The startup scene can take up a lot of your mental bandwidth, making it hard to focus on your personal finances as you focus on business decisions. But you can’t make the best choices for your startup if you’re worried about paying the bills back home. With your focus split like this, you’re bound to make mistakes, like dipping into your startup’s finances to fix personal problems.
While it may seem like your personal and professional finances blur as an entrepreneur, the pros keep these two areas firmly divided. Here are some simple tips to help you do just that.
1. Consider Your Home Turf Wisely
With dreams of becoming a successful startup (especially in tech), you might believe that you have to move to San Francisco. There, you’ll rub shoulders with some of the brightest minds in the business. You’ll also pay some of the steepest prices for commercial and residential rent.
According to the Economist Intelligence Unit (EIU), San Francisco is in the top 10 most expensive cities in the world. Choosing San Fran as your home turf could set you (and your business) back considerably, as you have to budget for its higher cost of living.
You stand to cut your overheads in half by making a different move to an underestimated city or state. SourceScrub, a data provider for investors, conducted a survey that found the most successful privately-held companies can be found in unsuspecting Pennsylvania, Georgia, and Massachusetts.
2. Have an Emergency Plan
Emergencies will still happen, wherever you call home — whether it’s Utah, California, or Alaska. Few people can successfully anticipate everything in their budgets every month. Sometimes, an unexpected health scare, car accident, or household repair will surprise you. The money management pros prepare for this with an emergency fund.
An emergency fund is your safety net in case you have to pay out-of-pocket healthcare expenses or cover an expensive auto insurance deductible. Without this savings account, you can go online for a line of credit.
A line of credit offers a convenient fund of cash you can tap to cover unexpected expenses. In many cases, you’ll be approved a large limit that may help you with several small emergencies. Just be careful not to use this account on non-essentials.
To avoid over-dipping, make sure you have a plan for every purchase you make with this account. This strategy can help you protect your credit score. After all, a line of credit may impact credit score ratings just like any type of credit.
3. Follow an Organized Budget
Setting aside enough money in your emergency fund so that you don’t need a cash advance becomes easier with a budget. This spending plan helps you prioritize the important things — like rent and savings — before you accidentally spend all your money on the fun stuff.
The 50-30-20 Budget exists to help you set appropriate priorities, splitting your income into three major spending categories: needs, wants, and savings. Your needs will take the bulk of your income (50%), while you should save around 20% of your income in emergency and retirement funds. That leaves the remaining 30% to use as you like on the non-essentials.
Why Follow These Tips?
Any financial hiccup happening at home has the power to affect your startup. Strengthening your personal finances can help you put your entire focus on your startup.