4 Ways Entrepreneurs Must be Pragmatic in their Personal Financial Lives

The number of self-employed people in the workforce has grown substantially. As of last year, 9.9% of the population were business owners.

Many factors have contributed to this change. Fewer job opportunities after the 2008 financial crisis played a key role. The growth of gig sites was another contributing factor. Many people have also started creating their businesses during the pandemic, so they have more work opportunities while still social distancing.

Unfortunately, many business owners discover more challenges than they initially expect. For example, they often have outlandish expectations about the amount of money that they will earn.

When you create your own online business, you will probably discover that your revenue is lower than you hoped. You are probably not going to become a millionaire in your first year. In fact, you probably won’t even turn a profit. This isn’t the end of the world, and you can make up for it later on.

However, you will have to come to terms with the fact that you will need to budget carefully. Sound financial management is going to be one of your top priorities.

You might need to work with experts like Florida insurance adjusters to help you live more frugally. They can help you get the best rates on insurance to save money. However, there are other financial practices that you should follow.

Some of the most important financial management guidelines you will need to follow are listed below.

Don’t make financial decisions based on unrealistic income forecasts.

You need to accurately predict your income in order to make a lot of financial decisions. Personal income forecasts are going to be necessary for:

  • Determining how much money to set aside for retirement every month
  • Figuring out what type of apartment or house you will be able to afford long-term
  • Applying for certain income-based financial programs you might be eligible for like the Affordable Care Act
  • Deciding how much discretionary money you currently have and will be able to spend
  • Creating a rainy-day fund for when things go south

You have to make these decisions based on realistic income projections. It is easy to think that you will make a lot more money when you first start running a business than you actually will. The average income of a small business owner is a little over $63,000 a year. However, this depends significantly on their chosen profession. Also, they generally earn a lot less money in the early years. Most business owners don’t even turn a profit during the first 12 months.

Minimize your debt levels as much as possible.

Nobody should ever take on more debt that they can pay off. It can be a good idea to use your credit card to earn rewards. However, you’re going to run into problems if you start racking up credit card debt that you can’t pay off.

This is a bad decision for anybody. However, it is even riskier when you are running a new business. You can’t accurately forecast the revenue that you will generate. You might make a decent amount of money for a couple of months, but it could all disappear. This is the reality of earning a variable income. You will have an impossible time repaying your debt if your income falls or completely dries up.

Set plenty of money aside for retirement and rainy-day funds when things are going well.

It is easy to get cocky when your business is doing well. You might think that things will continue to get better, which might lead you to live high on the hog. You might start going to pricey restaurants, buying more expensive cars and treating yourself to frivolous services like daily massage treatments.

Unfortunately, every business is going to have its boom-and-bust periods. You will wish that you didn’t waste that money when things take a turn for the worse.

You should make sure that you put enough money aside for a rainy-day fund. You will also want to have a decent retirement account.

If you have enough money to sustain yourself indefinitely and a sizable retirement account, then you can start splurging a bit more. Until then, you want to be more practical with your money.

Never go without having health insurance.

Health insurance is very important for any adult to have. You will want to make sure that you choose a reliable healthcare plan.

You might be tempted to purchase a health insurance policy with the lowest premiums possible. However, this might not be the best option if you are going to need extensive healthcare. You’ll probably save more money buying a higher tier plan if you have chronic health problems like diabetes or a tendency to get into accidents frequently.

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