There are many reasons entrepreneurship is so challenging, and not all of them are business-related. As an owner of a small business, you may be starting to feel the pains of balancing the finances of both your company and your personal life. After all, compromising your personal savings to cover operating costs and similar expenses is often inevitable, and now you’re afraid that you’ve started a pattern.
Worse, you may have made this compromise when you’re not even 100 percent stable or secure in your money.
If you want to steer clear of such mistakes again and become a well-rounded entrepreneur, then it’s time to reinforce not only your savings but also the rest of your personal finances. The best way to begin is to identify the most common pitfalls that you may have already fallen victim to and determine how to recover from them.
Budgeting to the Tee
Budgeting is a crucial skill for anybody who wants to take better control of their finances. Unfortunately, it’s easy to slip into bad habits that make budgeting work against you rather than for you. One such habit is assigning every last penny you have on certain expenses and not leaving any room for miscellaneous costs. There’s no wonder you end up not honoring your budget each month.
Always leave room for miscellaneous expenses, because there’s no doubt you’ll have them. You should also round up your budget because there are times when your computation won’t match the actual prices of your purchases. Unlike groceries, which you can adjust to fit your budget, there are things like medicine that you may not be able to do without just because it costs more than you anticipated. Duly adjust your budget as you go along, and you’ll soon find the right amount for each of your anticipated expenses.
Living below your means is a good principle, but it can also be painful at times. This is especially true when you really want to show up to work in that brand-new suit you saw online, but you can’t afford to ruin your budget. Maybe you like to de-stress by staying in your favorite all-day breakfast cafe on the weekends, and now you can’t because you’re trying to save up.
Setting aside money for well-deserved rewards that boost your health and confidence is integral for every entrepreneur. Running a business is stressful, so you have to honor certain decisions and rituals that will keep you sane and productive.
You can either include these activities in your budget, or you can set aside money for them for future use. This depends entirely on you, but even the act of saving for something you love is sure to make you happy.
Saving Insufficient Emergency Funds
A lot of people don’t really understand what emergency funds are for. In general, this is money you set aside to cover your basic needs should something happen to reduce or delay your income. It’s an assurance that you won’t go hungry or lose your home if you lose your job or, in your case, if your company closes.
A good sum for your emergency funds should cover your basic needs for six to eight months, so if the current amount you have now doesn’t even come close, you’re in trouble. Go over your monthly expenses for the past couple of months and determine how much you need to stay afloat in the direst circumstances. The next thing you need to do is to save up for it while your business is in good shape.
Relying Too Heavily on Loans
Just because you receive a loan offer doesn’t mean it’s good for you or that you’re truly qualified to take advantage of it. You may think that it’s a great way to save up money in the long run, but you’ll soon realize that the interest rates are jeopardizing your personal finances.
Take only the loans that you are sure you need. Otherwise, it’s better to save up for your house, your new car, and even that dental treatment you’ve always wanted to get. Burying yourself in debt will make you and your business suffer in more ways than one, starting by turning you into a bad entrepreneur whose focus is only on the revenues. Unless you can build an emergency fund that covers even your debts, you’re better off refusing all the loan offers you get.
Your personal money values and practices will inevitably bleed into your business. You may feel like you’re far from possessing the right financial knowledge and skills yet, but don’t give up. The more you learn and apply, the better you get each day as an individual and as an entrepreneur.