NEWSFLASH!!!!! If you are not good at managing your own personal finances, you won't be good at managing your business finances either. Many people start a business because they see an opportunity to get out of debt and/or they hope to make enough money to become financially stable. In truth, more money will just lead to more problems if you don't understand it. BIG problems. Over the last few years, I have committed myself to learning more about how money works. What I am finding is that being "broke" is a matter of your mental disposition. To change your financial situation, you must first change the way you think.
I have never been in debt outside of what I owe for my house and my car. I learned from an early age that I did not want to live beyond my means. But I was never taught the concept of managing money. I just learned what not to do from observation. For me, that meant not spending a dime of my income until I sat down to assess what all my bills were for that month, writing out a check for those bills, subtracting the total of those bills from my income, and then understanding what I had left to spend. After my bills were paid, I spent what I had. Starting off as an 18 year old, I found this method to be effective. I was not in debt. But in hindsíght, I had nothing to fall back on.
In comes the intruduction of Dave Ramsey's fiancial mangement system. Have "$1000 in an emergency account". "Live like no one else, so you can live like no one else." Use the "debt snowball". I loved the concepts I was hearing but didnt really understand how to apply those concepts. Then I met a lady that changed my life-and my financial situation. Her name is Della Gooding. She taught me about budgeting, savings, how to use the money I had left wisely, how to reduce debt, how to have all that I needed, and wanted, and still have money in the bank. Most importantly, she taught me the power of accountability. My life changed drastically. I actually experienced the benefits that came from developing smart money managing habits. Most, however, has a drastically different story.
As a business owner, it is imperative that you learn how to manage money well, and that starts with your personal budget. There are many that feel that opening a business will lead to financial freedom. While it definitely can, if you don't already manage money well, then financial freedom will just be an illusion, no matter how much money you make. I have dealt with clients who, prior to working with us made a whole lot of money, but had nothing to show for it. Financially, they had record-breaking years within their company in terms of revenue, but had no idea where that money went. That is a sign of poor financial mangement and bad money habits. (It is also a sign of ineffective systems and processes). The truth is, if you have personal poor financial habits, making more money will only increase the amount of debt you are able to accumulate.
So...how do you really change your financial situation? You have to be a good steward of what you do have. Below are some habits that will help you manage your money better:
Utilize a budget
Creating a budget allows you to see your financial situation clearly. In simplified terms, you write down any income you get for the month or two-week pay period. Then you write down all of your expenses and their monthly costs. Within your budget, include any category that you are used to spending money on throughout the month, such as, housing and vehicle expenses, subscriptions, entertainment, travel, and food expenses as well as savings. This will help you understand exactly where you stand. The biggest and probably single most important part of making a budget is actually utilizing the budget you make. A goal without a plan is just a wish, but a plan, without action is just a joke. If you don't implement what you have designed, then you will still find yourself in the same predicament.
Live below your means
I am amazed at the debt level most Americans have. 80% of Americans are in debt in this country. I personally believe it is because we want things we cant afford, whatever the motivation. The point is that we are not in debt because we don't make enough, but rather because we consume all, and in this case, more than we have. That is a mindset problem. Not a money problem. The only way to be financially responsible is to spend only what you make. One major key to wealth on a very basic level is to spend less than what you make. What a concept!
Understand how money works
In the recent past a very good friend of mine has started teaching me about how money works. While debt is not always a bad thing, if you don't understand how to make it work for you, then you will only dig yourself into a deeper hole. I have learned that there is a point you can get to where the struggle to prosper ceases to be a struggle. Instead of climbing uphill, everything rolls downhill. Think about that for a moment. What if your battle for success was no longer an uphill climb? What if your habits got you to a place where success seemed effortless and you had the momentum of gravity (going downhill) on your side? It is possible, and I am a witness that wealth creation is something that can be learned. Education is a powerful and necessary thing.
If you develop healthy habits that take into account where your money goes, then you will always have money. The trick is developing the discipline necessary to implement, and be consistent in the practice of these habits.
The things we've shared here are obviously not all inclusive. However, the point is that just making more money isn't always the answer. Once you control the way you think, you can set yourself to succeed at money management, no matter how much you make. There is a Christian principle that relays that if you are faithful over a few things, you can then be positioned to handle more. They key is being faithful with what you have. Once you master managing what you have well, you will be surprised at how much more you are able to take advantage of opportunities that present themselves, and how much more it seems that things just start "working" for you. There is no better feeling than getting to a place of financial freedom. Things can be different!