When it comes to financial management, you must learn to walk before you run.
In a similar fashion, you must learn to sip before you slurp (applicable to soup, as well as adult beverages). Yes, running a business is important but that’s just it — you’re running.
Stop for a second and take a breather, we’ll grab you some water. The new year is upon us, which is the perfect time to hit refresh and set big goals for yourself. Not so fast — before you dream up a thousand different ways to make yourself a better person (we all do it), let’s tackle one big one. What are your goals for your personal finances? *Record scratch*
But here’s the thing with resolutions. We’re inspired for a few weeks or those of us who struggle with perfectionism (oh hey, friend) tends to put goals off because we’re afraid of making mistakes. Listen, your small business is counting on you for success and that means putting personal financial management at the front of the line. You’re not alone in this, money is our love language. *Cracks knuckles, rolls neck* Take a seat, school is in session.
Personal vs Business Finances
Business and pleasure, they are simpatico and not — that’s why we don’t mix the two. When it comes to your finances, here’s some friendly advice: keep the two separate. This may seem like simple advice but surprisingly, many business owners mesh the two together (which makes things…well, meshy).
How? Well, we’ll talk about it. But first, be sure to create separate accounts and credit cards to keep track of your finances. Make it official by establishing an LLC or S-corp to add some protection to personal assets. Keeping business separate also makes it easier to file and get tax deductions, which we are all about.
Let’s also take a second to talk about leverage. It refers to any technique used (legal ones, of course) to multiply gains, or losses, if things don’t go well. A common example of this is borrowing money. Using personal finance in leverage can mean borrowing money to increase gains — however, if all goes south, the losses can be enormous. Your assets are on the line. For example, if you leverage your home and can’t pay the bills, they’ll repossess your home. On the flip side, if you keep things in the business world, and have the business borrow the money, it won’t bleed into your personal finances.
Once again, remember — keep your personal and business finances separate. Comprende? Now that we’ve got that sorted, let’s dig deeper into what should and shouldn’t be done when it comes to managing personal finances.
Drumroll…2021 Personal Finance Resolutions for You
There’s nothing like having a strong cup of coffee with a swig of whiskey in the middle of the night, while plotting your next business move. You might be toying with figures, analyzing business models, or rebranding. Running a small business is hard work and we pour so much energy into making it happen. It’s our baby, not as cute as a flesh baby, but a baby, nonetheless. It requires a whole lot of attention and care. Yet despite our best efforts, we can face ruin from neglecting the management of our personal finances. FYI – the following can totally be actionable-steps towards your money-busines resolution. You’re welcome.
Stop YOLOing Your Finances
Sorry, but there can be no YOLO moments when it comes to personal finances. The “you only live once” mantra is great for last call at the bar or splurging on an industrial paper shredder. So don’t even think about yolo-ing your money. Instead, you need to prioritize proper benefits such as health, life, or disability insurance, as well as retirement plans. Think about your needs and map them out. C’mon, everyone has different needs and wants! Figure out yours. Finally, be flexible but in tune with your plan. Your budget will change (hooray for change!), so you can’t treat it as a one-and-done deal. Stick to it while it’s working and change it when it’s not.
Protect Your Ass-ets
Expect the unexpected. As cliche as that sounds, it’s true. God forbid you’re out in a poppy field taking pictures for the ‘gram when you find out you’re horrifically allergic to bees. *SPOILER ALERT* You don’t want to end up like Macaulay Culkin’s character in My Girl where he ends up in a casket and Vada cries hysterically at the funeral scene screaming, “He can’t see without his glasses” (a real tearjerker, but also a freakish accident). The point is anything can happen, and you need to be prepared. That’s why you need to protect your ass-ets.
Improve Your Credit Score
We love a good credit score. It’s like a little golden aura that surrounds you, but that doesn’t mean you should use it in every situation. When it comes to personal finances (and your credit score is very personal), you shouldn’t apply it in business. Perhaps this is the only option at the beginning, but once phased out of that stage, look towards proper financing. By establishing a minimum credit with the business, it will show banks that your business is a good credit risk, and you won’t have to pull out money from your personal account. Instead, you can invest in your personal financial future.
