1. Create a motivating list of money goals.
As important as it is to have a budget, one area where the wealthy differentiate themselves is by having clear-cut money goals. Writing down a list of financial goals and reviewing them each day will give you a clear direction regarding the actions you need to take to improve personal wealth and the profitability of your business.
2. Devise an action plan for spending and saving.
Not having a plan for spending and savings habits is one of the biggest pitfalls that keeps entrepreneurs and others from achieving their wealth goals. For greater insight on this, I reached out to Spencer Barclay, founder and CEO of Savology, who explained, “The problem stems from the fact that many of us simply don’t track where our money is going, which can undermine the financial goals you’re working toward. Serious budgeting means planning ahead for how you will spend and save your money and then tracking every expense. When you are cognizant of your spending habits, it becomes much easier to keep them in check and contribute more to your savings goals.”
With this information in hand, you can then start finding ways to reduce your expenses. This could mean switching to a less expensive internet provider for your business, or simply cutting out your daily trip to the coffee shop on your way to work.
3. Diversify risk by generating new income streams.
According to Tom Corley’s book, Rich Habits: The Daily Habits of Successful People, 65 percent of all self-made millionaires have at least three sources of income, and 29 percent have five or more income sources. The significance of these numbers isn’t just in the fact that these individuals are earning money through multiple businesses, as well as interest income, rentals or capital gains. By establishing multiple income streams, these entrepreneurs are diversifying and lowering their personal financial risk.
The idea is similar to creating multiple revenue streams within your business. By selling through new channels or introducing new products, you create additional opportunities for sales growth. Even if one channel or product starts to underperform, your business remains profitable because of the stability provided by other income streams. Diversifying your personal finances can lead to similar results.
4. Invest to create passive income.
Where does your extra money go after you’ve paid off your necessary monthly expenses? For business owners, finding ways to invest the profit back into the company is key to fueling further growth. The same holds true for your personal finances.
Many investment experts recommend implementing the “buy and hold” strategy as a way to generate passive income over time. According to Investopedia, a long-term study of this strategy covering the years 1926 to 2010 found an average 12.1 percent annual return for small stocks and a 9.9 percent annual return for large stocks. This even accounted for the three market crashes that took place during this time frame.
Continually adding money to a savings or investment account will allow your growth to compound over time. This passive income serves as the perfect supplement to the money you take home from your entrepreneurial efforts.
5. Stay aware of the market.
Research from CB Insights reveals that 42 percent of startup failures are attributed to a lack of market need for their product or service. Lack of market awareness can directly impact the success of your business and your personal finances. Wealthy entrepreneurs make an effort to stay up to date on broad trends that could impact their business and personal finances. For example, changing interest rates can dramatically influence your long-term costs for taking out a loan for a new business venture. This could also affect buyer spending habits, influencing the market for your products.
Becoming proactively aware of market shifts will alert you to monitor trends or events that could affect your business and other investments, allowing you to take timely actions that protect your assets. Even something as simple as adjusting your pricing in anticipation of a market change could help you avoid incurring major losses.
For many, achieving personal financial security requires changing habits or a long-adopted mindset. This may seem like a challenge, but the end result is well worth it. By taking full control of the way you use your money, you can grow your personal wealth while also increasing your startup’s chances for long-term success.