Written by Alex Vazquez, Credit Analyst & Financial Coach at ASSETS
Finance isn’t a “sexy” subject. Even if we put finance in a fancy box, decorate it with nice wrapping paper, and tie it with a beautiful bow, it’s still not always a gift you’d want to open (I mean, unless there’s cash in it. Duh.).
Despite its lack of showy pizazz, as a small business owner, you not only need to manage your business finances well, you also need to manage your personal finances.
Your business will always be affected by your personal finances, especially when you’re first starting up. Sure, you’ll want to eventually separate your personal finances from your business finances, but you need to first make sure your personal finances are in order because they can either hinder or fuel the growth of your business… and ultimately lead to its failure or success.
So, here are the top four personal finance tips that can help you succeed as a small business owner!
1) Set Up a Personal Monthly Budget (and maintain it every month)
You’ve probably heard from every personal finance guru out there about budgeting. The truth is that everyone should live and die by a personal monthly budget. This should be the first step in getting your personal finances in order. It can be hard to manage your spending when managing your business is top of mind but there are free apps like EveryDollar Easy Budgeting (available on IOS and Android) that you can download on your phone that can make budgeting easier than ever before!
2) Know Your Personal Credit Score and Debt Situation
Your credit score can make a difference in being approved for credit. It can also make a difference in your interest rates. The higher your credit score is, the better interest rate you’ll get. If you’re in debt or have collections, you need to come up with a debt strategy that includes timelines. It should be realistic and should be strongly tied to your personal monthly budget. There are plenty of debt strategies out there from which to choose. Simply Google “Debt Strategies” and you’ll find a plethora of resources! One example is the Debt Snowball Strategy. In this strategy, you list all your debts from smallest to largest and make minimum payments on all debt. When the smallest amount of debt is paid off, that payment then rolls over to the next lowest debt, and so on. See why it’s called a debt snowball? Essentially, this strategy will in time cause “power payments” which decrease the amount of time it takes to pay off all debt.
3) Cut Expenses
“Living within your means” is the most underrated statement in human history! Don’t worry about keeping up with the Joneses (or, to keep with current Pop Culture, the Kardashians). Trying to live the lifestyle you think others are living is never, ever going to work in your favor. Instagram feeds never reflect someone’s full reality. So, stop trying to compete, and think wisely about your future.
After you set up your personal monthly budget, analyze it and cut out expenses you don’t need! For example, if you have multiple music-streaming subscriptions, cut them out and stick to one. Sure, different platforms offer “perks” other platforms don’t, but if you’re in debt and need to get out of debt or are looking to save, cutting out expenses can help. The more unnecessary subscriptions you can cut, the more your savings will add up.
4) Start an Emergency Savings
You ever hear the saying, “It’s not if something bad will happen, it’s when?” There will always be expenses that are not accounted for in your personal monthly budget. That is why it’s important to have a nest egg you can dip into in case of extenuating circumstances. Ideally, you should have three to six months of expenses saved for a rainy day. Saving this much can seem like a high mountain to climb, but it’s easier to manage if you climb the mountain one step at a time. Allocate a certain amount of your net monthly income — for example, $20 per week — and budget it towards this emergency savings. Rome wasn’t built in a day. It may take some time to reach your three-to-six-month cash reserve, but the goal is to create habits that will lead you to financial success. If it takes you three years to save, don’t worry about it. Just save!
At ASSETS, every business owner who receives a loan with us has access to free financial counseling. We take a holistic approach towards finances that can help small business owners start and grow their business… healthfully. We believe that business plays a vital role in transforming our community for the better. But we also recognize that businesses cannot grow — in revenue, size, or in impact — without access to capital. The Community Lending department at ASSETS exists to tear down traditional barriers to accessing capital by offering innovative products and financial counseling that builds a more prosperous economy that works for everyone.