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You do not learn to manage your personal finance in school. It is a sad fact that our teachers do not cover this subject matter unless it is part of a curriculum in a business management course in college.
It is also one of those topics that you rarely talk about at the dinner table with your parents or your children. As we get older, we realize later on that our wayward spending is due to lack of guidance.
If you are aspiring to be an online entrepreneur or whether you are operating one already, your personal finance must be in good health. The last thing you want is to pull funds out of your personal money to fund your business.
That is not good.
A business must be able to sustain itself. If you have to pull funds from your personal funds, it must not have a negative impact on your personal financial health.
Today, I will share with you three powerful tips to help you manage your personal finance while doing business on the side.
These tips are:
- Building a Budget
- Establishing goals
- Creating an action Plan
It is never too late to change, even if you are in debt. Most importantly, it is never too late to start getting into the habit sticking to a disciplined approach to improve your financial health.
Know where your money goes
Where does your money go, and what is a budget?
A budget is a tool that allows you to forecast your expected expenses, and you must stick to it. With a budget, you create a plan where you can see how much money is coming in, and how much money is expected to get out.
Here is an example budget that I use:
To get started, you have to list down your bills, and how much you are paying for these bills every month. Fixed bills like rent and internet should be easy. For utilities that fluctuate, just take the average cost for the last six months.
The challenge is how much you spend monthly on costs that are not fixed, such as food and gas. You cannot do this unless you list down what you spend on a daily basis.
The trick to creating a good budget is to start listing down your daily expenses, and properly categorizing the. Three months’ worth of data should be enough to give the real figure of how much money you are spending on things, such as coffee or your meals when eating out.
Take a look at my list below. For personal reasons, I have to block out some things.
This list gets turned into a pivot table like this:
You can do this with an app, or a spreadsheet. Personally, I prefer a spreadsheet because I am in control of how I want to see the data. I have been doing this since 2011, and I know how much money I spend every day, week, month and year for everything.
In short, I know where my money went. After a year, I can tell myself that if I have spent too much in electronics, such as tablets and gadgets—that I am never going to spend in this category again for the following year.
As you can see from the screenshot above, I know which categories I spend the most and the least. And I can create a budget from that data for the next year. I know which specific areas where I can cut my expenses, and these decisions are based in hard data, not on speculations.
Ten Personal Finance Rules
Create a budget and establish financial goals
Now that you know where your money goes and you have created a budget, it is time to create your financial goals.
A financial goal is a target that you want to achieve within a specific period of time. Once this financial goal is established, you can add that goal into that budget, and then start creating a plan to get it done.
In my case, I want to be able to buy a car that is worth $10,000 by the end of two years. I want to buy it with cash, so I am not going to a car dealer for a lay away or installment plan. I am not going to loan from a bank, either.
So, if I break down $10,000 by 24 months, I need to set aside $417 per month. My budget is going to look like this:
As you can see, I now added the $417 on my monthly budget because I established a financial goal.
Do not bet overwhelmed with your financial goals, no matter how big they are. The key here to get you motivated is to break the cost down into smaller and reasonable chunks that you can set aside.
If you are operating a Shopify store, then you have to add your monthly business cost to your budget, provided that your business is not yet generating money.
Execute a plan to achieve these goals
Plans and dreams are a good start, but it is always poor execution that leads to failure. You do not want to fail, so you cannot afford to take missteps.
What is an action plan?
It is nothing more than a list of the things you should and should not do to get to your goal. In the world of physical health, nutritionists and trainees tell you to do ten reps of an exercise daily, or to drink a glass of protein shake a day.
These are action plans. And you should do the same for your financial health.
In 2018, I spent 35% of what I earned on Home Bills and Daily Needs. What are these? These are rent, utilities, and groceries. As you can see from the screen show below, there are plus (+) signs that allow me to expand these things, which tell me where spent a lot.
From there, my wife and I decided to cut back on electricity costs (air-conditioning) and food costs. We ate more vegetables and ate out less. As a result, we were able to funnel more into our investments, which increased from 21% to 29%.
These investments are money we used to put up businesses, including online ones, mutual funds, insurance, and others.
Action plans must be listed down. If you can put it in your pocket, do it. Or put it in your phone. Surely, your phone has a notepad. Write the specifics of what you want to do, such as cutting back on your coffee, alcohol, wine, eating out, others.
If you do the analysis, you can tell yourself that “if for one year, I only spend $25 a month on coffee instead of $50, I would have saved $300 for one year.
Every time you feel the urge to spend, take a look at that list on your phone to check if you are even supposed to be spending on that thing or not.
Action plans are reasonable chunks of steps that you can take to get to your goal. Do not completely deny yourself of the simple pleasures in life, as this will only stress you out and get you depressed.
Summary; Manage Your Personal Finance
There are only three things you need to do to manage your financial health while you are in business. You must know how your money is being spent, what your budget should be on a monthly basis, and what things you should do to get to your goal.
Most importantly, you have to motivate yourself into meeting these goals. Little improvements that you see on a monthly basis should be enough to keep you going. Get these three things done, and you will be on your way to a heath financial health.
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