What you will learn:
-What are personal finances and -why is this important as an entrepreneur
-Why you need a budget and how to create one
-The importance of getting rid of debt
-What is credit and why is it important in business
Speaker: Traci Bakenhaster, CEO of Design & Renew Career and Finance Coaching
Traci is a Ramsey Solutions Master Financial Coach. She has her Master of Science in Business Psychology through Franklin University, Bachelor of Science in Business Administration from The Ohio State University Fisher College of Business, and several Associate Degrees from Columbus State Community College.
Introduction: About Tracy Bakenhaster
I’m Tracy Bakenhaster and I’m excited to have you today for an aspiring entrepreneurs financial workshop. So we talked about a lot of good information and a lot of things today. So, first off let’s introduce you to me.
So again, my name is Tracy Bakenhaster. I am the owner founder of Design and Renew Career in Finance Coaching as well as the founder of the new podcast “Break The Cycle” that’s launching next month and I do a lot of different thing with people in the sense of financial career coaching with finances with a lot of personal finances a lot of how to develop yourself… how to establish solid goals… how you break out of the norm.
Break out of the living paycheck to paycheck mindset lifestyle and getting you set up to be successful in business if that is your path.
So, a little bit about me. I started this business out of the personal experience of going through financial hardship as a single mom and realizing that the resources and tools really don’t exist like we would like them to. To help prevent that from happening and I was wanting to change that. This isn’t right!
This isn’t fair to people to not have this knowledge not have this understanding and end up in tons of debt not understand how to budget your money not being able to launch a dream business because their money is not where it need to be and so that’s where my business came out I was being able to be that for people. So, we’re going to talk about today where to go for three key areas.
Three Key Areas
So we’re going to talk through Personal Finance. This we’re going to Emergency Fund or Cash Cushion, whatever you want to call it… and we’re going to talk about Credit Score. The reason we’re talking about these three is for these important things this year. Talking about getting founding, talking about how to stay out of bankruptcy, loss of assets, those types of things and then we’ll wrap up and talk next steps.
Okay? So let’s talk about Personal Finances.
So, Personal Finances are an extremely important business… and we’ll talk it about in a minute but before we do– what really are personal finances? It’s a term thrown around a lot but what is it really is to you? When you look at Investopedia, their definition of it is pretty much saying that it covers all aspects of managing your money, such as saving and investing it includes budgeting, your banking, your insurance, mortgages, investment, retirement planning, tax, and estate planning.
So, this is a very large and compass thing that is very, very crucial to success in life, is being able to manage personal finances making sure each of these areas is taken care of for you. So, that’s why, I want to start with this because it is the foundation for everything else.
Important for Entrepreneurs
Security For You and Your Family
Why is this important if you want to be an entrepreneur? Well, first off it gives you security for you and your family, right? Your personal finances are where they should be. Then, you’re going to have security– you’re not going to be worrying about where the next meal is going to come from. You’re not worrying about paying the bills and keeping utilities on. That’s extremely important if you want to own a business or if you already do it. Because if you have those stresses, it makes everything else really difficult.
Preparing For the Unexpected
Preparing for the unexpected, is crucial, right? In entrepreneurship, you are gonna have unexpected things. You’re gonna have things that pop up that happened to you that you weren’t expecting– you weren’t counting on that are going to throw you into a tailspin. And if you’re not prepared in your finances for that– it’s going to put you on your butt.
There’s a reason that a lot of entrepreneurs don’t make it past the two-year or five-year mark. In a lot of time, it comes down to money. So being able to prepare for this unexpected, prepared for those of months that may be income isn’t what you want it to be and we’re gonna make sure to cover that today.
Be better at Business (Money Desperation Shows!)
Be better at business, right, money desperation shows and this is extremely crucial in business because if you are stressed about money if you’re freaking out about having money… Oh my gosh! I don’t have enough to pay my bills. I’ve got to go really sell, sell, sell, sell, and you go out and start talking to possible customers or clients. And you have that money desperation, it’s gonna show and it’s going to turn people away from you.
