If you are a small business owner or budding entrepreneur, you may have invested in your new company out-of-pocket. While your efforts are to be applauded, you have also put yourself at greate financial risk. In such scenarios where your personal and professional finances cross, it is essential to devise a back-up plan should your business fail. Ensure your own financial well-being by learning how to prevent emergencies before they can occur.
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Create an emergency fund.
Not only should you be regularly putting aside money for retirement, you should also be creating an emergency fund that will remain untouched. When deciding how much to put aside, think about how long it would take to find another source of income. A good rule of thumb is to save enough to cover your living expenses for 3-6 months, taking into account your mortgage or rent, additional bills, food, and other necessary items. If possible, put aside this money before your business venture begins. If not, cut back on extraneous spending so that you can add to this account until you have reached your cushioned amount.
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Budget wisely.
While you may be used to a more extravagant lifestyle, now is the time to cut back and only spend money on the things you need. Think about what’s necessary for day-to-day living, such as food and rent. Before a purchase, ask yourself if this is something you really need. If you can live without it, don’t buy it. You’ll be glad in the long run if you wind up needing the extra cash a few months down the road.
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Consider supplemental insurance.
Unexpected things can occur in your personal life that cause great financial burden. It is impossible to predict the future, especially when it comes to your health. Disability can lead to personal bankruptcy, and if others depend on you financially, you put them at risk should the worst happen. Often, these expenses related to medical problems are not planned and can wipe out any sort of emergency fund. Supplemental insurance can be an effective way to protect your savings in a medical emergency. Disability insurance and other solutions should be seriously considered.
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Keep your valuables safe.
Not only is it important to keep your valuables safe because of their sentimental worth but also because of their monetary value. If your company isn’t as profitable as planned, those valuables could be sold in a time of need. Store them in a safety deposit box for trusted protection. Even if you never plan on selling your fine jewelry or family keepsakes, it is important to protect these items, as they will increase the wealth of the next generation that owns them.
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Know where to go for help.
Do you have a close friend or relative who could lend you a substantial amount of money if you need time to get back on your feet? Can you take out a loan, sell stock, or cash in a bond? Your emergency fund is your plan A, but it never hurts to have a plan B.
Starting a business is a risky endeavor. It can have great rewards, not only for your wealth but also for your personal growth. Take the proper steps to plan financially before you put your money at risk, and you will increase your chances of future success and stability.
Dan S. is a writer for LifeSecure, a supplemental insurance provider.
