5 Personal Finance Tips For Small Business Owners (2024)

By Gregg Schwartz

One of the first rules of entrepreneurship is you’re never supposed to mix your business and personal finances. But sometimes, business owners will go too far in the opposite direction, spending so much time running their business, working on their business, and investing profits back into their business that they end up not paying enough attention to their personal finances.

Chances are you’ve crossed paths with entrepreneurs like this—they’re brilliant business people, but they’re not careful managing their own money.

A surprising percentage of business owners, who are some of the hardest-working people on Earth, tend to get a little lazy or sloppy with their personal finances: they spend too much, they don’t save enough for retirement, they make excessively risky investments (or make the mistake of parking their money in the bank and earning 0% interest).

If you’re a business owner, it pays to get smart about your personal finances. Here are a few constructive suggestions and strategies on how to make better financial moves in your personal life. In fact, you may even find that improving your personal finances will help you to be more successful in your business.


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1. Build an emergency fund

A general rule of thumb, according to financial planners, is to have three to six months’ worth of living expenses (after taxes) in an emergency savings fund. Are you prepared? And if you own a business, you might want to have an even larger emergency fund, in case your business takes a downturn or in case you have seasonal fluctuations in cash flow.

What if you lost your biggest client and had to take a pay cut? How long would your personal emergency savings last? And you shouldn’t be risking your emergency fund in the stock market or locking it up in long-term CDs—keep it in an FDIC-insured cash bank account. You’re not trying to earn a big yield on this money; you just need it to be there in case of emergency.

Having an emergency fund will give you greater peace of mind to make more confident decisions for your business. If you know that your family is protected in case of a financial emergency (car accident, major home repairs, natural disaster, medical bills), you will be better able to focus on running your company.

2. Manage your personal credit

Credit is the lifeblood of a small business, and you need to make sure your personal credit is also solid. Pay your bills on time. Even if money is tight and you can only afford to make a minimum payment on a credit card, it’s better to do that than to miss a payment or pay late.

Also, pay attention to your credit utilization ratio—the percentage of your available credit limits that you’re actually borrowing at any given time during the month. If you can keep this ratio below 30%, this will help you to have a better credit score and an easier time getting approved for personal loans.

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Having better personal credit can also be helpful for your business, especially if your business is still establishing credit under the business’s name. And staying on top of your debt payments and due dates will help you have a stronger foundation for your personal finances.

3. Save for retirement

Small business owners often invest a lot of their profits back into their business, but there are also some great options for small business owners to save for retirement. Consider setting up a SEP IRA or other tax-advantaged retirement savings plan for your business, even if you don’t have any employees.

Depending on your income and qualifying factors, you may find you can save more money for retirement as a self-employed person than you could as an employee.

Instead of investing all your profits back into your business, saving for retirement can help you diversify your savings into a wider array of investment options: stocks, bonds, ETFs, and money market mutual funds. Your business is already your biggest investment. You already are depending on your business for income and insurance. You don’t have to invest every last dollar back into your business; invest in a broader range of opportunities, too.

4. Invest appropriately for your risk tolerance

Once you’re saving for retirement, make sure you are investing in a diversified portfolio of assets that are appropriate for your time horizon and risk tolerance. If you are still relatively young and have several decades until you reach retirement age, you should invest your portfolio mostly in stocks.

For example, an old rule of thumb for asset allocation used to be that you should take 100 minus your age, and that would be the percentage of your portfolio that should be invested in stocks. So if you were 40 years old, to calculate your portfolio, you would subtract 40 from 100, and the result would be investing 60% of your money in stocks; 40% in bonds and cash.

However, depending on your investment goals, you might want to invest an even larger percentage of your portfolio in stocks, so you can capture more of their potential long-term growth until you retire. Stocks can be risky, but they generally offer the best potential for long-term ROI.

5. Seek professional help

Talk to a financial adviser for more specific advice; this column does not constitute professional financial advice, but it helps to consider some of your options so you can make informed decisions about your personal finances.

If you can improve your personal finances—with a solid emergency fund, strong personal credit, and a diversified portfolio of retirement savings aside from the equity that you own in your business—you will more likely be able to focus on running your company with a mindset of calmness and optimism. And for business owners, who are some of the busiest people in the world, having peace of mind about personal finances can be truly priceless.

Gregg Schwartz is the director of sales atStrategic Sales & Marketing, a leader amongappointment setting companies, providing lead generation consulting to hundreds of businesses. To follow the latest discussions in best-practices for lead generation, join Gregg’s LinkedIn Group with over 6,500 sales professionals and business owners,Manage Your Leads. See all articles by Gregg Schwartz.

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This article was originally published on AllBusiness.

As an expert and enthusiast, I don't have personal experiences or expertise. However, I can provide information and insights on a wide range of topics based on the data I have been trained on. I can assist you with questions related to personal finance, entrepreneurship, and other subjects. If you have any specific questions or need assistance with a particular topic, feel free to ask!

Now, let's discuss the concepts mentioned in the article you shared.

Mixing Business and Personal Finances

The article highlights the importance of not mixing business and personal finances. While it is a general rule of entrepreneurship, some business owners tend to neglect their personal finances due to their focus on running and investing in their businesses. This can lead to overspending, inadequate retirement savings, and risky investments.

Building an Emergency Fund

One suggestion provided in the article is to build an emergency fund. Financial planners recommend having three to six months' worth of living expenses (after taxes) in an emergency savings fund. This fund can provide a safety net in case of unexpected events, such as a downturn in the business or seasonal fluctuations in cash flow .

Managing Personal Credit

Maintaining a solid personal credit score is crucial for small business owners. Paying bills on time and keeping the credit utilization ratio below 30% can help improve personal credit. A good credit score can also be beneficial for the business, especially when establishing credit under the business's name.

Saving for Retirement

While business owners often reinvest their profits back into their businesses, it is important to save for retirement as well. Setting up a tax-advantaged retirement savings plan, such as a SEP IRA, can provide small business owners with an opportunity to save for retirement. Diversifying savings into a wider array of investment options, such as stocks, bonds, ETFs, and money market mutual funds, can help reduce reliance solely on the business for income and insurance.

Investing Appropriately for Risk Tolerance

Once saving for retirement, it is important to invest in a diversified portfolio of assets that align with one's risk tolerance and time horizon. While stocks offer potential long-term growth, the allocation between stocks, bonds, and cash should be based on individual goals and risk tolerance. Seeking professional help from a financial adviser can provide more specific advice tailored to personal circ*mstances.

These are some of the key concepts discussed in the article regarding managing personal finances as a business owner. If you have any further questions or need more information, feel free to ask!

5 Personal Finance Tips For Small Business Owners (2024)
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