Editor’s note: Want to become a full-time entrepreneur? Then you need to fix your finances fast. Without the money to put into building and growing your business, your entrepreneurship dreams will have a hard time getting off the ground. Luckily, our guest contributor, Philip Taylor (who founded FinCon, the world’s largest financial content expo), chips in with five financial fixes you need to implement as an entrepreneur.
I see it all the time.
One of the biggest reasons new entrepreneurs fail to take their efforts full-time is because of the money issue.
It’s sad to see so many great ideas suppressed due to a lack of financial freedom.
Maybe that’s you?
Maybe you have a great idea or even a budding business? Are your personal finances getting in the way of you taking bigger steps forward?
I was there too. Ten years ago I had too much debt in my life and too little savings. With a little family starting up, I wasn’t about to take any major risks, like start a big conference.
I made a decision at that time, though, that would change the whole trajectory of my life. I decided to make money a non-issue so that I could truly choose my own path and pursue the things that made me the happiest.
Fixing your finances, and reducing financial risk, is a critical component of going from side-hustler to full-time entrepreneur. Today, I’ll share with you how I did it.
Financial Fix #1: Get rid of the debt
Having consumer debt (credit cards, car loans, mortgages, etc.) is the opposite of freedom.
It handcuffs your future income. Too much of the wrong kind of debt in your life can be a huge burden – killing dreams and forcing you to settle.
That’s no good.
To have the freedom to pursue the entrepreneurial life you desire you really need to dump the debt.
The plan is simple:
- List out all of your debts and attack them one by one with all of your spare income. I recommend starting with your smallest debt.
- While you’re paying the minimum payments on the rest, get as aggressive as you can with the smallest debt.
- Move through the list as quick as you can, picking up momentum as you go along.
- If you have debt tied to an asset, like a car or mortgage, consider selling it and trading down to an asset that doesn’t have debt attached to it.
Following this plan, my wife and I were able to pay off $40,000 in student loan debt and roughly $30,000 in car loans in three years.
Too much debt is usually a sign one of two things: either lack of ability to live within your means or you didn’t have enough savings to cover an emergency.
Here’s the thing.
Debt can be conquered more quickly if you drastically reduce your expenses.
And debt can be avoided more easily if you have enough emergency savings to cushion any financial blows.
Let’s look at both of these points next. First, the spending.
Financial Fix #2: Live lean (and learn to love it!)
I get it.
You’re here on Natalie’s site. You’re already attracted to the idea of living out of your suitcase.
I don’t need to convince you to want to live lean once you make the leap to full-time entrepreneur.
But I am going to ask you to start practicing a lean lifestyle now.
Why wait till you’re about to board the plane to get rid of all your excess possessions and reduce your spending? Do it now, well in advance of your freedom date.
I love the survival-type reality TV shows.
If I were to prepare to be on one of these shows my instinct would be to eat in excess and enjoy the comforts of life before I had to give all that up.
What I find interesting is that some of the most successful competitors practice “surviving” at home for long stretches before the TV competition. They drastically reduce their food intake, turn off the air conditioning, etc. All to get their bodies and minds ready.
They practice! You should be practicing your freedom lifestyle now!
So what does living lean look like? I’m not talking about starving yourself here. But I am asking you to think radically. For me, living lean means two things:
- Not wasting money on things you aren’t getting a lot of happiness/fulfillment from.
- Not overspending on the things you do enjoy.
Let’s a make another list. Break out your banking and budgeting apps and gather a list of your monthly expenses. List them from largest to smallest. Now let’s analyze each expense.
Here’s a quick example.
If the first item is your current rent or mortgage, think about how much value you’re getting out of that payment.
- Is there a way to get rid of it?
- Move back in with family, maybe?
- Could you find free housing (not impossible)?
- If you own your place, could you rent out a room temporarily?
- Or do both, rent out your entire place and move back in with family.
