As an entrepreneur , you would likely do anything to ensure your business is successful. For some, this means pouring a large portion of their money into their business. However, investing all of your time and money into your business can create an unhealthy financial balance in your life because in this situation, the success of your business will fully decide the success and growth of your personal wealth.
Separating your business finances from your personal finances is hard and sometimes it’s impossible to keep the two fully isolated. The key is finding a way to grow your wealth independently of your business’s success, to reduce the risk you’re taking on.
Build Your Personal Savings
Go into every business venture with your eyes open. Even if you have an airtight plan for profit, there’s a chance your business will experience some rough patches. To prevent this from negatively impacting your personal finances, start building your savings as soon as you can. If you haven’t started your business yet, you have some time to grow a cash savings that’s accessible to keep your personal finances in check in case of a emergency. Giving yourself several months worth of expenses is non-negotiable, and having a year or more is ideal.
If you’ve already launched your business, don’t panic. You can still prioritize saving in your current budget. To get started, set an attainable savings goal and design your budget to help reach it. Cut back on personal expenses to free up some cash flow to reach those goals.
Keep Business and Personal Expenses Low
If you’re just getting started, you’re probably already working to keep your business expenses as low as possible. This becomes harder to do as you start hitting your stride. As the money rolls in, you probably see an increase in a few things: your personal share of the profits, the amount of personal spending you do, the amount of business expenses you’re willing to take on, etc.
If your business is continuously successful, this might not seem like an issue. You’ve worked for the money, found success, and reinvested a large portion of that back into your business. However, if you keep increasing business expenses, you’ll have less wiggle room to protect your personal finances if things go south.
As you grow, your expenses will inevitably increase. Instead of trying to fight that, refocus to try and carefully evaluate every expense you take on. Shop around for less expensive options, or ask other business owners whether they have a similar expense, and how they’re handling it. You might find a creative solution that you hadn’t thought of before.
Avoid Distractions
We live in a gig economy where “side hustles” are the latest and greatest financial pursuit. There’s nothing wrong with having a side hustle, but as an entrepreneur it doesn’t always make sense. Your business should be your number one priority. Rather than picking a lucrative side hustle that will take time away from your business, refocus that energy into finding other streams of revenue for your number one priority.
Find new ways to add value to the customers you already serve, get involved in a collaborative project with another professional that will direct business your way, and think outside of the box when growing your revenue, rather than finding a less-focused method of growing your income.
Related: Maximizing the Earning Power of Your Cash Reserves
Get Smart About Investing
It’s tempting to have your business be your sole investment. Don’t fall into that trap. By having a diverse investment portfolio, you’re helping to ensure that your wealth is growing independent of your business. If you continually invest exclusively in your business, you’re increasing the amount of risk you take on.
In a worst-case-scenario situation, your business goes under and you lose all of your money. To avoid that outcome, invest wisely, and in diversified funds .
You may look at other professionals like doctors or lawyers who own their own practices and think, “Wow, they’re well educated, smart and successful.” We see them and assume they have it all together, and that their finances are in a better spot than ours. The truth is, they’re business owners just like you. Their businesses are equally at risk. There are no financial literacy courses at medical school.
The good news is that you have the ability to take charge of your business and personal finances starting now. You can work to build savings, lower expenses and reduce the amount of risk you take on. If you make living a financially smart life a priority, you can make it happen.