Written By: Matthew Siwiec, Friendly Financial Coach
If you’re like most entrepreneurs, you know how difficult it can be to save money for yourself. It’s all too easy to pay for your current expenses and then reinvest the remainder into your business, but what about your financial goals? You know that well deserved vacation that you haven’t gone on in three years or even your own retirement that seems like an eternity away? Unfortunately, as entrepreneurs it’s all too easy to overlook our own finances.
Being an entrepreneur presents many barriers that prevent us from saving. One of the biggest obstacles is fluctuating income. Our cash flow can be very unpredictable, which the clichéd phrase “feast and famine” perfectly describes. It’s all too easy to fall in a cycle of overspending when you have abundant income and conversely, suffering when income drops.
Another big obstacle that afflicts many Canadians is the lack of financial literacy skills needed to become financially independent. Unfortunately, financial literacy is not taught in most public schools and it’s all too easy to learn improper skills from watching our parents. The good news is that it’s pretty easy to pick up the right skills when you go to the right sources.
So why even save in the first place? The simple answer is to take you where you want to go in life. A proper savings plan will lead you to your life goals and give you a sense of empowerment.
Another big reason is to help eliminate stress. Saving into an emergency fund will protect you against unpredictable events and provide a steady income if your business cash flow drops. Typically, this emergency fund should be about 3-6 months of total expenses.
When you start saving now you can take advantage of compounding interest. You’ll notice a humongous difference if you start saving early. For example, if you save $100 a month in a 4% investment, then you’ll have $111,297 in 35 years, BUT if you start just 5 years earlier you’ll have $148,856.46 or 33.8% more.
So what can an entrepreneur do to help save? The best way is to never forget to pay yourself. A quick and simple method is to allocate a portion of all sales for you. A more detailed approach includes creating an estimated monthly budget/financials that can show you where your money is going and if you can make any spending changes, remaining funds can then be used to save towards your financial goals. Individuals with heavily fluctuating incomes will find a budget invaluable, as it will provide them information to smooth out their cash flows.
Matthew Siwiec specializes in empowering individuals to become financial independent through Financial Literacy Coaching. More can be found at www.ffcoach.ca