If you’re a business owner, you’ll need to get smart about your personal finances. Not only will your personal finance habits rub off on your business, but you’ll need to make better financial moves away from your company to take out loans, purchase property, and save lots of money.
Personal Finance Tips All Business Owners Should Use
The number one rule of business is you should never mix your personal and business finances, but you can’t ignore your personal finances altogether. Use these tips to stay on top of things.
1. Make it Easy to See Your Full Financial Situation
Most banks and financial institutions have their own app that lets you see your current balance. But besides tracking what’s necessary, these apps may not offer credit score monitoring, goal setting features, financial insights, and the ability to soft check your credit score weekly.
With a budget planner application, like SoFi, you can do all of that and more. Plus, it can help you develop better habits because you know what negatively affects your credit score.
2. Build Up a Savings, Rainy Day, and Emergency Fund
The more savings you have, the better, especially if you’re operating as a new startup. Since it can take up to three years for your business to see a profit, you’ll need at least three to six months’ worth of living expenses to stay afloat. However, you’ll also need extra savings.
For example, a rainy day fund should have $ 1,000 (for wiggle room with your spending), while an emergency fund should have $ 3,000 to account for unexpected purchases, such as car repairs.
3. Manage Your Personal Credit By Staying in the Green
According to Equifax, a “good” credit score ranges from 670 to 739, whereas a very good score is 740 to 799. Anything above 799 guarantees you’ll get a loan or other financial products from the bank so long as you keep your debt low and your credit utilization ratio below 30%.
To make sure your credit stays high, pay your bills on time, use credit frequently (but pay off your bills before the end of the month), and keep a few credit products on your file at all times.
4. Put Money Towards Retirement Savings Plans
It can be difficult to focus on retirement when you have so much on your plate, but contributing to a SEP-IRA or other tax-adjusted savings plans actually benefits your business. Not only will you have money saved when you retire, but you’ll also reduce your tax burden each year.
Depending on your income, you may find it easier to save for retirement as a self-employed person. Plus, you can put the money you save towards other investments, like stocks.
5. Invest Appropriately Based on Your Risk Tolerance
Speaking of investments, self-employed individuals need to start putting money in stocks, bonds, and real estate where possible. Young entrepreneurs should put most of their money towards high-risk investments, like stocks and fill the rest of their portfolio with bonds.
If you can afford to invest in real estate, cut the amount of bonds in your portfolio in half. As a rule, the older you get, the more you should spend on low-risk investments, like bonds.
6. Ask a Financial Advisor or Investor for Help
When you start hiring employees and investing more time in your business, you’ll hardly have time to spend on your personal finances. In these instances, you should talk to a financial advisor for advice. Or, you could hire a personal accountant or bookkeeper if you’re able.
Most bookkeepers are able to track your expenses and prepare your tax statements, but they won’t be able to file your taxes. To get this additional service, you need a registered accountant.