Running a small business can be a lot like riding a roller coaster. You are sure to face a lot of ups and down as you go along. Whether your small business is a success or a failure, one thing is for sure… you are going to learn a lot of tough financial lessons along the way. Many of these lessons can be applied to your personal finances.
10 Personal Finance Lessons That Can Be Learned from Running a Small Business
1. Being Organized is Important
One of the first things you learn when you start a business is how important it is to be organized with your bills and paperwork. Keeping track of your bills, receipts, and income is crucial for the success of your business, especially when it comes to tax time. Not only that, staying on top of your bills and paying them on time has a direct impact on your credit rating and your ability to get a loan when you need one. You need to set up a system at home for tracking your personal finances, just like you do when you’re running a business.
2. Establish a Plan
Having a financial plan for the future is essential in both your business and your personal life. No matter what your plan is for the future, you can’t make progress if you don’t have a well thought out plan in place to help you get there. Think about where you want to be in the next five, 10, or 20 years. How much money do you need to set aside in order to get where you want to be? Whether you’re saving for retirement, your child’s college education, or the down payment on your first house, those goals will be more achievable if you have a plan.
3. Create an Emergency Fund
Sadly, you just can’t plan for everything. Just like in business, your personal life will be full of ups and downs. Unexpected expenses will crop up, people will get sick or injured, or you could lose your job without warning. Having an emergency fund that will cover the necessities if you lose your income for a few months could mean the difference between getting by or going bankrupt and losing your home.
4. Set a Budget and Stick to it
Just like any business where you have to separate divisions and create campaigns for marketing and planning the SEO budget, in your personal endeavors you must know how to create a budget, too. Every household needs a budget. You should take the time to create a strict budget for your household and stick to it. Review your budget regularly and adjust it where needed. Cut out unnecessary expenses whenever possible to help you reach your financial goals.
5. Set Goals
Goal setting is just as important to your personal finances as it is your business. You should set long-term goals for things like retirement with short-term goals to help you get there. If you want a vacation every year, set a goal for saving a certain amount toward it each month.
6. Be Patient
When you’re in business for yourself, you have to learn patience. Sometimes it takes a while for those customers to show up. In your personal finances, you need to be patient with the ups and downs of the market and how it affects your investments. Focus on things you can control while you’re waiting for everything else to fall into place.
7. Communication and Teamwork are Crucial
Communication and teamwork are every bit as important to your personal financial success as they are to the success of your business. You need to learn how to communicate effectively with your tax advisor when it’s time to file your taxes, your banker when you need a loan, and your creditors when times get lean. Not only that, you will have to learn how to communicate with your spouse so that you can work together to achieve your financial goals. When you and your spouse work together towards a common goal, it makes the job easier for both of you and increases the likelihood you will be successful.
8. Be Prepared for Tax Time
If you have ever been surprised by a huge bill at tax time, you’ll understand how important it is to plan ahead. Whether you’re running a business or running a household, setting aside a certain amount of money each month to apply toward your taxes at the end of the year can save you a lot of money and stress. If you don’t have money set aside, you could be forced to file an extension or pay your taxes late and the penalties for doing so can add up fast.
9. Consult a Professional
You probably wouldn’t consider doing your business taxes and accounting without the help of professional financial services for small businesses, so why wouldn’t you do the same with your personal taxes? Consulting a professional at least once a year, just makes sense. A tax professional can help you find deductions you didn’t realize you were eligible for and make sure you are complying with state and federal tax laws so that you don’t run into trouble down the road. Even more importantly, a financial professional will stand by your side if you’re ever audited.
10. Insurance is a Necessity
One of the first things you do when you open the doors to a new business is get liability insurance. It’s just the smart thing to do to protect your financial assets. So many people look at health and life insurance as a luxury they can’t afford, but in reality, these things are a necessity. Having health insurance protects you financially if you ever have a long-term illness or injury that racks up a lot of medical bills. And, life insurance is important for protecting the financial well-being of your loved ones if you ever can’t be there to do it yourself.
You will learn a lot of important financial lessons from running a small business. Applying those lessons to your personal finances can help you reach your financial goals.