OK, so this might stem from the fact that I’ve been taking Dave Ramsey’s Financial Peace class now for the last several weeks.
And in fact I wrote a post not too long ago where I talked about some of what I’ve learned so far on getting intentional and focusing on your goals.
And then I talked about good ole Dave Ramsey again when I talked about emergencies being guaranteed to happen… that’s just life, and why you should be prepared. That said, I think a very smart way of being prepared especially as an entrepreneur; is to focus on building up your savings.
But to do that you really need a hard core strategy to kick your little waffling butt into high gear.
I mean here’s the deal.
You’ve got your business up and running smoothly, life is cruising along good, you’re paying down all your ridiculous debt (I hope)… so it’s time to focus your attention on your future a bit.
Some people are content to see a small portion of their money go to their savings account, but if you are serious about really saving, you should take an active part in controlling your finances. Saving money doesn’t happen naturally, it takes effort and firm resolve and willpower.
And I do mean WILLPOWER!
It’s a bit like embarking on a weight loss program.
It takes focus, resolve, and the ability to say no to that which you know is bad for you or will derail all your hard work you’ve achieved thus far. All that boring stuff that in the end is SO worth it.
I mean, c’mon. You’ve worked hard to establish your small business or entrepreneurial career. You’ve labored for hours and hours to complete especially difficult tasks or to pick up new business accounts or please clients and strive to always over-deliver. Do you really want to see your money go down the drain and your efforts turn to nothing? I think not.
So that means saving your precious profits is the first step towards keeping your personal and business finances in good condition. Taking control of how you spend and save your money will enable to keep track of your cash flow and prepare for any unexpected expenses in the future.
You know… like emergencies?
And I’ve found that saving money is actually pretty easy once you’ve set your heart on it and committed to doing it. The key though is committing to do it. As a newly successful entrepreneur or freelancer, the temptation to spend your cash left and right is very strong. And don’t get me wrong, celebrating your business successes is a good thing!
But you must know when to stop spending. No if’s, and’s, or but’s.
In fact, it’s actually when you’re earning really well that you should be seriously considering stashing away as many of those hard-earned greenbacks as possible and building a sweet little nest egg.
But if you’re like most folks you’re probably wondering where to start.
Saving up is often second-nature to many people—what kid has never saved up a few dollars for that super coveted bike or video game or other summer gimmick—but inevitably we almost always lack the drive to really set aside money for future use.
As in really SAVE.
Not only that, but really saving up means that you need to look into your spending patterns and regular income and financial needs more closely, and doing so takes a lot of time and effort.
AKA less fun; more head-achey.
But you can sort of ‘re-train’ yourself.
The first thing to do is to decide once and for all you’re going to set aside a fixed amount of your salary or profits, much like a tithe to the church, and then keep that money rolling into your piggy bank (or banks) like clockwork, without fail. If you don’t set a goal amount, you will definitely end up saving whatever is left of your money AFTER you’ve already spent most of it.
That simply won’t do.
This kind of saving technique is counterproductive and inefficient, as I’m sure you have already experienced. To save literally means to conserve.
NOT to salvage the leftovers.
If you are serious about keeping your money intact in the long run, you have to commit to saving a fixed percentage of your earnings regularly. An excellent way I’ve found to do this is to automate the process.
I myself find it hard to stick to this rule if I try and do it myself, and I realize that if I break the routine just once, I tend to break it over and over and over. So the operative word is consistency. Once you’ve trained yourself to spend only what is left of your money after you’ve put away the savings portion, it won’t be so difficult to keep to the fixed savings per month routine.
It’s called paying yourself first. Drill it in your head and don’t forget it. Like ever.
And if you automate it, it really becomes almost painless. You have a set amount deducted automatically from your bank, transferred to your savings or wherever you want it to go, and after awhile? You don’t even miss it!
