The Passion Economy is in full swing. It’s now worth over $38 billion globally, and more people are discovering that one of the best ways to have freedom over their time (work-life balance) and money (financial independence) is to launch out on their own.
In my new book “Holistic Wealth: 32 Life Lessons to Help You Find Purpose, Prosperity and Happiness,” I had the honor of interviewing more than 100 trailblazers and some of the most successful people on earth—from celebrities, entrepreneurs, and world-class athletes to gifted academics in the world of economics and personal finance.
The main lesson from those trailblazers is that in any endeavor, success is a marathon and not a sprint. It helps to know that, at the core, your personal financial identity is key.
In my book I state, “Holistic wealth is about creating the circumstances in your life that allows you to be financially resilient and resourceful.” I love these words because they embody what I want for entrepreneurs, who create and leverage resources to build a business, succeed on their own terms, become financially independent, and change the world.
However, in running a business, personal and business finances often collide, and it’s one of the most common mistakes small-business owners make. During the course of launching and scaling a business, it’s difficult to manage personal and business finances in a sustainable and efficient way.
As a trained economist and founder of the Keisha Blair Institute on Holistic Wealth, one of the issues I discovered is that many entrepreneurs never cultivated their personal financial identities. This identity not only affects their personal finances but also their business finances.
Not having a financial identity can be a major stumbling block to building wealth and success, and it’s possibly one of the core reasons why some businesses fail. As many as 80% of businesses close after the first year and a half, according to Bloomberg, and one of the reasons is because of financial mismanagement.
Here’s an excerpt from my book that points to the importance of developing a financial identity:
“A well-planned future also starts with developing your own financial identity. One way to do this is through financial literacy. Improving your financial literacy is also the greatest stimulant of wealth. Many of us make our first large purchase with a spouse or significant other. The first house, the first car, the wedding and honeymoon—these are all expenses tied to our expansionary years. We therefore transition into adulthood not having gained a full sense of our own personal financial identity. For instance, what is my investment identity? What are the things I will splurge on versus save on? This can also be tied to our values and mission in life. It is highly individual.
Each of us should have a financial identity—one that is distinct and separate from our spouse’s or parents’. If you find yourself always wondering what your friends or parents think about the way you spend or invest, then it’s an indication that you haven’t fully figured out your financial identity. It’s impossible to design a well-planned future without a proper financial identity—we end up living our lives in the footsteps of others and possibly making the same money mistakes.” Excerpt from “Holistic Wealth: 32 Life Lessons to Help You Find Purpose, Prosperity and Happiness.” Copyright @Keisha Blair.
Developing your own personal financial identity as a business owner is a critical prerequisite to enjoying wealth and success. Here are a few reasons why.
It enables financially sound decision-making
For small-business owners, the most likely source of financing is debt in the form of a small-business loan. Yet, many entrepreneurs find it difficult to control their costs, spending, and debt—and this leads to a decline in profits.
Traveling to beautiful destinations for business conferences, spending thousands of dollars on mastermind programs, and pulling from personal accounts when money is tight can lead to financial disarray. A lack of financial discipline in your personal finances will seep into your business finances.
Also, when your money and spending decisions are constantly influenced by someone else––such as your family, friends, or a business partner— you are on slippery turf. As a business owner, there’s a plethora of expenses and no shortage of social media clips to remind you of what some of the “big players” in the industry are doing. Trying to keep up with others can be daunting.
When you embrace the strengths of your own personal financial identity, you won’t be influenced by others and you will be more confident in your financial decisions. You can scale and grow at your own pace and worry less about what others are doing.
It allows for pivoting your business model more efficiently and seamlessly
With COVID-19, we’ve seen first-hand how businesses have had to pivot rapidly to develop new products and new sales channels in response to challenges brought on by the pandemic.
In order to facilitate a smooth transition, it’s important to make sure your finances are in order and that you have a cash reserve of at least six months’ business expenses. This is easier to do when you are prepared and committed to your financial goals and priorities.
Your financial identity determines the level of risk you’re willing to take on when you invest and how willing you are to save versus splurge. It also helps you pivot in a way that ensures short-term survival along with long- term resilience.
For example, if you need to make an investment in new machinery (e.g. to make masks), then you are more confident in that decision. And you can pivot rapidly and efficiently rather than second-guessing yourself.
When you embrace your personal financial identity, you have prioritized your investment and savings identity and you’re more confident in your business decisions.
It fosters taking measured risks as a business owner
Taking measured risks as a small-business owner is necessary in the age of COVID-19 and beyond. Innovation and flexibility to adapt to a changing business environment are both necessary to run a successful business.
When we don’t have a financial identity but look to the crowd for approval, we’re less likely to take measured risks. We bow to the pressure of doing what everyone else is doing, instead of charting an individualized path forward.
How to assess your financial identity
Your overall success as an entrepreneur depends on developing your own personal financial identity. The Financial Identities Framework that I developed include three primary criteria:
- Personal risk profile
- Outward expectations
- Inner expectations
When entrepreneurs assess their actions based on this criteria they can begin to cultivate their personal financial identity.
In the next article of this series, we’ll dive even deeper into the Financial Identities Framework and how to identify yours. But, for now, you can start reflecting on your own financial identity by asking yourself these key questions:
- What are the things I will save on versus splurge on?
- Do I spend money in order to live up to the expectations of others?
- Do I go out of my way to spend money to impress a potential client or a future investor?
Having a financial identity can save you from a lifetime of disappointment and frustration and make the difference between having a successful, rewarding business and constantly living in fear and anxiety about money issues.
Most importantly, it enables you to be financially resilient, resourceful, and better able to weather the inevitable storms and setbacks that life, and entrepreneurship, brings.
Keisha Blair is the world’s foremost expert on holistic wealth; the award-winning, bestselling author of “Holistic Wealth: 32 Life Lessons To Help You Find Purpose, Prosperity and Happiness;” and founder of the Keisha Blair Institute on Holistic Wealth, which offers the Certified Holistic Wealth Consultant Program. Her current focus at the Institute includes providing a range of course offerings and tools for entrepreneurs and professionals. She has been featured in The New York Times, Forbes, Wall Street Journal, Harvard Business Review, MSN, Yahoo Finance, and many other publications. Her writing has appeared in the New York Observer, Swaay Media, and Thrive Global. Find out more at www.keishablair.com.