If you have own business, you want to invest all that you have in it. You may be taking it like your child who you want to give your best to. Many business owners pour all they have into their businesses: emergency and retirement savings, home equities, all their efforts.
But is it wise to act like this and put everything you have into your business? Financial experts’ answer to this question is “no”. Continue reading to understand why it’s not worth mixing your business and personal assets.
Remember About the Factor of Age
Michael Manning, the president of Manning Wealth Management, says that with age we become more conservative. Our attitude to taking risks changes as we get older. Mr. Manning encourages entrepreneurs to take risks in business but without relying on personal assets. In other words, it’s better to get small personal loans for bad credit to deal with professional needs than to put your home or other personal assets as collateral. Many things changes with time. We have more responsibilities and, actually, more things to lose. When you’re young it’s different – you tend to take risks and big steps without considering them much.
Do Not Rely on Personal Assets
If you plan to start own company, think about how you can secure and separate your personal and professional finances. Experienced financial advisors do not recommend relying on personal assets or personal credit. The first thing to do is to create 2 savings accounts before starting a business. Live frugally and set your priorities in the right way, more likely that you’ll have to make a sacrifice and refuse some purchases to invest more in your business. If you’re planning to get a business loan, prepare for that by making these 5 steps.
Next thing to do is to review your assets and choose between wants and needs. Do you really need such a big house? What about your car – don’t you want to trade it in for something less expensive but more reliable? Get ready to decline any luxuries and understand that now it’s time to stay frugal. Always keep in mind your motivations and save up. A perfect result is an ability to build up a personal emergency fund which can cover your six-month household expenses and a separate growth fund for your business.
Build Retirement Savings
Living below your means is important when you’re on a stage of starting a business. But don’t repeat a mistake some entrepreneurs do: they almost forget about personal spending and put everything they have in their venture. They stop even saving for retirement putting company expenses at first place.
This step is considered by financial advisors as an absolutely wrong one. If you put 100% of your income in your business and it fails, what do you get in the end? Statistics is more than sobering: you will need around $1 million in investments for every $40,000 of pretax income desired. That’s why it’s worth investing no less than 6% of your gross income into your retirement account to protect yourself. Try to do even more – save 10% of your income each month.
Work With an Expert
However, being smart is not enough sometimes. Take steps to protect your personal assets and make sure that whatever happens – you’re safe. Choose the right insurance and use lawyer’s advice to protect your business as much as possible. The best thing you can do is to work with an expert. As an owner, you can be very excited and optimistic about your business. But don’t let the feelings take control over you. Plan professional expenses and do your best to keep it separated from your personal ones.