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A Personal Finance Guide for Every Small Business Owner

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Small business owners work with a burning passion and desire to grow what they have built. While there are several important aspects that such entrepreneurs should focus on, finances should be put on top of the list. It is the lifeblood of your small business. But besides your company’s money, are you giving the same attention to your personal finances?

Brilliant entrepreneurs and business people are good at managing not only their company’s finances but also their own money. And then others are just sloppy with their personal finances. They earn 0% interest, do not have enough savings, spend too much, and even make too risky investments. To help you make smarter financial moves in your personal life, we’ve gathered simple yet very effective strategies that you should follow.

  1. Have an open line of credit

While setting aside some of your income can be very helpful, those savings or emergency reserves are usually not enough to get your company back up and running. This is where an open line of credit comes in. Getting a loan or a credit card is not really a bad idea, but it does require great discipline. On top of that, it is handy during times of crisis or disaster. We’ve seen people waiting for a crisis to actually happen before securing a credit line, and the result? You either won’t get the money quick enough or don’t have a good rate or score to prevent huge losses.

  1. Hire a trusted financial advisor

Similar to business finance, personal finance can be pretty complex and stressful. By hiring an experienced financial advisor, you can have peace of mind that your money is right where it needs to be. These experts offer proactive service, providing you with new strategies and ideas to reach your financial goals. In general, financial advisors can help you with insurance needs, estate planning, and investment management.

Furthermore, hiring them is an investment that won’t disappoint you. They can potentially help you earn and save more money than what you’re paying them. If you currently have a CPA or a tax preparer, they can also work with them to better protect your best interests financially.

  1. Invest properly in risk tolerance

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Your risk tolerance is different from others, and the only way to find out what’s yours is to be honest. For this, you need to determine your risk appetite and how you can appropriately invest in a way that matches your timeline and goals. Timeline is a significant risk tolerance factor that obviously refers to the time you have to ride out the bumps. The idea is pretty simple. If you need money in 15 years, you can save way more if you have 20 years.

Another determining factor is your goals. Calculate how much you need to achieve your goals, then pick an investment strategy that is more likely to deliver desirable results. For instance, you might have to invest a huge percentage of your portfolio in stocks for a long-term ROI. However, bear in mind that stocks are risky, so be careful about where you invest your portfolio.

  1. Create a personal monthly budget

Creating a personal budget can be tedious work, but it’s effective in helping you control your spending. This financial tool basically enables you to plan how much you will save and spend every month. The first thing you need to do is to gather your financial paperwork to create a monthly average. These include your investment accounts, bank statements, credit card bills, auto loan or mortgage statements, and receipts from the last three months.

Next, calculate your income. If you’re not earning the same amount each month, use your lowest earning as your baseline income. After doing that, you can now create a list of your monthly expenses. Fixed expenses should include insurance, groceries, utilities, mortgage rent, car payments, loans, and savings. On the other hand, variable expenses should include personal care like products for harmony and wellness, entertainment, eating out, travel, etc. You can then choose a budgeting method that suits your needs and that you can easily follow.

What’s more, be sure to adjust your budget monthly if you find underestimated or overestimated expenses. The main goal here is to spend below your income and set saving goals that can set you up towards financial freedom.

As a busy small business owner, it is still essential that you put in the time and effort to manage your company’s finances and personal life. Taking these tips into account won’t just help you have a solid understanding of your money. But also prepare you for any surprising or unexpected situation that could impact your finances, especially during this pandemic.

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