Starting a business involves a lot of risk and uncertainty. So when that's your day job, make sure your personal finances are a lot more predictable. Here are five money moves every entrepreneur should consider.
Starting a business involves a lot of risk and
uncertainty. So when that’s your day job, make sure
your personal finances are a lot more predictable.
Here are five money moves every entrepreneur
GET A GAME PLAN
• Figure out how much money you have (i.e., emergency savings) and how
much you have coming in (say, from investments or part-time work).
• Estimate both your personal and business-related expenses. How much
does it take to get your idea off the ground, and how long you can
feasibly bootstrap until you enter the danger zone?
• Aim for six months’ worth of emergency savings for individuals and nine
months if you’re a parent.
• If paying off debt, automate payments to simplify the process and make
sure your expenses get paid.
Each morning, take a “money
minute” to check your financial
accounts and investments. Take
a peek at investments, check for
erroneous fees, and get a sense
of your personal spending. This
can help you stay on top of your
spending habits and gain visibility
to correct the course, if needed.
KNOW YOUR RISKS
• As an entrepreneur, it’s crucial to understand how your personal
finances are connected to your business, because you’re so vulnerable.
• If you take out a credit card for business expenses, you’re personally
liable if the card’s is in a name other than your corporation.
• Similarly, if you take out a small business loan, the bank could come
after your personal assets.
• Neither scenario is ideal, so if you’re boostrapping it, be sure you know
GET A ROTH IRA
• Saving for retirement is probably not high on your to-do list when you’re
starting a business — but it should be.
• A Roth IRA, which grows absolutely tax-free, is a great and flexible
vehicle for retirement savings.
• Roth IRAs allow you to invest in anything — from mutual funds to
bonds up to $5,500 in 2013 ($6,500 if you’re 50 or older).
• You can access some of your money without major penalties, and also
roll a traditional IRA or 401K into a Roth IRA.
With umbrella or excess liability coverage, you help to protect
yourself from big financial threats. This kind of policy goes above
and beyond auto and home insurance, which is good since you have
more to lose. Think of it as an additional layer of insurance, worth
up to $1 million or $2 million. Most umbrella insurance claims are
related to car accidents, but also offer protection for work accidents.