5 Ways Entrepreneurs Can Achieve Financial Security

  • Responsible entrepreneurs should take steps to ensure both business and personal financial security.
  • There should be a clear separation of personal and professional finances.
  • Track your expenses and savings, create passive income streams, and plan for emergencies.

Entrepreneurship inherently implies financial risk. This does not mean, however, that entrepreneurs cannot become financially secure. Remember, your Personal finance and business finance are not the same. Responsible entrepreneurs don’t just focus on the success of their business. They are also taking steps to achieve financial security in their private life.

1. Create a real separation between personal and professional finances

Not separating business and personal accounts can create serious financial problem long-term. If the business were to fail, you would lose all money which is also used to pay your rent or any other expense. Even more troublesome, liability issues could put you at fault for company debts or legal issues.

Maintaining separate personal and business accounts ensures that even if your business runs into financial difficulties, your “nest egg” will not be compromised. Paying yourself a salary from your business account can help increase this sense of separation.

Never use a business account (including credit cards) for personal expenses.

2. Clearly define personal finance goals

Although you’ve set clear growth goals for your business, you can’t afford to let your personal finance goals take a back seat.

In a recent phone conversation, Tobi Roberts, co-founder and CEO of City Creek Mortgage explained: “As a business owner, you have to plan what you will do with the salary you pay yourself from your business. After all, a big part of the reason many people go into business is to support their desired lifestyle.”

Roberts continued, “Setting clear and meaningful goals will act as a set of benchmarks to help you stay on track to achieve that lifestyle. Whether you want to move into a bigger house or buy a boat, setting a savings goal will help you better control what happens after you pay yourself? »

Your personal finance goals (like retirement or even the construction of a emergency fund) can also affect how you structure your business cash flow. You need to strike a balance between paying yourself enough to live the lifestyle you want without creating a cash crunch for your business.

3. Create Passive Income Through Investments

“Making your money work for you” may sound a bit cliché, but it’s an important task for entrepreneurs trying to achieve financial security. Ongoing investments in the stock Exchange allow your money to grow at a much higher rate than it would if you left it in a checking or savings account.

As Investopedia reports, the most passive, long-term buy-and-hold strategy average returns of 12.1% on small stocks and 9.9% on large stocks, even accounting for stock market crashes.

By simply setting aside money in an investment account each month, your money will accumulate, giving you an additional stream of income beyond your salary. You don’t need to chase after the latest stock of memes to boost your financial status.

4. Religiously Track Spending and Savings

Cash flow management is vital for any startup – and it’s just as important for your personal finances. If you don’t know where your money is going, you could find yourself strapped for cash as you try to achieve a lifestyle you can’t afford.

Tracking monthly expenses is key to identifying ways to best use your money. It can help you identify things you should cut out of your life, like that gym membership you never use. Or, it can put into perspective the amount of money you spend on restaurant meals.

Keep track of how much you spend each month — and what you’ve spent — making it easier to compare your current habits with your long-term financial goals so you can make necessary changes. Very often small sacrifices now (like investing $50 in an investment account instead of Starbucks runs) will pay big dividends later.

5. Plan for the unexpected

You never know what life has in store for you. This is just as true in your personal life as it is in the business world. And of course, unexpected negative results for your business can have a huge impact on your personal finances.

As long as times are good, you should prepare for the future by building up an emergency savings fund. Financial experts generally recommend that most people have emergency savings that cover three to six months living expenses.

In particular, those with variable income or less stable employment – ​​a category many entrepreneurs fall into – are advised to have an emergency fund to cover six months or more. Contribute a little money to your emergency fund each month. That way, if disaster strikes and you’re no longer making money from your business, you won’t need to liquidate investments or retirement funds to stay afloat.

Whatever your business goals, you can’t make finance an afterthought. By taking steps to account for both your professional and personal financial situation, you will have the security you need so much.

Ultimately, financial security allows you to sustain the lifestyle you want to live while giving you one less worry in your busy entrepreneurial life. Prioritize your finances early on so you can establish good habits that last a lifetime.

Sarah J. Greer