You must be doing something right since your business is scaling to the multi-six figures. Go ahead, pat yourself on the back for the work you’ve put in so far.
As you grow to a new level in your business, thinking about the personal side of things is just as important. Whether there are other people relying on you, or you’re flying solo, taking care of your personal finances will set you up for decades to come. Think of it as the ultimate act of self-care.
With that in mind, here are five actions to take as your income grows.
Review your financial habits
The fact that you’re making as much as you are means you’re pretty dang good and tracking and managing your finances. Now, all you have to do is take your business organizational skills and translate that into your personal finances.
If you haven’t done so, gather all your bank and credit card statements and review your spending. As in, how much have you been spending on certain budget categories? Are there expenses you want to cut out, like that gym membership you’re no longer using?
Reviewing your financial habits can also mean looking at how you spend when you’re feeling a certain way. Maybe you’ve been stressed the past couple of months and, due to this stress, you’ve been spending more money getting takeout, or buying one too many summer dresses.
We’re not saying spending more is bad, but when it’s not done mindfully and is a way to cope with emotions, this behavior needs to be acknowledged and shifted. When looking through your financial statements, see where your spending behavior may seem a bit off, and implement other habits that are healthier.
Doing all of the above creates a strong financial foundation — this is what ensures you’re taking care of yourself money-wise. Understanding where your money is going will help you with planning out life goals, and even paying down debt.
For instance, if you have personal loans you want to pay off, tracking your expenses will show you how much sooner you can get rid of them. Pairing that with setting up healthy habits will prevent you from whipping out your credit card on a whim.
Make a plan for short- and long-term personal finance goals
Thinking about life goals can be done no matter what income you’re making, though it’s especially important when your income increases. That’s because mindset-wise, you’re able to imagine more for yourself, and maybe even give yourself permission to dream bigger.
Want that fancy European vacation? Check. Or how about buying a house to grow the garden of your dreams? Totally possible.
Whatever your goals are, you’ll need money to make them happen. In this case, start listing out what it is you want within the next few years. Once you have that down, estimate how much it’ll cost. Then, work backwards to figure out how much you need to save or invest to make that happen. Consider using your extra income to meet these goals.
Let’s say you’re ready to travel again. Your goal is to pay for it all in cash and go to Europe in about 18 months. After looking through countless travel websites and getting quotes for flights, you estimate your grand European vacation to be about $5,000.
To reach your goal of paying for it all in cash, you’ll need to save around $278 per month. Putting this money in a separate savings account will also help you reach your goal faster because you’re less likely to be tempted to spend it elsewhere.
Open (or update) an investment account
Investing your hard earned money has several benefits. For one, it helps you build wealth (and you also want to retire one day right?). Plus, depending on the type of investment account, it can help lower your taxable income — aka you can pay less in taxes.
Generally, your choices are a Traditional IRA, 401k, or a SEP IRA. All of these allow you to put pre-tax income into your accounts — lowering your taxable income. There are also after tax accounts such as Roth IRAs, where you pay taxes upfront but won’t when you make qualifying withdrawals. Finally, there are fully taxable brokerage accounts. We’re not investing experts, so it’s best to speak with a reputable investment professional on what your options are.
If you already have any of the above accounts, great! At this stage, review your contributions and consider adding more as your income scales. That way, you can have even more in your nest egg by the time you’re ready to retire.
Purchase life insurance
Life insurance is meant to protect your loved ones in case you pass away prematurely, especially if someone else relies on your income. For instance, if you have young children, you want to make sure they’re provided for, whether that’s helping your partner pay for recurring expenses or college education.
As a business owner, it’s even more important, especially if employees or a business partner relies on you. If you pass away, how will the business survive? In this case, the money can go towards hiring someone to take over, or to find ways to help the business wind down.
There are many different life insurance policies, with a low cost option being term life insurance. Purchasing one of these policies will pay out a lump sum of money (called the death benefit) to a beneficiary (someone you name on your policy document).
When deciding how much you want the death benefit to be, think about how much income you plan on making, and the types of expenses you want to cover in your absence. Consider talking with an insurance professional, as this person can help ask questions to get to the heart of what you want your insurance coverage to provide.
Talk with an estate planning attorney
Sorry for getting all morbid on you, but getting your final affairs in order is yet another act of self-care. Whether or not you want to admit it, people rely on you as a business owner, not to mention your loved ones. Don’t you want to make sure you have as many things organized on your end so that others don’t have to worry about it?
Consider is what you want to happen to your business when you pass away. Do you want to designate a new owner? Maybe you want your nephew to inherit what’s in your business accounts and help you close down the business? What about your other assets, like your house, car and investment accounts? Or you’re really passionate about making sure your favorite LGBTQ+ organization receives a sizable donation to further their cause?
Taking a few hours to think through these questions and draft up relevant estate planning documents will save others the trouble of figuring out what your final wishes are. You can hire an attorney to draft all the documents, or create them yourself and have an attorney review them. Then, make sure someone you trust (most likely your executor) knows where these documents are stored.
This may sound like a lot, but you don’t need to tackle everything at once. Like the saying goes, eat an elephant one bite at a time. Think about how satisfying it’ll feel once you complete your final financial task, knowing that you’ve taken care of what’s important: taking care of yourself and your loved ones.