Everybody needs to manage their money. You do, I do, Bill Gates does, everyone does. The question comes down to, how? Keeping with my example, Bill Gates has amassed a net worth of $105.7 billion. He has to manage all that money somehow, or else it’d all slip away. So, this is how entrepreneurs manage their money.
1) Save Where Possible
This is more a tip for the budding entrepreneur, someone who is working on building their business. Whether it be an e-commerce site, or an actual storefront, there will still be costs upfront. The overhead, albeit, for an e-commerce site is much less than that of a physical store, but nevertheless, is present.
With this overhead though, that money has to come from somewhere. If you’re stocking an inventory, all that merchandise doesn’t just appear from thin air. You need to pay to get that merchandise there, and that money you pay has to come from somewhere. That money can come from the costs you can cut though. Do you go out to the movies on a regular basis? Try going every other week instead of every week. Eat out every night? Try cutting back there, maybe to three times a week instead of all 7.
One of the biggest places that I myself have cut back is in my cell phone plan. I used to be at about $70 a month for a full unlimited plan with T-mobile. I found a new provider, though, Mint Mobile. Their service is based on a “pay for what you need”-type plan, fully customizable in every way. What I used to pay for one month, now pays for well over *5 months*, and I still have constant 4G data and unlimited talk/text! No matter which way you look at it, that’s a good deal. Even if your way of saving isn’t through phone plan, but through cancelling (or downgrading) a subscription such as Netflix, any money back in your pocket is a benefit to you.
2) Create A Safety Fund
Just in case your entire business goes tits-up, it’s good to have a backup. Make sure to start out with at least three to five months worth of expenses saved up. This includes food, gas, rent/taxes/mortgage, and any other payments you may have. Having a backup of these expenses allows for a small grace period between any catastrophic failure, and you getting back on your feet (at which time you’d immediately work to replenish what you’ve depleted from said fund.
As your business grows, that fund should as well. When it starts taking off, maybe add another couple months worth of money in there. Soon enough, you’ll have a couple years’ worth of expenses set aside, in case of emergency. We’ll talk about what this can become later, but for now, this is a great fail-safe for your life.
3) Invest In Your Business
Successful entrepreneurs manage their money around their business, they don’t manage their business around their money. When money is plentiful, they reinvest it back in the business. When money isn’t, they’re still putting back in, just in more reasonable amounts. The question should never be “should I reinvest”, but “how much should I reinvest”. Entrepreneurs manage their money by giving to their business first, then themselves. When you stop putting into your business, it will eventually stop putting out.
That counts for both time and money. If you step away from your new business and don’t feed your time and money into it, that business will get choked out and fail. If you continue to nurture it though, take care of it, it will grow and take care of you too. Sort of like an apple tree, in a sense. When it’s just starting out, you have to water it, weed the area around it, and keep it fertilized. Once it’s grown big enough to set deep roots and take care of itself, it will bear fruit, and take care of you.
4) Be Smart While Investing
There is a very pronounced line between investing and throwing money away. When you invest money, it benefits you (and your business) in the end. That can take the form of paid traffic, advertisement, or even courses to teach you to better tend your business. On the other hand… Large seminars on “how to make $100k in 30 days using other people’s money”, or e-books that give you “The secret that the pros don’t want you to know!”, those are very blatant scams. Not to say all e-books are scams, nor am I saying that all seminars are bad either.
There are very legitimate ones of each, and those can be actual investments as well. Taking action and investing your time and money into something should return something to you in the end. Did you gain valuable experience? Maybe a new product idea, or launch strategy? That is a real investment.
On the other hand, having gone to sit in a hot auditorium, listening to an ex-millionaire talk about making large amounts of money extremely quickly, and asking for you to buy his full course? Not so much. Falling for one of these scams isn’t the end of the world, but it’s an unfortunate waste of resources. Learn from that mistake, and move on to something real, that you actually benefit from.