They’re not going to want to buy your product or service and not wanna do business with you. Because today you look like a used car salesman trying to shove something down their throat because you were desperate to sell it! And so we want to take all that away where you’re selling because you just believe in what you’re doing and you love it but if nobody buys it… and that okay you would be fine.
Determine your Financial Needs
So, it’s having a different mindset. Determine your financial needs, this is an important business. If you don’t know what your costs are going to be, how do you know how to prepare for them? And, having your personal finances in order really is going to help you determine those financial needs that you’re going to have in your business. If you have a set yourself up for success.
Credibility and Reduced Risk
Credibility and reduced risk. This is really something I think it’s overlooked a lot when it comes to business. Everybody, the whole mine, anybody can start a business Yes, anybody can start a business– but can anybody start a successful business or keep a business those different things than starting a business? You need to have the credibility right to do business with people. They need to know like they can trust you and to reduce that risk. Okay! If I can’t make my bills… what happens? Right? Bankruptcy can happen. You lose your business for closure. Those other areas that we don’t want to happen and we don’t want to talk about but that’s the reality we’re facing if we aren’t managing our finances. And the last one is to reduce that fear and uncertainty.
Reduce that Fear and Uncertainty
You know when you start a business as the first couple of years are gonna be rough. You’re not gonna always make a profit. You’re not gonna always go to pay yourself what you want to… and you thought you were going to and by having your personal finance in order that won’t be a stress for you.
So, okay… I’m not gonna make what I was making my full-time job, I’m not gonna make you know what I want to make right off the bat, but we’re okay we can make sure that we’re still making progress that our finances are secure. So, we aren’t staying up at night worrying about if we could pay for the next bill. So, that’s why this is so important to talk about these aspects with personal finances because it really is that foundation for having a successful business as well.
Smart Financial Goals
So, the key areas in personal finances— we’re gonna talk about today are smart financial goals. Budgeting, managing your expenses, getting out of debt, and adding income. These are crucial to setting you up for success as an entrepreneur.
So, let’s start with this smart goal because this is the foundation, right? If you don’t have realistic goals that you’re achieving or working towards— how are you going to know if you’re successful and how are you gonna know that you would be successful? You know, if you don’t have a foundation in place, so, setting smart goals.
Everybody’s probably heard the term smart goals. But again, it’s better to hear it more than once eventually we’ll stick and you’ll start seeing the value in it. So, with smart goals, what that stands for is it’s specific, it’s measurable, it’s attainable, it’s realistic and it’s timely.
So, what does it look like in your finances? Say you have about $30,000 of debt, that you want to get paid off and you know realistically. So again, the realistic are I’m not gonna be pay off the 30,000 a year but I’m gonna do it in two years. So, maybe this year I set a goal. I’m gonna pay off $15,000 in debt by December of 2020 or 2021, right.
Setting a specific goal is measurable. So, if you actually have 15,000, you know that you did it is actually attainable because you could hit 30,000 in two years. So you should be able to do 15 one is realistic and has a time commitment on it. So it’s very important to set these goals when you are looking at your finances because everything is going to build off this, you need to know what you want to accomplish and put it into a smart goal and write it down. Right smart goals are written down our way more successful than ones that are not.
What is a Budget?
So, let’s talk about budgeting, right. List out your goals. You know what you’re wanting to do. You know what you want to achieve. You know what to build your credit score, pay off debt, build up emergency savings, whatever it might be. How do you get there?
That’s where the budget comes into place. So, your budget is actually your financial plan for your money that gives you the freedom to spend. I know that might be a little foreign concept for many people because a lot of people here, “budgeting”! And ahh..gross! Awful! Budgeting.
I hate budgeting! It’s terrible, it’s awful! But really, when you really think about what budget, you’re the one telling your money where to go. You’re the one giving yourself the freedom to actually spend your money on what you want to be spending it on. That’s what a budget does. It helps you lay out a plan. It helps you a layout where my money really wants to go? I don’t want to have all my money go to this thing that I might be spending on, you know if you are a coffee person, man! Oh, my gosh! I’m budgeting– and I realized, I’m spending $100 a month at Starbucks. I don’t want to spend $100 a month at Starbucks. I’d rather spend $50 and put $50 towards this. Now, with a budget, you can start doing those things.
