaller salary or your savings will last you longer, so you’ll have more time to develop your business.
But how can you do this?
Don’t Fall Into the Status Trap
Many people who’ve never set up their own business assume that all entrepreneurs must be wealthy people. They often expect them to wear designer clothes, drive expensive cars, live in a large house, travel regularly, and have all the latest gadgets.
Some new entrepreneurs fall into the trap of trying to live up to these expectations, even if they don’t have the money to do it.
In reality, you’ll be much better keeping hold of your old phone for a while, wearing the clothes in your wardrobe, sharing a small apartment or even moving back in with your parents, and using public transport if you don’t already have a car.
In this case, a quote often attributed to Dr Seuss is relevant: “those that mind don’t matter, and those who matter don’t mind.”
Set a Budget
Another quote that’s relevant here is from the management consultant Peter Drucker who said: “you can’t manage what you can’t measure”. And when it comes to your personal finances, you definitely need to measure them.
Start by creating a budget, calculating all your expenses for things like rent, utilities, food, and any other necessities. Then add in a small amount of discretionary spending that you can use for entertainment, meals out, and hobbies.
Each month, check your spending against the budget so you can see if you’re sticking to it. Many banks now offer tools to help you do this, automatically categorizing spending and letting you set money aside for bills.
Find Free Alternatives and Discounts
You can cut your spending on things you enjoy, without having to give them up. For example, grocery shopping can often be reduced by using coupons, loyalty cards, and promotions. Manufacturers often publish coupons for free products and savings to encourage consumers to try their new offerings.
If you’re a gamer, there are now plenty of free alternatives available on most platforms. For example, if you enjoy playing first-person shooters, then Call of Duty: Mobile or Call of Duty: Warzone are great options. Similarly, if you are more into classic games as poker, blackjack and roulette, you’ll find many of them available for free in VegasSlotsOnline without even having to make a deposit. Slots games as Spartacus, Triple Diamond and Cleopatra are also available for players.
You can even cut your TV bill by ditching expensive cable packages and using a streaming service like Netflix. If you want to go even further, you’ll find plenty of free content through YouTube and by taking advantage of the free trials offered by companies like Amazon and Disney.
Buy in Bulk
Many business people understand economies of scale, this concept of reducing unit costs when buying in larger quantities. However, few think about applying it to their personal spending.
Buying non-perishable goods in bulk can help you cut your costs dramatically. You don’t even need to get a membership for Costco or elsewhere, just stock up when your supermarket runs a promotion. You’ll often find savings of 5-50%, more than you could earn on cash in the bank or invest in the stock market.