They say 90% of all startups fail. To succeed then, perhaps you should launch 10 startups?
Jokes aside, a major reason for startup failure is poor financial management (amongst other factors – such as a poor team or product). And often, such poor management is symptomatic of a bigger problem – poor personal finance habits. An entrepreneur in control of his personal finance is far likely to manage his organization well. This is why it is vital to follow some crucial good practices on the personal finance front – it translates into great results both on an individual and organizational level. When you’re doing well personally, you’re in a better position to ensure your business does well also. Here are some ways you can strengthen your personal finance:
#1 – Build Wealth Goals And Work On Them
Any investment ought to have a purpose. Whether you’re investing for a quick vacation in a few years, or a brand new car sometime later, always know what you’re investing for. This helps in taking important decisions when selecting your investment option – you can decide on its tenure, its type, its expected returns, and many other factors only when you have some perspective on its long-term goals. As Terry Pratchett once said – if you don’t know where you come from, how will you know where you’re going?
Once you’ve decided what it is that you’re investing for, stick to the plan. Avoid too many modifications, and show some patience for your investment to deliver. Think before you execute.
#2 – Always Keep Some Funds For Personal Expenses
Sure, you’re starting a business and it probably needs all the money it can get to get off the ground or make its mark. But you the individual, and you the businessman, are separate entities, and it is important to keep these two isolated. Every businessman has his personal expenses to deal with as well, and these are essential. Don’t expect yourself to be in a position to run your own business smoothly if you’re running short on funds for yourself for the basic necessities of life.
When investing in your business, always remember to set aside a certain amount of funds for your personal expenses. This is especially important since your new venture may not turn a profit for quite a while, in which case you may well have to rely on your personal funds for your expenses. Try keeping aside at least a few years worth of expenses as your personal funds, and channel the remaining amount, after any other deductions, to your business.
#3 – Research Before You Invest
Your investments can require the same level of attention to detail and dedication that your business will. Just as it can be hard to generate a profit in the early years of your business, picking your investments without proper research can lead to a valuable loss in returns over the long run. When investing in mutual funds, pick a direct mutual fund platform. A direct mutual fund platform can generate as much as 0.75-1% in higher returns since direct mutual funds have lower expense ratios on account of them not having to pay any commissions to brokers.
While a lower NAV on a regular mutual fund may fetch you more units for your funds, it is actually generating lower returns for you, and its NAV will continue to rise slower. The returns on a direct mutual fund plan are always higher, with the difference in both their Net Asset Values (NAVs) continuing to increase, and getting bigger over time.
When picking a direct mutual fund platform, again, research well. Pick a direct mutual fund platform that has minimal fees, supports the top mutual funds in the market, and does not fleece you with any hidden charges.
#4 – Live Within Your Means
When starting a business, go lean on your expenditures. A business is like an investment as well – and it is important to spend your funds in the right places when running a business, and with careful consideration, just as you would if you were making an investment decision. Avoid getting into debt, simplify your personal lifestyle, and make sure you have emergency funds for any potentially hard times. This also applies to your business expenses – which should focus on everything that is important and essential, and nothing that is unlikely to add value to your bottom line.
Debt comes with EMIs. EMIs every month can add up over the long run, and not only reduce your net income, but also overall expenditure because of the interests you’re charged on them. For a business running at a 10% profit margin, for every Rs 1 lakh that you’d want to spend, you need to generate at least Rs 10 lakhs in revenue. Make sure the expense is worth it.
#5 – Start a Systematic Investment Plan (SIP)
A SIP remains one of the most recommended ways to go about an investment journey. It allows you to build wealth over the long-term, without being too hard on your corpus – since you’re only investing a small amount over regular intervals. A lump sum investment on, the other hand, could squeeze you financial and leave little to channel for your business.
A SIP also offers the advantages of rupee cost averaging – which means you don’t have to time the market. As a businessman, you’d much rather be spending your time on your venture than poring through news reports and other research trying to enter the markets at an opportune time. Thanks to rupee cost averaging, your cost of investment is lowered, which naturally translates into higher returns once the markets rise.
Ensure Peace of Mind
Most importantly – remember to stay calm and focused, and not lose sight of priorities. Stress has the potential to derail both your personal finance strategy as well as business plans. It’s fairly obvious then, that a peace of mind is more important than all the other items you’ll find in this post. In fact, it’s what you’ll need the most when starting your entrepreneurial journey.