5) Keep Track Of Where Your Money Is/Goes
Having tons of money doesn’t mean squat if you don’t know where it is! You’ve gotta keep track of where your money goes, both in and out. If you have subscriptions to things, and never realize they’re still active, then you’re just pissing money away. If you were to keep better track of your money, and maybe cancel one Netflix subscription that you aren’t using, that’s saving $9 per month. That may sound small and insignificant, but that’s $108 per year. That really adds up in the end!
But.. There’s less favorable areas where keeping track of money could prevent huge losses. If you know how much your business regularly takes in, but aren’t the one handling the money, what happens when you suddenly come up $1,000 short a day? Two days? Five? Two weeks? If you’re keeping a watchful eye on your finances, you’d notice your net coming up a little light, and be able to figure out who is responsible, or if someone just kept forgetting to carry the 1. If you weren’t paying attention though? After only two weeks, you’re out almost $15,000, and the numbers might get larger than just a thousand dollars a day.
Keeping constant vigilance towards your money, both in and out, is a crucial part of running a successful business. Even if you have to hire somebody to act as a personal accountant, the money you pay them could never amount to what you stand to lose in any treacherous act. This should be one of your highest priorities, no matter how big or small your business may be.
6) Cut Down On Debt
Now, we’re back to step 1, but with a twist. In step 1, we talked about saving where possible. Here, we’re gonna save a little bit more by starting to cut down on our debts and payments. Some of these will sound annoying at first, but remember, things will almost always get worse before they get better. Think Hurricane from the Hamilton OST. Sitting in the middle of the storm seems okay, but that’s no way to live. You have to come out the other side. It’ll suck for a bit, but then get infinitely better.
Nevertheless, cutting back on your monthly expenses can – no, it *will* – make entering the fast track much easier. Since the entire principle of getting into the fast track is Passive Income > Monthly Expenses, lowering your prerequisite would help significantly. Do you really need to have the nicest car in your driveway? That could cut a decent chunk into your monthly expenses. Like, well over a thousand dollars a month decent. I don’t know about you, but if it got me closer to breaking free of the rat race, I’d do it in a heartbeat (and I have, I’ve been living life with fun on the forefront!).
Just keep this in mind when you’re working towards your freedom: you’re going to have to downsize a little before you can show your success. Once you’ve downsized a little, you can work towards scaling up again. It isn’t a permanent loss, just a temporary redirection of funds.
7) Split Your Income
Have you ever heard the saying “don’t put all your eggs in one basket”? Aside from literal eggs, nowhere is this more pertinent than in finance. If you invested everything into Delorean Motors Company when it started out, then you would’ve been sorely disappointed when they went under just two years later. Though, John DeLorean was a bad-ass (for real, read up on him. Super cool.), but that’s beside the point.
His venture burned short and bright, but when it went under, it did so *hard*. If you had invested in everything J. DeLorean had been a part of, though, that would include Pontiac and Chevrolet, which are still powerhouses to this day. With investing, it isn’t a bad idea to start out with just one, and focus on getting it going. Once that one venture has its footing, though, don’t solely pour into that one. Branch out, start new ventures (or invest in those of others), start making different income streams. That way, if one of them pulls a DeLorean on you, the others still are providing you with money.
This is the closest to “job security” you can get without having biometric locks on your work. Unless all of your ventures go kaput at once, you shouldn’t ever have zero income. This way, even with the failure of one or two ventures, you can still maintain a Fast Track lifestyle (I’d recommend reading up on Escaping The Rat Race after this article, it will make sense of some things in here).
8) Don’t Overwork Yourself
As much as business can require maintenance, there is nothing more important to maintain than yourself. If you go down, then so does your business, if it’s in the early stages. Even in the later stages of the game, you going down can pose a huge issue. If you take care of yourself, take breaks, try to stay relaxed, then you shouldn’t ever have to experience that issue though. Remember that as much as you work, you’re still human, and we weren’t meant to function 24/7/365.