So, a budget is a plan for your money. It gives you purpose and spinning and I apologize for my slide for whatever reason. Got a little wonky on this slide deck. So, I apologize for that. So, It’s a plan for your money. It gives you purpose in your spending, right? So, have a reason behind while you’re spending money. It gives you financial freedom. Who doesn’t want that?
It has an intention behind it: you’re being intentional with your money. A lot of time budgeting can give you a pay raise. Which is nice.. and guess what? It’s already been taxed.
So, you don’t have to go back to Uncle Sam to get more taxes out of it. It’s finding money in your budget you didn’t realize you had because you weren’t budgeting before and then it gives you that ability to reach those smart goals that we laid out. So, that is extremely important budgeting is huge for that.
How to Budget?
How do you budget? Well, to start with a budget, you’re going to want to list out all of your income. So, this is any money you have coming in every month. It could be paychecks, it could be child support, it could be disability — whatever it might be as income is coming to you, and it’s the money you get after taxes are coming out.
So, what actually gets put into your bank account is all your income. So, start with that. That’s the list of the top and you’ll see an example budget here, in a second. Then, go through a list of all your fixed expenses. Now, fixed expenses are things like your utilities, your mortgage, rate your car payment– things that you know are pretty much the exact same every month or come out once a month. So, those we like call fixed expenses.
You want to list those out because you already know those ahead of time. Now, you’ll go to the variable expenses. Now, those are things like groceries or going out to eat, or maybe it’s a sporting event or vacation. Those types of things that make come up at you really are a hundred percent sure how much you’re going to spend in that month?
Because before you first start budgeting, you don’t have a full grasp on that yet— which is okay. You’re going to get there but you want to know what to do. I think I’m going to spend on groceries? Because it may not be that exact same every month. The goal is that we’ve been able to get it works pretty similar but it’s still variable.
Then, after you list all those out, your goal is at the end of the day, all of your income minus all of those expenses equals zero, so that means every single dollar in your budget needs to be accounted for. Needs to be going towards something. Your going may be tracy… if I listen to all my expenses and maybe I’m living within my means. I have $300 left off at the end of the day, you know, I paid all my expenses. I still had $300 then that’s $300 not zero. What do I do with that money?
And that’s where that comes into finding extra money and applying it to something. So you could be paying off your debt. So that $300 to go to all your debt so you can start paying it down faster and we’ll talk about what it looks like here in a little bit.
It could be going to build your emergency savings. Maybe you’re trying to establish big savings to help get you through that first year of a new business. That money has to go somewhere, right? That doesn’t mean it has to get spin on something. Just need to go somewhere. So that is zero at the end of the day then, once you have the budget set up, then the goal is throughout the month. You’re actually tracking all of the money. You’re actually spending to see if you’re where you want to be with your budget.
And then, at the end of the month, always always always update and balance your budget. So for example, if you said I’m gonna spend $400 this month on groceries, and then at the end of April, you realize: “Ohh.., man! I spent 600!” So, now, I need to balance my budget because there’s a deficit, right?
I actually overspent. So, I need to take that amount. That I initially planned and put it to match what I spent. So, I actually see where I was– was I actually negative this month because if you don’t do that, it’s going to look like you were fine.
You have a zero-based budget but really you actually went over your budget because you didn’t balance that you didn’t see that. So, that is a very important and crucial part of budgeting.
So, here’s a few examples– they are so much small. Here are two tools that I use with my clients. You can use Excel or a Google Sheet or an app called Every Dollar. So, this is what a sample budget could look like. So, for instance, at the top of both of these, a list of all the income.
So, here’s where your paychecks come in here is where the money comes in— that’s coming into your account every month. And then, over on the left-hand side on both of these examples where all of your expenses would be. And then, you list those out, and so on the Excel example, over on the right-hand side, it shows how much you spent or how much is over-under.
As you start tracking things with every dollar app, it actually adjusted automatically for you, which is really nice. So, every dollar is a tool that I prefer to use and all my clients love to use it because it’s very technical. It is something that is automated a lot more than Excel or Google where it’s a very manual process.
