Personal finance planning is a very important part of success for many entrepreneurs. In many ways, they are just as important as your business finances.
It’s critical to manage them in a similar way, ensuring that your personal financial goals are met right alongside those for your business.
Here are some basic steps for managing and creating a financial plan for yourself as a business owner:
The Basis of Personal Finance Planning
As a business owner, you have money on your mind all of the time, especially as you work towards building a strong business model.
Yet, it’s not always easy to align your personal needs with those of your business needs. Here are a few tips as you dive into personal finance planning:
Build a Retirement Plan
Perhaps the most important component of this process is saving for retirement. Whether that is in 10 years or 30 years, planning for retirement is something you need to do from the start. For many people, this is one of the reasons you created your business. It’s a way for you to gain financial freedom.
To do that, you need to set personal financial goals. Know things like:
- When you plan to retire
- What you plan to do when you retire
- Where you plan to live
- What you want your life to look like
Once you’ve created these goals you can clearly focus on what you need to achieve to make these goals become reality and cross-check your progress each year to see if you are on the right track.
Solidify these goals and then move into building a solid plan.
Start with estimating the savings you need to live your ideal lifestyle. Then take your assets into consideration. Did you sell your business? Do you own your home? Do you still have debts to pay down?
To find out how much money you’ll need in retirement, you’ll need to figure out your current annual expenses and then increase them for inflation.
Next, you’ll multiply that by the number of years until you plan to retire. Your result will be a very basic figure but will give you a good idea of what you need for retirement.
The next step is then to figure out how to get there. Socking money into a savings account is not often the savviest method of building your wealth.
However, there are a number of tax-advantaged retirement plans available that can help you. This can include a SEP-IRA, Simple IRA, Solo 401(k), and a Simple 401(k).
However, you shouldn’t make this decision on your own.
Instead, sit down with a financial advisor to determine which method for saving for retirement works best for your financial goals. Each of these retirement tools offers a slightly different opportunity and your individual circumstances play a role in which you should choose.
Keep Business Finances and Personal Financial Information Separate
Good financial planning also means protecting your assets and keeping your personal and business finances separate. Even though you are closely connected to your business, having a separate checking account for business expenses is critical.
This helps in a number of ways, but tax time is arguably the most important.
Keeping your finances separate will give you a better understanding of your business’s tax responsibilities compared to those for your personal needs.
Without a division between personal and business taxes, your personal assets may become mixed with your business assets. That means liability cases against your business may impact your personal assets.
Use a Budget to Manage Your Personal Finances
A personal budget is very much the same as the one you create for your business. In many ways, it enables you to build your financial stability by helping you to see where all of your money is going each month. Think of it as a tool for managing your personal cash flow.
It also provides you with a way to determine what your expenses are and compare them to your expected income. Do you need to earn more? Could you save more?
Use a spreadsheet or a budgeting app to help you create and track your budget. Relying on a tool like this can do wonders in personal finance management.
Invest Wisely
Building wealth as a business owner may not mean just investing in your own company.
You should also have additional investments to build your income and contribute to your retirement account. This way your personal financial stability doesn’t solely rely on the success of your business.
Passively growing your investments in stocks and bonds, rental properties, or other strategies that give you more income is also a wise decision.
Again, these are strategies meant to help you be financially stable in the long run. Before making any decisions, work with a financial advisor for clarity and direction.
Work with Trusted Professionals
Personal financial planning does not have to feel like an obstacle or challenge, but it is something you need to properly manage to see success.
Having the right team can help you. A financial planner is an important resource to help you manage and grow your personal wealth.
An experienced accountant can help you manage your finances on both sides to ensure you are getting the most out of your business and personal finances.
Contact Pasquesi Partners today to learn more about how we can help you.