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5 Personal-Finance Habits
of Wealthy Entrepreneurs
While your balance might not be
as impressive as Warren Buffet's, you can get closer by adopting these
practices.
Tom Popomaronis
GUEST WRITER
Vice President, Innovation at
Massive Alliance
Opinions
expressed by Entrepreneur contributors are their own.
Just
about every entrepreneur wants to see their business turn into the next Airbnb
or Uber.
While
a successful startup relies on great marketing and delivering a needed product
or service, this isn’t what necessarily makes the biggest difference for the
bank accounts of the world’s wealthiest entrepreneurs.
In
reality, accruing and maintaining wealth stems from smart personal-finance
habits.
Your
startup doesn’t need to turn into a billion-dollar business for you to achieve
your wealth goals.
By
implementing the same personal-finance habits used by many of the most
successful entrepreneurs, you can dramatically improve your financial
situation. Here are five to get you started.
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.
Tom Popomaronis is Vice President of Innovation at Massive Alliance, a
global service agency providing internet monitoring, data & security threat
surveillance and reputation management.
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