And what’s nice about it too, it has an app function. So, you can actually have the app on your phone. So, you could track expenses on the go. You can check your budget while you’re on the go instead of having to go home. Fill out your excel document where your Google Sheet, so they’re both great tools. I’m in this will be a link for both of these that will be given out when the recording is sent out for you. So, just so you know, you will get these as a good template for you, but this is what budgeting could be for you and it’s very important to start with a budget because again, is that planned for your money.
Now, let’s talk about managing expenses because this is the second piece once you start budgeting. And you’re getting used to it. If you’re over your budget every month that’s when you really start to look at cutting things back and even if you’re not over your budget may you realize?
You know, I really don’t want to spend this much money in this area or maybe I’m not using this subscription service or whatever it might be and you start cutting things. So, when it comes to managing your expenses– the very first thing you need to do is list them, all out, and determine what is a want and what is a need. And you’re going to have to be honest with yourself because we’re not always honest in this area as much as we may love our cable TV — is it really a need or is it just want. Right?
Think of the gym membership that you may have that you never use right? I know that’s a really common one for people who’re paying 20 to 50 to $60 a month for a gym membership. Think about what else you could be doing with that money if you’re not actually using the membership? You’re just paying that money month and month and month and that could be Christmas funds by the end of the year. So, needs versus wants.
Ways to Cut Expenses
Then, we start looking at cutting expenses. So, these are some areas to really evaluate when you start budgeting because these are typically the higher spending areas, and this way, you can save money in your budget.
This is the most common area that people overspend because of a lot of time on fast food, right? $5 here $15 here $20 here — It adds up! And a lot of times when you’re not tracking… you don’t see that at the end of the month: “Oh my gosh! I’m spending six hundred dollars a month going out to eat every month.” But our grocery budget is still 400. So, spending a thousand dollars a month and I didn’t even know. Food is one of the biggest areas where it’s going to eat up your money. So, be cognizant of that. Go to the grocery store, make a list, do meal prepping. Try not to go out to eat as much. Try to cut it down a little bit because that can be very expensive compared to cooking at home.
So, I know a lot of people but I love my name-brand food, I love this brand of this product or whatever it is. The reality is generally a lot of time is very very similar. It’s not the exact same but it’s a lot cheaper. So, buying generic can save you money in your budget.
Comparing your Insurance
This is a question I always ask people. Do you ever compare your insurance every year and most people say: “No!” I’ve been with the same “Auto Broker Insurance Company” for years and that’s great. I understand you might have a great relationship with them.
Maybe, they take care of you really well but the reality is shopping at your rates. Most of the time is going to save you quite a bit of money a month. I had a client for instants just recently that had to do this. She has been with the same company for years and years and years. I think it was like 15 or 20 years and she went to a broker friend of mine and he compared rates for her and ended up saving her $500 a year and giving her better coverage and she’s had this entire time.
So, it is definitely worth a conversation with your existing insurance company and going to others and say hey, what can you do? Can you give me better coverage or the same coverage for less money and help me out in that sense.
Go Green or in some cases Greener – So, some of those ways. You can do that by recycling. It’s always good being able to reuse some of the things that you may have instead of having to go buy it all the time, right.
Refinance your Mortgage
I don’t always recommend this to clients but in the situation where the currency is with the interest rates so low on homes it is worth a conversation with your mortgage lender to say; what does it look like if I refinance? What can you do for my interest rate?
Because even if they can only take a percentage off your rate that is going to save you thousands of dollars over the life of your mortgage. And most times, it’s going to take your mortgage payment down, which is great that frees up more money in your budget. So it’s definitely something to consider and look into.
I will tell you, I am the worst at unplugging things but it really does save you money over the lifetime of your products or the utilities unplugging your charger when you’re not using it. For me, my flat iron, my blow dryer, I leave in unplugging those things when not using them, even your microwave toaster, over those areas because it’s helping keep utility cost down which is good. We want to keep those costs low as we can.
Subscriptions and Memberships
This is another one that a lot of people kind of don’t realize how much they actually have because a lot of the time it’s cost you a couple of dollars for this membership. Netflix’s, it’s like only 15, and all Disney Plus is only like 10, and you add them all up, and the next thing you know, you’re like… “We’ll shoot! I have a cable bill of $200 a month that I’m paying for a subscription or membership.
