11 Steps for Balancing Finances as a Mompreneur
So what's it take to handle this kind of balancing act on the financial front and what are the steps to keeping your money in tact while simultaneously focusing on your children and your brainchild? Read on:
1. Set Clear-Cut Goals
Whether it's hourly, daily, monthly or annually –- what in the world are you trying to accomplish by pursuing this business? How do you want your money to help you live a life you love? Set aside an hour to create specific, measurable, attainable, relevant and timely goals -- which together spell out SMART. For example: "I want to pay off $10,000 of credit card debt in the next 12 months with income from product or service sales."
Once you have your list of goals, prioritize them with the most important listed to tackle first and keep the list is a place where you can see it daily to help hold yourself accountable.
2. Learn to Manage Finances on a Variable Income
Entrepreneurs typically don't have the luxury of pulling in the same amount of money in each paycheck. Having a volatile, variable income underlines the importance of tracking all your cash flow. Maintaining a budget is an important step toward personal finance success for anyone, but it's especially crucial for entrepreneurs.
Make your budget as flexible as your income can be each month. Separate your wants and your needs so it's easy for you to see what can be cut if funds are short one month. Break down everything into categories that make sense to you; you can have a "meals out" category and an "entertainment" category as part of your discretionary spending. If your income is lower than expected one month, you know you can easily and painlessly eliminate these two areas.
3. Be Prepared
Entrepreneurs on a budget need to be proactive about unexpected expenses and savings. Although everyone should have money set aside for emergencies, those who own their own businesses should consider building multiple fallback funds (or having an emergency fund that is much larger than the average recommended amount).
Aim to set aside three to six months' worth of household expenses that can help you get by if you experience a period of low earnings. Once you have this fund established, work to build a separate fund that will help cover emergency situations of an additional three to six months.
4. Tackle Debt
When it comes to any debt you have, make a list of each creditor, the balance, the term, the interest rate and the minimum payment due. Instead of throwing a little extra at each balance every month, follow either the snowball approach (pay off debts in order of smallest balance to largest) or the avalanche (put any extra funds toward the highest interest rate balance).
5. Automate Your Savings and Stay on Track
It's not enough to know that you need to save –- you need to make those contributions to your accounts. Look at your past earnings and calculate an average. Based off this number, you should be able to determine a safe guess for what you'd be comfortable contributing to your savings monthly. Try to set up an automated payment to your accounts (it's easy to forget or let it slide if you have to do it manually every time).
Because your income will change, follow up this action by making time to sit down on a biweekly or monthly basis to review all your finances. This will allow you to adjust spending and saving as necessary –- but still have that automated foundation to work from.
6. Think About Your Future
Entrepreneurs need to be diligent about saving for retirement as there aren't any employers to offer you sponsored plans or company matches. So what accounts are available to you? Consider:
- Solo 401(k). A Solo 401(k) is a traditional 401(k) that covers a business owner with no employees or that person and his or her spouse.
- Simplified Employee Pension IRA. A SEP IRA is a retirement account that allows for a contribution up to 25 percent of each employee's pay (and 25 percent of your net self-employment income).
- Savings Incentive Match Plan for Employees IRA. A SIMPLE IRA is a retirement plan designed for and available to any small business with 100 or fewer employees.
As much as you want to pay for your children's college education, if you're not taking care of yourself first by putting away for (and maxing out) your retirement accounts, you're doing your children a disservice. While they'll have the option for scholarships and student loans to assist with college, you can't finance your retirement lifestyle. What good is it if you pay for your kids to get through college and in turn they need to support you financially through your retirement years?
8. Manage Risk
If you have any dependents, you must have the appropriate insurance to protect both yourself and those that rely on you. You'll want to consider:
- Life insurance. If anything were to happen to you or your spouse, life insurance provides for your surviving family members. Remember, this isn't about you: it's about protecting your family and ensuring they're provided for, no matter what.
- Disability insurance. Situations don't have to be catastrophic to deal a harsh blow to your finances. Disability insurance provides you and your new family with a portion of your income if you are temporarily unable to work and earn money.
- Umbrella insurance. Ensure you have coverage at least equal to your net worth in order to protect your assets in case of a lawsuit.
No one likes thinking about the worst-case scenario –- but remember, this type of planning and protection is for your family and your children. Part of having a family is setting up legal protections for both them and the assets they may inherit from you. Estate planning is especially important when you have children, because your estate plan will:
- Establish guardianship.
- Ensure your assets are distributed in a way that aligns with your wishes.
- Create a trust (if you decide to do so).
10. Leverage Resources
As a Mompreneur, there are a ton of valuable resources that are out there to help you manage life and business successfully. Look at contests -- like the Mom Entrepreneur Giveaway -- that provide a ton of valuable content on branding, time management, organization, marketing and more for free. Check out blog posts and articles addressing the life of mompreneurs and communities built for women by women such as Marie Forleo's training videos and b-school. Consider creating or joining a mastermind group of other women in the same situation where you can learn together, grow together, and tackle the problems you're facing by getting feedback from others.
11. Take Baby Steps
Remember, getting your finances organized and under control won't happen in a week or likely even a month. Break down goals into smaller ones and set check-ins and steps for yourself along the way. Target one area at a time to address -- first by getting clear on what your goals are. Once your goals are down, focus on your cash flow and how you can make it work to meet your goals. Then move on to debt pay down and other items from there. Remember to celebrate your wins along the way and don't get discouraged if you get off track. Your financial journey is unique to you and one that will likely come with bumps, curves, twists, and turns along the way.
Mary Beth Storjohannis a certified financial planner and money coach. She createdNine Steps to Workable Wealthto help you make smart choices with your money.