Tips for business owners for managing their personal finance

Understanding personal finance is as crucial for business owners as it is for salaried employees. Here are a few personal financial guidelines for business owners.

Your professional and personal finances should always be treated separately. This is the first business rule. However, many businessmen go in the opposite direction and spend so much time operating and working on their company, as well as reinvesting profits, that they neglect their personal finances.

It is shocking to learn that many business leaders, despite their success, are careless with their personal finances. There are business owners that spend more than they earn, have insufficient retirement savings, make overly risky investments, or even make the error of parking their money in their savings bank account or bank FDs (Fixed Deposits). Here are a few pointers to help such business owners get their personal finances in order.

Build emergency fund

An emergency fund is something that everyone should have, whether they are salaried or company owners. In fact, company owners and professionals must have a larger emergency reserve than salaried employees.

This is because the income predictability is lower than that of a salaried employee. As a result, it is usually preferable for a business owner to have at least 12 to 18 months of fixed outflow (including monthly investments for financial necessities) set aside as an emergency fund.

Save for retirement

As a company owner, you do not have access to social security in the form of Employee Provident Fund (EPF), as do salaried employees. As a result, it is critical that you prepare for retirement as soon as possible and place retirement at the top of your priority list. The first action you may do is to contribute to the Public Provident Fund (PPF).

You must also identify the optimal asset allocation for your risk profile. Having said that, certain business owners and professionals are able to work past the age of 60. As a result, if your funds are insufficient, you can postpone your retirement. However, this does not free you from saving at all.

Seek expert’s help

Certified Financial Planner CM (CFP CM) are personal finance specialists, much like you are an expert in your business or profession. They assist you in dealing with your behavioural bias and achieving your financial goals. DIY is only recommended if you have the time and are sensible enough to keep your emotions at bay while dealing with money.