And the last one is to get rid of credit cards – I know what upset a few people saying that it’s some really what I get mileage and I get, you know airline miles. I get all these benefits and that’s awesome. When you look at it like that, but when you really dig into it, if you went back and added up….. all the money you spent on the credit card versus how much money or cashback you got or airline miles you got, I can guarantee you that it’s not gonna be equal in any aspect.
So, you’re probably overspending on that credit card to earn these extra things that really aren’t going to give you the money that thought they were going to. In reality, to use credit cards you actually, it is a statistic, and go out and find that you spend an average of 20% more by using a credit card than you do if you use a debit card cash.
So, it’s another way to really save yourself money is to get rid of credit cards. You’re also getting rid of all the interest that happens with that.
Getting Rid of Debt with the Debt Snowball
Okay. Now let’s talk about some debt because we talk about credit cards. That is pretty much one of the number one areas of debt that I see, another one is student loans. So, those are the two most common areas that I have people come to me with debt in medical debt is another one. So what it looks like to be that debt-free because in reality in the US, it’s not really a common thing, right?
We just kind of expect to have that our whole lives. Like, that’s just part of being an American. I’m always going to have a car payment. I always have a credit card bill and am always gonna have this. But the reality, is it doesn’t have to be that way, and it’s actually very freeing when it’s not that way when you don’t owe anybody, anything, and so to get out of debt.
I always use the debt snowball method. So what is that? So, as you see from the image here is a beautiful snowball rolling downhill, right? Think of it as if you have a big giant hill and you have a little baby snowball at the top which is maybe your smallest debt balance. So, maybe it’s a credit card $500 at the end of that hill you have a little shed or your biggest debt that’s maybe your student loans of $40,000, as that snowball runs down the hill it gets bigger and bigger and bigger. So, when it finally hits that shed at the bottom it explodes, right?
It just wipes the right out. That’s what the debt snowball is with your debts owed by starting with that smallest balance and focusing on it first and then rolling it into the next step at once. It’s paid off and you just continue rolling and rolling and rolling it eventually you’re going to go for maybe a $50 payment. So, now maybe you have a $1,000 payment that you’re hitting a big debt with. You’re going to make a lot more progress a lot quicker with $1,000 and you would have 50. So, that’s what that is. I always like to say what about the interest rate because I get a lot of people that do push back on that. Like… will I need to pay this one-off it has the highest interest rate and the reality is when you actually compare the two… they’re paid off within about the same time frame and the reason the debt snowball method is the preferred method is more of a mindset issue.
So, a lot of the time, if you’re going with an interest rate a lot of the time… that interest rate…. that higher one or higher balance…. if you’re trying to knock out a $20,000 balance will you got a $1,000 credit card sitting over here, and you’re not making big progress on that. You’re going to lose motivation very quickly and you’re gonna get very burned out and frustrated. Where do you have that smaller balance? You can knock that out.
Like… “Wow! Look at that I just paid off a $1,000 credit card, cut it up!” It’s gone Hallelujah! You’re going to stay a lot more motivated because you’re having wins along the way. So that’s the reason the debt snowball method is preferred over interest rates.
Without Debt Snowball: $32,800
I want to show you a visual of this because for me obviously a numbers person but I am Visual and I like to see this played out of what I can do for you. So, let’s say we have $32,800 of debt are minimum payments are $754 dollars. Right now, the way it says, if we just keep paying the minimum, it is going to take us 20 years to pay off that debt and we are going to spend almost $17,000 if interest in the life of that debt.
With Debt Snowball: $32,800
Now, by simply rearranging our debt and using that debt snowball method. We go from 20 years down to four little over four years. We can pay off our debts, and we’re going to save over $10,000 of interest by paying it off quicker. So, that’s why this is very important, and it’s really nice to see that, right? “Oh, holy cow! I could be out of debt in four years instead of 20.” That’s a whole lot more motivating for me to stick to it and make it happen.
