If you run a small business, the quality of your personal finances will have a direct influence on the quality of your business finances. Knowing how to manage your personal finances effectively will equip you with the skills you need to manage the finances of your business more effectively. If you have excellent credit worthiness in your personal finances, you’ll find it easier to build up the credit profile of your business and secure financing when the need arises.
Too many small businesses suffered in 2017 because of the shortcomings in the personal finances of the owners. Of course, events beyond the control of many folks such as Brexit triggered some shockwaves that are still rippling through the economy. Nonetheless, if your personal finances are in order, your business will find it easier to weather the storms ahead as the uncertainties surrounding Brexit continue to mount. This piece provides insight into tips for managing your finances more effectively in 2018.
1. Start being conscious of your spending and take stock
The first way to take charge of your finances in 2018 is to becoming conscious of your spending patterns so that you can know when you are overspending. It is very easy to overstretch your budget because of the ease that credit cards and mobile payment solutions afford. However, if you don’t pay attention to your spending patterns, you might not know where your personal finances ends and your business finances begin.
An action plan to develop a habit of being conscious of your spending is to keep a financial journal in which you’ll write down every dime you spend over the next 21 days. If you are committed to keeping a financial journal, you’ll be quick to spot the seemingly harmless way through which you are wasting money.
2. Be strategic about achieving financial goals
The next step in taking charge of your finances is to set smarter financial goals. Many people make New Year resolutions about how they’ll save up money for a down payment, reduce their debt, and stop making impulsive purchases. However, a resolution without a clearly articulated action plan is likely to fizzle. You need to be resolute in creating an action plan that will help you reach those goals.
For instance, if you want to stop making impulse purchase, you can open a new bank account, create a weekly budget, transfer only the amount of money that will cover that weekly budget into the account, and make all your purchases with that card.
3. Take proactive action against debt
Debt is a limiting factor that could weigh down both your personal and business finances. A heavy debt burden is expensive because the money you spend on interest payments can be applied towards other needs. Debt also makes it harder for you to access new lines of credit and take advantage of business opportunities.
You should start by paying off your high interest rate debt first so that you can free up more money. If you are overwhelmed by your debt burden, you may want to consider a debt consolidation solution that makes debt more manageable by reducing monthly payments and extending the term. You also need to avoid adding new debt while you are trying to get rid of older debts.
4. Create and commit to a savings plan
Almost all business owners understand the importance of saving up money and having cash reserves. In fact, the personal savings of the owners can help a business to go through a cash crunch when cash flow becomes tight. However, if you don’t have personal savings, you might be tempted to dip hands into your business finances when your suffer a personal financial setback. More so, a business could be left out cold in the event of a cash crunch if the owner doesn’t have personal savings.
You won’t have a decent amount of money tucked away as savings overnight; however, making deliberate efforts to put a little money away over time will eventually translate into sizable savings. You may want to start by putting your spare change into savings apps. You should also commit to saving a predetermined percentage of your personal income.