Being good with money is one of the basic skills that every young entrepreneur should learn before taking on big business ventures. But before you can be good at handling a steady cash flow or managing turnover ratios of materials, you need to master the everyday practices in managing your personal and professional finances.
For newly-minted entrepreneurs running a startup, there are a thousand things that you can encounter related to money. It takes a creative and sharp person to keep tabs on their finances, from spending it wisely to saving some at the same time. Not born a finance wiz? Fret not because there are ways for you to be great in money matters. Below are four of our best money management tips for young entrepreneurs.
Set your financial goals
Your goals can vary from personal to professional. To begin with, it’s best to list down your short-term, mid-term, and long-term goals. These could be completely unrelated to each other, or you can set up long-term goals then break them down into short-term and mid-term for better management.
For personal finance goals, you can include building up an emergency fund, saving for retirement, paying off debts, buying a home or renovating it, or saving for travel. As for your financial goals for your business, these could be earning more revenue, decreasing costs, improving margins, planning for cash flow, or reducing debt, if there’s any. In terms of paying off debt or your business loan, you can check with your banker if they can offer you more favorable terms. Or you might have to consider transferring your loan to another bank.
Be mindful of your credit
Again, both personal and professional or business credit matters when it comes to finances. Five factors that generally impact a credit score include credit age, recent credit, level of debt, payment history, and mix of credit. The golden rule is to pay your credit card debts on time. Paying off other loans and bills is necessary to maintain a good credit record.
Advisors also recommend keeping your balances within 30% of your limits combined. If you have a total limit of $1000 for all your credit cards, you’ll have to use $300 for that. You wouldn’t also want to close your old credit cards as you can lose some valuable records on your credit history. This happens because credit bureaus like Equifax, TransUnion, and Experian will remove the history of the closed account from the credit report after 10 years or so.
Spend wisely (always)
It’s easy to get excited about buying just about anything when you start earning money, but in reality, our finances don’t find this amusing. If you’re a novice in the business industry, spending without the right intentions can cost you not just the stability of your personal finance but also your career.
Speaking of personal finance, home repairs or improvements are the biggest expense you should be smart about. For instance, if you’re looking to build a pool deck, which usually costs about $5,000 to $12,000, you’d want to hire only experienced deck builders to ensure you won’t go over that budget. Simple decisions like this can already save you thousands of dollars. Create a budget, find ways to save, then track your spending.
In terms of spending for your business or professional career, the same rules apply. Create a plan or budget for all expenses, then track them. An additional thing to note is to only invest in things that can help your young business or career grow. These could include investing in new equipment or paying for extra training to enhance your skills.
Investments are one of the things that some young entrepreneurs often hesitate on. It’s unpredictable, and markets can be volatile. But there’s a smart way to minimize losses and risks and maximize returns. That is through diversification. This technique is basically about laying out your investments in different places. By not putting all your eggs in one basket, you can avoid ending up in a chaotic and costly situation.
Financial advisors suggest starting with a broad-based index fund then complement it with other varieties of investments of different risk levels. These include bonds, as well as shares on small growth or overseas companies. Purchasing shares in Real Estate Investment Trusts (REITs) is also recommended, with real estate having records of increasing portfolio total returns.
By mastering these basics in money management, you’re just setting up a young company for success. You are also more likely to manage and grow your personal finances in so many ways. Start building those crucial money habits and increase your chances of managing your first business venture!