So, other ways to do this is adding income. So, I want to bring this up for two reasons. Most of the time, when it comes to budgeting, if people are negative about money, it’s usually not an income issue. But sometimes is this, and if you can throw extra money at that debt snowball or your saving account to grow faster and faster and faster especially when you’re wanting to start a business, you may not want to wait for four or five years to be able to get out of debt or do those things.
So, adding extra income can really help you and the best way to do this is by finding a side hustle. So side hustles that aspect up something I’m going on the side it’s not my main job is not my main source of income that is just additional money. Maybe I’m doing Uber or Grubhub or maybe I’m going grocery shopping for people or whatever it might be your dog-walking doing something on the side of earning money and to add on that if you can do it in the field of your interest, that would be great. And what i mean by that is say you want to open a business for instants you want to open a restaurant. You’ve never worked in the restaurant industry in your life, you’ve maybe been an accountant in your entire career and that’s all you know, you don’t know what it’s actually like to work in a restaurant but you want to own one. So I would recommend if you’re going to get a side hustle, get a side hustle in the restaurant industry maybe your hostess, maybe you’re a waiter or waitress doing something in the field you wanting to start business for, cause one is gonna give you that experience, two it’s gonna give you exposure to it. So you actually know what you’re getting into to say, you know, what do I actually want to do this or not? And it’s just going to give you a better well-around benefit of starting that business if you have some experience in it, and it’s going give you that valued other people say hello, if they know what they’re talking about, you know they’ve been there, they’ve done that they worked in the industry. They actually know what they’re doing so I can trust them because of that. So adding extra income can be crucial. It can be really important in helping you achieve your goals a lot faster.
Emergency Funds or Cash Cushion
All right, so there are personal finances now, we’re going to talk into the emergency funds and the reason to put this within the personal finance even though it is I wanted to stand this out alone because you need to have this if you’re going to start a business. If you do not have a place you are not ready to open your business because it is going to save you when something goes wrong and mind you I didn’t say if when something will go wrong when you start a business is going to happen. It’s inevitable that it may be small, maybe huge, having an emergency fund or cash cushion in place is going to save you when that occurs. So let’s talk about this. An emergency fund or cash flow or whatever you want to call it. It’s a stash of money that you were setting aside to cover FInancial surprises that come your way, so this is critical right a lot of those surprises that we don’t always think about is your job loss. Okay, what if you are working your full-time job when you’re starting to start up your business and all this and you lose your full-time job, what now? Or you know the business is up and running as soon as it’s the first year and all of a sudden a new team member gets down with covid and out for 2 weeks and you have nobody to cover them. What are you gonna do? You need to have a financial cushion there to protect you if those things do happen.
Starting a Business
So again, why do you need one when starting a business? Let’s talk through this.
Loss of Income
So, one loss of income and this isn’t my full-time job. This is “hey in my business, there’s going to be a regular income”, for example, with what I do, I am a service-based business. So, if people do not come in hire me, I do not get paid, and so there are months that are better than others. And I need to be prepared for those months that are lower or aren’t the same income as before. It’s not always consistent. It’s a big difference when you own your business versus working for somebody. You have a consistent paycheck.
I get paid this much or I get paid much an hour. When you own your business, it’s going to fluctuate. You’re not gonna have immediate revenue. Most businesses do not start to become profitable until after their first two years. So you want to be prepared for that. You want to have money to pull from to take care of your house, your groceries, your bills, or all those things before your business actually gets profitable.
Are you going to fund your business, or you going to go look for investors? Either way, it’s good to have some cushion there because what if the investors don’t want to invest in your business and you believe in it and you can do it and the other aspects of that too is if you can do that and be able to put your own money into your startup costs. You’re not taking on any debt in your business, which is nice. It’s not always practical is not always possible but for some industries that very much is. So, saving up the money that you can then invest in your own business is awesome that’s a good way to go.
Unexpected expenses, right? There are going to be tons of these being a service-based business you want to do or a product-based business. There are gonna be unexpected expenses that come up but you’re like….”Oh. my gosh! I forgot all about this”, or “Ohh.. shoot! My website just got renewed”, and it was, you know, a couple of hundred dollars. I totally forgot about it and it wasn’t in my budget this month. Those things are going to happen and prepare you for that.
