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Personal Finance Tips for Entrepreneurs

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Are you a current or aspiring entrepreneur? Now is a great time to start a business or continue investing in your existing business. With any business venture, you will need to manage any earnings you make from your business and your personal finances. Starting a business can be challenging at first but immensely rewarding over time. Investing is also an important part of being a business owner. Check out these personal finance tips for entrepreneurs to make the most of every dollar you earn.

Woman managing home finances using smart phone calculator app and laptop Article Image
Yellow notepad with pen svg icon Lesson Notes:
  • Your personal finances require more considerations when running a business.
  • You will need to set aside enough money for living expenses in addition to putting money back into your business.
  • You should have a backup plan in place to make sure you can recoup your finances if your new business encounters setbacks or fails.

The age of entrepreneurism

The internet has been a blessing for millions of Americans hoping to start their own business. Just about anyone can start making money from home by offering their services online. Online marketplaces like Etsy and Amazon make it easy for people to manufacture and sell goods and products to millions of consumers worldwide. The number of entrepreneurs in the U.S. keeps growing every year, reaching a record of 33.5 million in 2021.

Regardless of the nature of your business, you need smart money management aptitude if you want to stay in business. Stuffing your earnings in a safe or under your mattress won’t help you build wealth over time. Learn how to put your new earnings to good use.

What to do with your money: business tips for entrepreneurs

Create separate accounts

As soon as your business is up and running, you’ll need to manage and appropriately allocate the money you make. You’ll need to put a large portion of the earnings back into business, but you will also need to pay yourself in the process. It’s best to start by deciding how much you want to make in personal income based on how much you expect to earn in profits. Consider how much you will need to get by while running your business, including money for rent, food, childcare, healthcare, transportation, clothes and non-essential items like entertainment and the occasional meal out.

Put any money you intend to keep for yourself in a separate savings account and pay yourself like you would if you were just another employee. Keep the rest of the earnings in a business account to create a clear divide between your personal finances and business finances.

Pay off high interest debt

You’re bound to incur many expenses when setting up your business, from office furniture to retail space and everything in between. Usually, starting a business means racking up a lot of debt. You can take out a business or personal loan to fund your business. You might also use credit cards to fill in the gaps. Be sure to explore various options to find the best fit for you, your business and your budget.

When managing your finances, create a plan for how to pay off debt.  Make sure you put as much money as possible toward the debts with the highest interest rates. Credit card debt tends to have higher interest rates than business and personal loans, usually 10%-15% or more. Compare the interest rates on your existing loans  to see which is the highest. Once the debt with the highest interest rate is paid off, move on to the next highest until your business is debt-free.

Create an emergency fund

Accidents happen. To protect your business, plan for the unexpected and even worse-case scenarios. Consider how your company would get on without you if you were injured or ill. There’s a good chance you won’t be able to earn money from your business if you can’t perform the essential duties and responsibilities of the job unless you have employees that can take the reins while you’re away. There’s also a chance your new business venture could fail or take a while to ramp up, leaving you and your loved ones without a reliable source of income.

Make sure you have enough money set aside in case of an emergency. Experts recommend having at least three months of living expenses in the bank as an emergency fund. If your business fails or you can’t go to work, you will still have enough money to live and take care of your loved ones.

Consider taking out a personal life insurance or disability insurance policy while you’re young and healthy. You can lock in a low monthly premium to save money over time. If you can no longer perform the job duties, your disability insurance will pay you a portion of your regular income, usually around 60%. With life insurance, your loved ones would receive a sizeable benefit after you’re gone.

Save for retirement

It’s never too early for retirement planning and saving. As an entrepreneur, you likely won’t have access to an employer-sponsored 401(k) retirement savings plan, but you can always open an individual retirement account (IRA) instead. There are two types of IRAs: traditional and Roth IRAs.

A traditional IRA is funded with pre-tax income. You can put your earnings into the account without paying income taxes. However, you will have to pay taxes on this money when you make withdrawals during retirement.

A Roth IRA is funded with post-tax income. You must pay income taxes when you make contributions to the account. However, you can then make withdrawals in retirement without paying additional taxes.

Both types of accounts can help you prepare for your golden years. Running your own business may be your passion in life, but you will need to step aside and let someone else take over at some point —either due to age or health issues.

Make a plan for your future as soon as you start your business and consult with a qualified or investment or financial advisor to explore your options.

Factor in taxes

You’ll need to pay taxes as a business owner like everyone else. Working freelance isn’t the same as running a business. Consult with a tax professional to determine how to report income, business profits, expenses, and how much you should save for future taxes.

Consider how much you will need to pay in taxes at the end of the year and factor this into your budget so you don’t get hit with a large bill in the spring. You may also consider paying taxes quarterly to stay on top of payments and break up your tax expenses over time.

Grow your earnings

When you’re not investing in more resources for your business, consider putting any additional earnings towards high-yield investments that will pay off over time. Inflation may eat away at your savings unless they continue to grow in value. Be cautious about where you invest your money. Investing your company’s money in smart ways can help you and your company in the future. Speak with a qualified investment advisor to determine what types of investments would be best for you and your goals.

Running a business isn’t easy, but these personal finance tips will help you start off on the right foot.

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