Seven personal finance skills

There is no skill more important for solo business owners than money management.  If you don’t learn
how to manage money,  you will go out of business.

Unlike larger businesses, solo business finances are inextricably linked with personal finances.  And
because of this, solo business owners need especially strong personal finance skills.

Here are 7 personal finance tips every solo business owner must master:

1.  Diversify your income.  Solo businesses need multiple income streams to reduce the risks of cycles.   
One of my favorite books is Paula Caligiuris book Get a Life, Not a Job .  In this book, Paula talks about
having multiple career acts.  I think that this mindset is important for everyone to adopt.

To me this is one of the most important mindset shifts that entrepreneurs need to embrace.  Always look
for ways to diversify your income.  From my own experience, my side business has been the most
liberating thing for me.  Despite making a good income as an attorney, my online business has given me a
sense of financial security.  If I were to lose one of my income streams, I would have something to fall
back on.

There are lots of ways to create multiple income streams, but why not start with a side hustle (a phrase
turned by my friend Pam Slim).  Check out her Side Hustle Series.  Another great side business article is
an article for Budgets are Sexy – I’m an Etsy Seller.

2.  Scrutinize every purchase.  Every small business owner needs to be frugal.  Bootstrap baby!

Before making a purchase for your business or personal life, make sure that you really want it or need it.  
One of my favorite ways to stop myself from making impulse purchases is to keep a 30 day list of items
that I want to buy.  If I still want to buy an item on my list after thirty days have passed, then it is
probably a worthwhile purchase.  This is just a personal finance hack to slow down spending.  But, see if
it works for you.
Here is a great article with 5 more ways to prevent impulsive spending.

3.  Stay out of debt.  Debt is a small business killer.  The more you can do to pay off debt, and then stay
out of debt, the better.  This applies to both personal debt and business debt.

My main driver for starting my own business is freedom, and debt is the enemy of freedom.  Yesterday, I
read a good article from Small Biz Bee about creative ways to reduce debt.  But, don’t make paying down
debt more difficult than it really is.

Paying off debt is pretty simple.  The fact is you just need to earn more money or spend less, and then use
that extra disposable income to pay down your debt faster.

The harder part is giving up debt completely.  But, I truly think that you need to master this.  For decades
Americans paid for almost everything with cash on hand.  While society is throwing credit at us, we can
decide to only pay cash.  This will be really good for your business.

4.  Build good credit.  While debt is the fastest way to serfdom, building good credit is important for solo
business owners.  If you ever do need to borrow money credit is your life line.  Check out Joel Libava’s
excellent article on What Your Credit Score Means for Your Franchise.

Now I am sure a lot of you are saying that I am being hypocritical after item number 3 where I said to
stop using credit.  And, you are right.  When times are tight, you might have to turn to credit to save your
business.  But, if that happens, having good credit will by your life-line.

5.  Start an emergency fund.  There is no better way to survive business slow downs than by having an
emergency fund.  An emergency fund is the foundation of freedom.

One of my favorite personal finance bloggers is Adam Baker from Man vs. Debt.   Check out his 24 Quick
Actions You Can Do Today to Change Your Life Forever.  His action #12 provides a great guide for
starting an emergency fund.

6.  Pay as little to the government as legally possible.  Notice I did say legally possible!  But, too many
small business owners pay more in taxes than they are required to do.  A good small business accountant
can be your best friend.  They can really help you to determine what deductions you can take and how
you can minimize your tax liability in the future.

7.  Save for retirement in a SEP.  If you own your own business, open a SEP account today.  A SEP is a
simplified employee pension plan.  Think of a SEP as a 401K plan for small business owners.  Small
business owners can invest up to 25% of their annual income in a SEP.  This is a great way to reduce your
tax liability and save for your retirement.  Here is a great guide on retirement plans for small business
owners.