Decreases Your Risk of New Debt
It decreases your risk of new debt. So, by having emergency funds in place…that means you don’t have to go get the new debt to get out of a bad situation right? If something breaks at your house for instance…. right now, if you don’t have an emergency fund to cover it, but you have to fix that, what’s gonna happen? You’re probably going to go put it on a credit card or maybe take out a home equity loan or your house to go pay for large expenses because you don’t have the money set aside.
It’s the same way and business is preparing for those things and helping you stay out of that debt and the last aspect is to reduce the risk of failing.
Risk of Failing
Mean most small businesses fail within those first couple years because of finances because they’re not taking their product off the way they thought they were, their service business isn’t going to where it was supposed to be. They have all these expenses and all this money coming out but they don’t have enough money coming in and so they end up going out of business because of that. Thinking about it with CoVID. That was a great situation to see. It’s not a great situation for the people experiencing there, but it’s really good for us to see. Look what happened to all these businesses that did not have this in place. They were not able to stay in business because they had to close their doors for a month and they weren’t able to do it or they lost a significant chunk of the revenue and they were able to cover the cost for a couple of months because they didn’t have this in place. So, having these funds in place is huge.
Building a Fund
When it comes to your personal finances and starting your emergency fund. Start with $1,000 at least get $1,000…. put away that you can have for emergencies. You know your tire blows on your car on the freeway. Great, you got $1,000 set aside at least. I don’t usually cover the new tire, right? Or maybe you’re something that goes on in your house that needs a minor fix. Perfect. You have $1,000 to cover that. The goal, however, is that eventually, you get to a large emergency fund so you can base the emergency fund off of your expenses or your income and you can do it for 3 months vs 6 months. So, this will be the kind of area that you look at based on that we’re not going to dive into it too much today but what it looks like. Moneywise is said your expenses are $2,500 a month. A 6-month fund is $15,000. So I would recommend if you were trying to go into business for six months no matter what… I would get at least six months of income. Put away, so that you can live off that for 6 months if you have to…. and then, the same for the monthly income there.
Okay. Well, let’s talk about credit score because this is that third piece that is crucial when it started comes to starting a business and having your funds in order.
What is a Credit Score
So, the credit score is a number between 300 and 800. Everybody has one of them ever taken out any type of debt or have ever had at their credit pulled it determines your creditworthiness to the lender. So banks have some investors who want to invest in your business. This is what they look at to see are you at high risk or you will low risk investment. The higher the credit score the better. It’s based on your credit history and what that looks as it looks at your debt. Your payment history. The number of credit cards you have. The number of debts you have. The total amount of debt that you have. And really went boils down to what credits score is it look at how good are you at managing debt? And are you high risk, or are you not so that’s crucial, right?
Because in business, in order to get access to capital, being able to lease office space, being attracted to investors to invest in your business to give you the money you need to start your business to have lower rates on loans and credit cards. In those types of things and have higher loan limits.
You have to have a good credit score if your credit score is not in a good place right now, then you will want to work on getting that build-up. We’ll talk about that in just a second. What a good credit score looks like? I would recommend at least a 700 or higher if you’re trying to go into business higher is better. But at least 700… if you’re not there yet, that’s okay.
There are ways to build it up, but you’re going to want to make sure that credit score is where it needs to be if you’re going to be looking at any of these things. If you gonna be working out of your house and you don’t have any money upfront cost and you don’t need any debt, then okay you would probably be alright. But if you’re going to be buying a building leasing a space if you have physical products, you need to take out a loan to have a good credit score.
Ways to Rebuild a Credit Score
How do you build a credit score and build it up to be a good score?
Pay Your Debt On Time
So, one playing off debt – paying off debt actually boosts your credit score because it lowers your debt to income ratio, which is huge. Paying your bills on time. So, a lot of the time, unfortunately, when you miss a payment on a bill, it dings your credit score and your credit report. And so then, what happens is if you have dipped down and like… “Oh, shoot! I forgot to pay that bill this month and now it hurt my credit score”.
