Everyone has a personal vision of what entrepreneurship will be like when they’re about to launch a new venture. Being your own boss, having flexible time, and the opportunity to earn unlimited income are just three benefits that come to mind. What many new entrepreneurs don’t often think about is managing their personal finances.
Remember that paycheck, health coverage and pension plan you used to have with your former employer? That’s nonexistent in your new company unless you take the time to set it up. And important life events, like paying for weddings and other family needs — well, now you have to be even more diligent about saving and budgeting.
Business leaders, including those who own their own companies, are aware of the importance of maintaining stable personal finances. Just ask Rob Morton. The Toronto executive has held senior leadership positions in the banking industry for two-plus decades — he’s also founded and led a strategy and operations consulting firm. He says that moving from the corporate to entrepreneurial environment takes some getting used to.
“When you start a company,” he says, “you’re responsible for everything that involves your own personal finances. Deductions that used to appear on your pay stub are now monthly bills that you have to pay yourself. And now, you have to pay to rent space, maybe lease equipment and market your company, so your personal finances are on top of that. It’s very important to be prepared for this upfront.”
Many entrepreneurs recommend taking the time to plan how your new life (and income) as a company owner will continue to be able to support your person needs. Especially in the beginning, before you have consistent sales — and therefore, revenue — you might find yourself penny pinching out of necessity. There’s nothing wrong with that. Nearly everyone who starts a business has to sacrifice something. But you do want to be smart and prudent about it.
“Create an annual budget, but backwards,” says Jon Stein, CEO and founder of Betterment. “How many times have you started a budget, only to give it up two months later? That’s because the old way of budgeting is backwards. It focuses on your spending instead of focusing on your savings goals. That’s why I like to flip the script. First, start with your goals, and use technology to make saving towards those goals as easy and automated as possible.”
Personal finance writer Miriam Caldwell recommends that, to maintain a strong finance plan, you might want to “take some time to write specific, long-term financial goals. You may want to take a month-long trip to Europe, buy an investment property, or retire early. All of these goals will affect how you plan your finances. For example, your goal to retire early is dependent on how well you save your money now. Other goals, including homeownership, starting a family, moving, or changing careers will all be affected by how you manage your finances.”
It’s up to you whether you craft your personal finance strategy yourself or sit down with a financial planner who can help you figure things out. As your business develops and revenue grows, you’ll have tax considerations to address. You’ll likely also want to explore investment opportunities to grow your personal money.
Personal finance is a lifelong commitment. Rob Morton is one of many executives who recommends thinking about your personal finances in the long term, and doing what you need to do to ensure that all your needs are met.
One more thing: at some point you’re going to have to think about the day you pack it all in.
“Don’t forget, you should still be saving for your retirement,” says Philip Taylor “PT”, Founder, FinCon, PT Money: Personal Finance. “Even on a fluctuating income you should aim for a small bit of savings each month.”