If you have money coming in, then take a vacation with your family, go have fun and unwind. Unhook the phones for a week, just relax and don’t think about business. Note that I said “If you have money coming in”. That means DON’T BE DUMB. If your household doesn’t have money coming in, that would be an awful time to drop thousands on a family vacation. Those thousands of dollars could be going towards your business, and then once you see a return on those thousands, *then* you can afford to vacation. If money is tight, don’t go blowing it.
That doesn’t mean you shouldn’t relax though. If you’re feeling overworked, or just haven’t taken a break in a long time, try doing something closer to home, take a stay-cation, still try to have fun, just without the costs. Even if money isn’t plentiful, that’s no excuse to treat yourself poorly. A tired you at work is just as bad, if not worse, than no you at all.
9) Prepare For Retirement
Remember that safety fund we talked about in step 2? Here’s what I said we’d be coming back to it for! That fund should have been continuing to grow more and more, adding more time that you could live off solely that fund as your business grows. Remember, investing in your business is important, but investing in *yourself* is paramount.
Now, imagine you’re ten years down the road, business has gone extremely well, and you’ve amassed another 10 years’ worth of expenses in your safety fund. That sounds like a retirement fund to me! Pour more or less in depending on how much you want in your fund, and you’ll be ready to retire whenever you want! Now, even though you’ve got this whole fund to live off of, don’t forget your business will still be kicking off dividends for a long time after you’ve retired. There will, odds are, still be very significant income.
Don’t rely just on that to survive from, make sure you have your full retirement’s worth saved up, but that extra money coming in can change how you view your retirement: Living, not just surviving. Driving fancy cars, taking vacations around the world, doing what you please *when* you please, the whole nine yards.
10) Work Your Strengths, Hire Your Weaknesses
It’s okay to not be good at something. It absolutely is, as you can just hire out the things you aren’t good at. I would know, I’m the site’s only coder! Either way, it’s perfectly okay to just hire out your weaknesses. Most of the time, though, it’s much better for you and for your business to learn the skill yourself.
If you have to hire out the same issue over and over, you lose out on money, time, and the knowledge of how to do it yourself. If you learn the skill yourself, though, then you can keep that knowledge forever (or at least be able to understand it again easier). Then you won’t have to blow the money or time waiting for someone else to do the job for you. If learning the skill is an absolute impossibility, though, then hiring it out is okay.
Welding, for instance, is a skill that not everybody can just go pick up. It requires a knowledge of the metal you’re working with, and a skilled hand as well as skilled eyes. If you’re restoring a car and it needs welding work for the frame, I wouldn’t just try to pick up the skill on the spot. What happens if your job isn’t up to par? You’re driving to the show, hit a pothole, and the car splits in half. I don’t know, but it’d be bad. Most skills aren’t as life-or-death, but the point stands: If you need a professional-grade job, hire a professional.
11) Make Sure You’re Getting Paid Too
More on the idea of managing yourself too, don’t forget to get paid. Most people think that being a boss is about making sure to pay your employees on time, but people forget that the boss has to get paid too. Albeit the employees getting their paycheck is important, as without that you wouldn’t have employees, but that’s not the only group that needs money, your family does too.
Don’t be getting your hand caught in the cookie jar, though. Be reasonable about things, pay yourself enough to live on, but not overboard amounts. You’re the boss, but not all the money goes to you. A good portion of it goes right back into the business. It’s a delicate balance, but striking that is crucial to the success of your business.
Conclusion
No matter what your business is, money is important. That’s a universal rule at this point, and one there’s no point in trying to fight. With all that power comes a lot of responsibility too, though. If you can’t manage your money, or even worse LOSE it, then you may as well have not made it in the first place. I do hope you’ve learned something from this article on how entrepreneurs manage their money, and hopefully it helps you down the road!
P.S. If you’re looking for even more tips on growing your wealth, check out Making Your First Million: 7 Easy Steps (And 3 More To Keep It!)