Go through the entire list of expenses with this same analysis, and now you have an action plan for the next few weeks: stop paying for the things that don’t make you happy, and try to find a better deal on the things you do enjoy/need.
Side note: If you’re lucky enough to have a partner in crime (a spouse or partner) bringing in an income of their own already, practice living on one of your incomes for a few months. That’s what my wife and I did, and it allowed me to fast-track our financial freedom and become an entrepreneur sooner than I thought.
If you can live off one income as a couple, it’s a good sign you can make it as an entrepreneur.
Focusing on living lean will have two awesome effects:
- You’ll be spending less and can focus on blasting away that debt quicker.
- You’ll be able to fast track your emergency saving, which leads us to our next point…
Financial Fix #3: Establish emergency savings
An emergency fund or “rainy day fund” is a cash savings account that you can use in the case of emergencies: you lose your job, your business fails, you experience a major medical issue, etc.
Having a big chunk of cash set aside at all times is going to help you sleep better at night, knowing you’d be okay for several months even if your life fell apart.
For most households, the emergency fund is a smart idea. But for the entrepreneur, it’s critical.
So how big should it be?
Six months worth of bare-bones expenses is a standard recommendation.
For the entrepreneur, who’s more likely to experience fluctuations in income, I think the better target is twelve months.
The ideal place for an emergency fund is a separate FDIC-insured savings account. Even better if it’s at a different bank than where you do checking. This reduces the ease at which you can tap into the fund for frivolous spending.
Be sure to see Natalie’s tips for banking while you travel abroad.
The best way to build up your emergency fund, and any savings account for that matter, is to automate the process. Set up small, periodic deposits from your checking account or straight from your employer over into this separate savings account.
By starting small, you won’t miss the money, and you’ll be more likely to stick with the habit.
Over time, you’ll find that you can increase your saving percentage and you’ll learn to live without the money…you won’t even miss it.
Financial Fix #4: Create multiple income streams
Just because you’re making the leap to full-time entrepreneur, it doesn’t mean you need to say goodbye to the side hustle income.
Now you have time for a new side hustle!
When I became a full-time blogger, one of the things I did to create a second stream of income was to freelance as a blog editor and writer.
This little bit of extra income allowed me to avoid tapping into my emergency fund those first few shaky months of self-employment.
Another way to think about this is to find a side hustle that provides the training you need to advance your main business.
Another option is to take on a part-time job. Bonus points if it’s one that provides benefits for you. It may be a challenge to find one of these jobs that allow you to travel extensively, but it’s possible.
Lastly, don’t rule out the possibility of reducing your duties with your current employer. It may be possible for you to move to a remote position and have fewer responsibilities.
This is often the case when folks try to leave their traditional careers – employers want them to stick around and are willing to be flexible with location and hours.
Financial Fix #5: Don’t neglect retirement savings
My last tip is to avoid making the mistake of ignoring your retirement savings when you become your own boss full-time.
There are lots of good options to save money when you’re self-employed. I’d encourage you to research the opportunities available to you and open up an account as soon as possible.
You don’t have to be aggressive with it right away. Just open the account, start with a small, automatic contribution and get yourself in the habit of saving for retirement.
Final thoughts on fixing your finances to make the leap to full-time entrepreneurship
I always like to remind everyone that this didn’t happen overnight for me. I’m a very risk-averse guy, and I waited until I was more than financially ready for the leap.
You might be able to make this happen quicker. Or it might take you longer. And that’s okay!
Look, entrepreneurship is hard enough by itself. You don’t want to compound the difficulties by adding in stress from issues with managing your money.
Resolve your money issues using the five financial fixes above and start building the life of your dreams!
About our Guest Contributor: Philip Taylor is a CPA, husband, and father of three. He created PTMoney.com back in 2007, and he founded FinCon, the annual conference, and community for digital influencers in financial media, in 2011.
Check out Philp’s free 31-day financial challenge to improve your financial life.
All set with your financial goals, but need help to free up more time? Check out my free video training: