If you have recently started a business, you know just how much time and energy it takes to make a business succeed – or even stay in business. Keeping a business financially afloat is one thing; keeping your personal finances afloat at the same time is another. If you are running a business, make sure you do what it takes to avoid these common personal finance traps that afflict entrepreneurs too often.
- Properly Separate Your Personal and Business Finances. Many businesses start organically, rather than as an action made all at once. Examples might include work that you do for clients online, which gradually builds into a full career, or the Etsy business you started for fun but has suddenly blown up. Those are great outcomes, but it is common for people in this situation not to properly separate their personal and business finances. There are many problems that can result from this. There can be tax problems (read this for the best way to remove a tax lien), and you may be tempted to keep your business running with your personal savings. There are much more sound ways to organize your finances, and to protect your personal assets from business problems. Start an LLC if you have not already, and explore other ways to separate personal and business monies.
- Don’t Forget to Save and Spend Wisely. It’s really easy to get caught up in the life of an entrepreneur, and let your personal finances fall apart. This can happen in a lot of ways. Maybe you eat out for two meals a day for an entire month, only to realize that your food budget for the month was $2200. Maybe you live off of credit cards because you haven’t paid yourself yet from your business. Maybe bills start to fall through the cracks, not because you can’t afford to pay them but because you are so busy. There are lots of reasons that entrepreneurs’ personal finances get tricky. If this sounds like you, learn about strong personal finance techniques, and make time to apply them to your life.
- Don’t Forget to Invest. If you work for a traditional employer, you probably have one or more retirement plans available to you, maybe even with matching funds. If you work for yourself, you’ll have to do a little extra work to make retirement investments happen. You are able to start a 401(k) for yourself through your business, in all likelihood. This can happen in addition to personal investments you make in tax-protected accounts like Roth and Traditional IRAs. If you are able to max out the annual contributions limits of both types of these accounts, you’ll set yourself up for awesome investment returns in the long term. With investments, time is your best friend, so make sure you start now.
There are common problems that entrepreneurs experience in their personal finances. If you manage to evade these difficulties, you’ll reap the rewards of running your own business more fully than if you were to do otherwise.