Save Money, Honey
We all want to go to the land of milk and honey. Prospering in business means you should prosper in your personal life. While you might be ordering room service and flying first class, that’s because your business may be doing well. However, if you don’t save and work on your personal finance management, things won’t be looking so pretty. For example, if for some reason your business were to fail, you would lose everything. Invest in a diversified portfolio so you don’t put all your funds solely into your business. This will allow a cushion for emergencies, as well as a retirement plan. You don’t want to work forever, but if you do, at least you’ll have the funds to do it from a remote island with a blended cocktail and a colorful paper umbrella.
Strategize for the Future
When the final curtains close, that doesn’t mean the show is over. The future calls for future planning, especially your personal finances. You need to clean up, figure out if you’re going to hand the reins over to someone else, or decide if this is the last show you’ll perform. There are so many options. Once you retire, what will you do with your business?
Consider looking into things at least 5-7 years prior to your retirement. Do you want to sell the business? Has the family taken over? Do you give the business to your child? Will Ross and Rachel end up together? Just checking to see if you’re paying attention. But seriously, having someone run your business versus taking over the business are two different things. And simply because they are blood-related doesn’t mean they are the right person to take care of your baby. Really think about what the best option would be, especially if it affects your income for retirement.
New Year, New Habits
Once again, welcome to the new year! Burning sage and cleaning the house from top to bottom may help send the 2020 bad vibes away, but that won’t make a dent in your long-term personal finance goals. To be successful, you have to make it a habit by working at it consistently. It will be difficult in the beginning; this is why so many resolutions are broken within a month’s time. But this year is different because we are here to help you make these good intentions with personal finances, stick.
How do we develop new habits? Phillippa Lally, a healthy psychology researcher at the University of London studied the habits of 96 individuals over a 12 week period and during that time, they chose one new habit to report about for the 12 weeks. The habits varied from drinking water at lunch to going for a jog before dinner, and what did they find out? It takes about an average of 2 months before a new behavior becomes automatic. Keep in mind, everyone is different, so it can even take up to 8 months. That goes for anything — juggling, learning the piano, or (ahem) managing your personal finances.
What do we learn from this? Just like you can’t learn to juggle overnight, and it’ll likely take more than 2 weeks to learn Beethoven’s fifth, it’s going to take time to work on your personal finances. When working on your personal financial management, be gentle on yourself and take it day by day. We believe in you.
5 Money Happy Apps
What will help make personal financial management a habit? Well, getting started can be hard. Personal finance apps are super helpful when tracking your spending, upcoming bill payments, credit score, invoices, and investing portfolios. With so many out there, we’ll share the best finance apps we’ve come across.
Let’s get minty fresh with this one. Mint is one of the most popular personal finance apps because it’s the full package. Link your credit and debit cards, and Mint will categorize transactions so you can efficiently manage your budget. You can check on your credit score and schedule payments. Mint will automatically sort your spending categories so you have a bird’s-eye view of your budgeting trends.
- Clarity Money
Subscription models are all the rage. Since so many companies are moving in this direction, you can have a plethora of subscriptions that you can’t even count on all your fingers and toes. Clarity Money gives you, well, clarity by canceling subscriptions you don’t use, analyzing your spending behavior and creating savings funds.
EveryDollar uses the zero-based budget where every dollar has a purpose in the budget. The monthly expense tracker monitors your transactions and shows how much you have left to spend. Budgeting is smart as hell and you want to make the best of every dollar. You can go for a free trial and if it goes well for you, you can upgrade to premium.
- Personal Capital
Manage your personal finance and wealth with Personal Capital. As the name implies, you can manage your assets and investments by tracking your portfolio by account, asset class or individual security. You can also compare your portfolio to major market benchmarks. Personal capital is perfect for personal finances.
Prism will give you a good idea of what you’re paying for since it shows all your bills and financial accounts. You can add bills to the app, schedule payments, and send reminders to get those payments paid on time. Prism is connected to 11,000+ billers (more than any other app) and puts multiple account logins in one.
Personal Goals, Personal Finances
This year, let’s not let resolutions hold us back from being the best version of our small business owner selves. Let’s buckle down and whip our personal finances into shape (and be consistent about it). It’s going to take time, so be gentle and patient with yourself. This year, make personal financial management a resolution you stick to — and we’ll help, because money is kind of totally our thing.
At Alchemy Accounting, we want you to achieve your goal of managing your personal finances. To start, it’s important to understand where you are on your financial journey so we can provide you with all the help you need. Give us a shout and let’s get up close and personal…with money that is. Or you know, we can hug it out 6 feet away, but we can figure that out later ¯\(ツ)/¯