This story originally appeared on Due.
I distinctly remember the first business that I started. I was one of the first kids in my high school to have a CD burner — I know, I’m dating myself here. This meant that I could burn CDs and sell them for $5 to my fellow students. I quickly made my money back on the initial investment of the burner — back then you had to purchase the burner separately and install it into your computer. I was also able to make larger payments on the computer I financed and start putting money away for college since this was a side-gig — I also worked part-time teaching rock climbing at a local gym.
What’s amazing when I think about that side-business today is how much I learned about personal finance and how I’ve been able to apply that knowledge to my current business. In fact, those personal finance tactics have been able to help my business grow at a healthy rate.
Here’s some of my favorite, and most effective, personal finance tactics that can help your business grow.
Set a budget
Managing can be a daunting challenge in both your personal and professional lives. That’s why budget are so important. They allow you stay on-track, monitor your monthly spending and project your income. Budgets also allow you to be prepared financially if you experience any emergencies or unforeseen events, such as unexpected costs, any repairs or upgrades or investment opportunities.
Interestingly, managing your personal and business expenses can easily be done simultaneously by taking the following three steps:
- Figure out your business expenses. This includes everything from rent, utilities, insurance, payroll, office supplies, business travel, entertainment and interest on credit cards or loans that you pay each month.
- Figure out taxes. You’ll need to determine your tax rate — if not, you could land in hot water with the IRS, and that’s never fun. It’s in your best interest to hire accountant who is familiar with these rates and ever-changing tax laws.
- Budget your income. “Once you’ve determined your operating expenses and taxes, the rest is your net profit,” says our own Amanda Abella. “From here you can decide to give yourself a set salary you can easily budget with or just play it by ear.”
Reduce your debt-to-income ratio
“A debt-to-income ratio is a personal finance measure that compares the amount of debt you have to your overall income,” writes Jean Fogler on Investopedia. “Lenders use the debt-to-income ratio as a way to measure your ability to manage the payments you make each month and repay the money you have borrowed.”
This ratio can be calculated by “dividing your total recurring monthly debt by your gross monthly income.” For example, writes Fogler, “if your total recurring monthly debt is $2,000 and your gross monthly income is $6,000, your debt-to-income ratio would be 33% ($2,000 / $6,000 = 0.33, or 33%).”
You can reduce your debt-to-income by:
- Decreasing your monthly recurring debt.
- Increasing your gross monthly income.
Lowering your debt each month can be difficult. But, one of the best ways to accomplish this is by determining the difference between your needs and wants. For example, you could rent a shiny new office instead of purchasing the space. You could outsource employees instead of hiring full-time employees. And, you can trim the fat after setting your budget since you may notice monthly expenses that aren’t necessary.
As for increasing your income, you could look for multiple streams of income. For example, while launching your startup, you could find a side-gig like becoming an Uber driver or affiliate maker so that you can use that money to pay down your debts. Here are 101 ways to make some extra cash while keeping your full time job.
Improve your credit score
Your credit score will impact your ability to obtain financing, lines of credit and loans. Furthermore, having a poor credit score means that you’ll have a higher interest rate when it comes to credit cards or bank loans.
This becomes an issue whenever you need to rely on financing, credit or loans to help your business scale properly, such as obtaining a mortgage for an office or purchasing equipment.
There are, however, several simple ways to improve your credit score. This includes paying your bills on time, keeping your debts low, not closing existing accounts, applying for a D-U-N-S number, and checking your credit report.
Establish an emergency fund
Everyone needs an emergency fund. Whether it’s because you have a variable income, an unexpected medical expense or non-medical emergencies, an emergency fund ensures that you can pay your monthly expenses and keep your business moving forward during these rough pages or lean times.
The amount that you set aside is usually determined by how much you have leftover after all of your business expenses have been deducted. However, most experts suggest that set aside between three months and one year’s worth of expenses into your emergency fund.
Keep these funds in a savings account, money market fund or short-term Certificates of Deposit so that the money will be there when you need it.
When you’re looking for a new outfit, tablet or home, you wouldn’t purchase the first item that you come across, right? You would first compare prices. How about when selecting a credit card or bank loan? You would consider the interest rates before making a final decision.
The same can be said for your business. Whether if it’s selecting vendors, an office space, equipment or company credit cards and loan, you would compare prices, interest rates and term conditions so that you could find the best deal possible. Always look for the top payments company when searching for rates.
This may not make you a millionaire, it could definitely save you hundreds, maybe even thousands, of dollars that you could place into your emergency fund or use to grow your business.
Always have insurance
Personally, you probably have some sort of disability insurance that keeps your personal finances afloat in case you experience a horrific accident. The same is true for your business. There a a variety or insurance policies that will protect you and your business from injuries, property damage, your vehicle, employees and from natural disasters.
Angela Ruth has an excellent post on the different types of insurance that small business owners should know about.
Get-rich-quick never works
“A friend of mine who is a billionaire told me that he reads a book to his grandkids and I should read that book. The book is The Tortoise and the Hare. Every time he reads the book, the tortoise wins. Slow and steady wins the race, and consistency matters. Get-rich-quick never wins,” Dave Ramsey, author of The Total Money Makeover: A Proven Plan for Financial Fitness and personal finance expert told Bankrate.
“If you try to impress other people, you’ll lose the wealth race, as well,” Ramsey says. “It sure did give me a nice metaphor. It’s a good reminder to somebody like me to keep me in check. It has implications for debt, for mutual funds, for budgets — an overlay for everything.”
Keeping your finances requires hard work. As does growing your business. There are no shortcuts to accomplish either. Work your tail-off and remain consistent, and you’ll be on the right path.