And who knows, you might even find yourself with a little more leftover cash at the end of each day. Since you already know you’ve set aside your savings that week, you now have the luxury of deciding whether to splurge or save any ‘extra’ cash you find yourself with, without having to worry that you are already over-spending! Or better yet, make an extra payment on that debt you currently owe on.
For many self-employed individuals like me, saving up for a rainy days seems like an almost insurmountable goal… there are so many ways to spend money! Some of them necessary, but more often than not… they just aren’t.
But it’s easy to talk yourself into spending money you shouldn’t because you justify to yourself that it’s for the good of your business… it will help you in the long run!
Sorry, but a new desk or that cute little reading lamp ‘may’ be helpful… but it’s not likely to make you more money at any point in the future.
Therefore you very likely don’t ‘need’ it. Get it?
Saving money is not a pie in the sky goal. It’s not for ‘everyone else but you’. EVERYONE can make the choice to begin saving something. Even if it’s small savings here and there, pennies add up and the road to fiscal success really lies in smart financial management.
Freelancers and small-time entrepreneurs need a fallback fund of sorts for when things go wrong or business is slow. Instead of scrounging around trying to find enough money to keep your business going, you might as well prepare for that emergency in the making and be ready when it hits you.
Your blood pressure will thank you!
Remember that freelance work is by nature sometimes unpredictable, and there are times when your projects will come few and far between. Really, you can count on it.
It helps you to stay financially stable by saving up as much as you possibly can during your work’s peak times, and socking it away.
And you can start by knowing your cash flow intimately.
No, not like that, dirty!
A simple way to help is to detail all your expenses clearly, using tools like MS Excel to help you get a good picture of your finances and savings. List down and add up the cost of all the things you spend money on, on a regular basis like food, phone and Internet bills, transportation and what have you.
Alongside your expenses, write down the amount of your salary. I also really like using Mint.com, which helps you keep track of a lot of stuff ‘almost’ automatically. (Notice I’m a big fan of automation?)
Do this for a month and tally the costs versus your earnings.
- Do you break even?
- Do you need to cut down on some unnecessary expenses?
- Most importantly, can you commit to setting a fixed amount to be sent every payday to your savings account? If your answer is yes, then what are you waiting for? Put your savings strategy into motion!
Fix the amount that you are comfy parting with on a regular basis and stick to it. It can be as big or as small as you like, depending on your expenses and other financial commitments.
Be realistic when you peg the amount—don’t say that you’ll save 50% of your salary when your expenses actually take up as much as 70% of it. Once you’ve decided, you can always ramp it up (but not down!) whenever you feel like you’ve got more to spare, or you’ve made a killing on some unexpected project.
My method might be slightly overkill, but here is what I’ve recently begun to implement. In T. Harv Eker’s book Millionaire Mind, he talks about having different bank accounts for different purposes and allocating a percentage of your income to each one.
His recommends are (after taxes, which should be 25-30% of your income into a special ‘tax’ account):
- 10% into a long-term savings account for spending.
- 10% in a savings account for education purposes. (Including self-education.)
- 10% into a financial freedom savings account that is meant to be spent ONLY on investment and residual income projects… so it creates a passive income stream for you.
- 10% into a give account intended for giving however you like.
- 10% into a play account, and the rule is it MUST be spent every month, no excuses.
- And 50% into a separate account strictly for necessities and bill paying.
I currently have 7 different accounts which I am working on trying to allocate specific amounts of my income to each, each for different purposes very similar to the above. And while I might not be sending those exact percentages to each different account, I send percentages that make sense for me.
And what I’ve found is that as I allocate money to each, I often forget it it’s there, except what I have in my primary account that I use to pay my bills, buy my gas, and other types of every day spending. That means when I automate the process of sending money to each account, suddenly saving becomes 10 times easier than it used to be!
So think about it, give it a try, and you’ll likely be on your way to building a nice little nest egg of your own.
Just always keep in mind that consistency is key and stick to the fixed percentage you’ve decided upon saving.
No take backs! Capisce?