So, making sure you’re doing that on time. Reviewing your credit report for delinquency is huge because not enough people do this. Everybody, I know, I may be a fraction actually check this— you get a free credit report every year of your credit report. And there are three different credit agencies that you would go through to get a copy, of all three of those.
At least, once a year and look over it! Because what happens, a lot of time as this somebody steals your identity or they steal your credit card, or they take a credit card on your name or any of those areas. A lot of time. you actually don’t know when that happens unless you have an identity theft protection and place go by running your credit report. You will see those on there… and then, you can go a test them and fight them and say this was not me.
This is fraudulent and is able to go through. It is a process and it’s not fun. When he gets that point but the more you keep up with your credit report and your checking to make sure these things are okay…. the better off you’re going to be. So, it’s definitely important to check that and then, the last one is rotating one side.
The second to the last was using Experian boost. That is a really cool thing… Experian has where it actually gives you credit for paying your Netflix on time or paying utility bills. All those things, so you can look into that to see if that’s something that you can use to help boost your credit. it’s not gonna jump on 50 points. There’ll be a couple of points here and there but it’s still something it’s helping.
The last one is rotating credit and this is put the last there because I want to caution you on this rotating credit…. things like credit cards. So, yes, they can be great for building credit or rebuilding credit, but they can also get you in a lot of trouble and put you in a worse place than where you started. So, always be very cautious if that’s the route you want to go. If you’re going to use a credit card, I would say use it only for very specific things…. like… “Okay, I’m only going to use this for gas and I’m going to pay it off every single month”…. and nothing else is going on this card cause you’re using it your paying it off every month. It’s not carrying a balance and that’s going to help build your credit score without you going into thousands of dollars debt. But it’s just being very strict with yourself. So, be very cautious on that aspect.
Wrap-up & Next Steps
Okay, so we talked about lighting for Aries today with personal finances. We talked about building that emergency fund for you. We talked about repairing your credit score. All of these things…. because we want you to be in the best position possible for success for your business. When you already have a business or you’re looking to start a business because the reality is…. this is the foundation to the success of that business because your finances at home aren’t taken care of and aren’t that good. What’s going to change when you have your business finances? You don’t all of a sudden know how to manage money really well at it…. because you run a business and it doesn’t work that way.
You need to get it together at home first. Get it when you want to be this solid. Be sustainable and then you’ll be that in your business too. And it is very important because, again, those back aspects. Do you want to stay in business or not and staying in business means managing your money properly and knowing how to do that.
So, I’m really excited about this opportunity and really would love to have you all as a part of it. So, you can reach out to us with any question you have. Before I give you my contact info. I do want to leave you with this quote because I love this quest. It’s something from Albert Einstein saying “doing the same thing over and over again expecting a different outcome is the very definition of insanity.”
So, if you find yourself in this, you know the hamster wheel-like. University of doing the same thing over and over and over and over again and when I do anything to change it…. and then, we’re like “why is it still happening to me?” You’re crazy but that’s okay! I’m crazy too.
We have all been crazy at one point where we have that mindset. I’m so tired of living in debt. I’m so tired of your dad controlling my life yet. I’m still spending all the time. I’m still using my credit cards. I’m still going out to eat and still doing the same thing expecting my money issues. Are just going to go away and they’re not your same thing with business? I’ve always wanted to start a business, but I’m never doing the stuff they’re doing. Anything I need to do to actually start the business.
So, it’s never going to happen. So, just be weird! You know, be weird! Don’t be normal…. don’t be in the same hamster wheel. Break out of this insanity. Ass back! And actually, take the steps to improve your life…. your business. Help yourself to reach your goals. Achieved what you want to achieve and just knew Albert Einstein was a very smart man and he is the hit it right on the head with this.
I’m just breaking out of those things to kind of find the best fit for you and actually anywhere you want to be. So, here’s my contact information. You’re welcome to reach out to me with any questions that you may have. So, feel free to send me a call or text message the phone number there. You can also email me. I’d love to have you follow us on social media. And again…. we are here to help you.
We want you to be successful. We want you to have an amazing business that you don’t fulfill… your passions to fill yourself. And we just look forward to working with you to make that happen.
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