Entrepreneurs are smart, creative, caring, and passionate. They are some of the most innovative minds and interesting people to talk with.
And sometimes… they make BIG MISTAKES with money!
Are You Robbing Your Wealth With These Common Money Mistakes?
The ten mistakes below are common to MANY people in all walks of life. However, for the entrepreneurially-minded, these mistakes can be especially disastrous. Especially when wealth-building is the name of the game.
Mistake #1: You don’t prioritize saving money.
Your may consider your credit card to be your “emergency fund.” You may even neglect saving in favor of investing, even in yourself and your business pursuits. However, a lack of cash for emergencies also means a lack of cash for opportunities.
Investments can be unpredictable. Even business can be unpredictable. And while you may thrive in unpredictable circumstances (you are, after all, an entrepreneur), you should have something to fall back on.
While some saving years may be better than others, it’s imperative that you make your savings automatic. Set it up so that it works like any other automatic payment, and send it to a different account. That way, when an emergency or opportunity strikes, you’re prepared. And not just with a credit card.
Mistake #2: Your prices aren’t sustainable.
Many entrepreneurs feel they are profitable so long as they are “making money.”
And money may be coming in, yet the real question is, does money come in so that in addition to paying yourself, you can also pay taxes, insurance premiums, and actually save money? Ultimately, if your business doesn’t support your whole life, you’re going backward. You need money to:
- pay all your personal bills
- save for emergencies and opportunities
- pay all of your business expenses
- cover your insurance premiums
- pay all of your taxes
- invest for the future
- invest in mentorship or education
- tithe or give
- pay off debts
- take vacations or sabbaticals
- “miscellaneous expenses” for entertainment, eating out, etc.
- plus money to take care of yourself with healthy food and wellness care.
Get honest with yourself about the money that flows in and out of your business or investments. It may be uncomfortable to charge more for products or services or say “no” to that great real estate deal that doesn’t quite “pencil,” yet it’s necessary.
Mistake #3: You aren’t properly protected.
It breaks our heart to hear about entrepreneurs who aren’t properly insured. You probably know of situations such as these:
– An investor with a great long-term plan passes away too soon and leaves their family with a big financial mess.
– An accident or medical emergency arises, and an entrepreneur is not properly covered.
– A business partner or key employee passes away, and the business dies next.
– People have to start “go fund me” campaigns in the middle of personal tragedy because they weren’t prepared for a worst-case scenario.
Make sure you have all the insurance coverage you need. If you have adequate savings, you can choose high deductibles, which will lower your premiums. This includes whole life insurance, which can double as a savings vehicle.
Mistake #4: You’re paying too much in taxes.
As an entrepreneur, you’re probably not claiming all the deductions you could be. You might even be paying penalties for late payments or filings. You might not have the right business structure, perhaps operating as a sole proprietorship when incorporating could lower your taxes.
Money lost to taxes is gone forever… as well as the additional dollars you could have earned with it! So get good advice on reducing your taxes and follow it. A great resource to consider is Tom Wheelwright’s WealthAbility podcast.
Mistake #5: You’re doing your own bookkeeping!
Early on in a business or investment venture, it’s common to try and do everything yourself. However, mistakes can be costly—especially when it comes to your money!
If you like bookkeeping, are adept at it, and have time to do it, go for it. But many entrepreneurs are better served by delegating bookkeeping to a professional.
Another option is to have a professional bookkeeper help you set up your own bookkeeping system properly so that you or an assistant can take it from there.
Mistake #6: You gamble instead of investing.
Many entrepreneurs seem to seek out risk like a thrill seeker searches for the next big thing. Unfortunately, putting all of your money somewhere like the stock market can expose you to too much risk. So much so, that it’s more like you’re gambling than investing.
Remember how the stock market was nearly cut in HALF in the Great Recession? How the housing market collapsed next? That was the result of systemic risk. Even if you invest in what appear to be solid investments, you can STILL take a huge hit if there is a crash or “correction” in the markets.
A much better strategy is to save money and invest in financial vehicles that are non-correlated to the stock market… including investments that are immune to housing market fluctuations! It’s fine to have stocks and great to own properties, just don’t put all of your eggs in one basket.
Life is unpredictable. You don’t want your investments to be unpredictable, too!
Mistake #7: You’re not investing in yourself!
YOU are your best investment! YOU are likely the biggest bottleneck in your business—and you are also your business’s greatest potential asset.
Investing in yourself can look like many things, including:
- Learning new subjects that can improve your business or help you charge more
- Upleveling your skills (especially marketing and sales skills, which impact your bottom line)
- Surrounding yourself with people who make you better, and attending events that push you to grow
- Improving your health, vitality and energy
When you invest in yourself in this way, you are improving your ability to earn and expand your income.
Mistake #8: Your money is locked away.
To clarify—it’s a GOOD thing to have an IRA, 401(k), or other retirement fund! The problem comes when virtually ALL of your investments are in accounts that can’t be accessed until you are 59-1/2 without taxes and penalties. As a business owner, you want control over your own money.
If your dollars are in mutual funds locked up in a retirement account, you can’t invest in your OWN business… you can only invest in other people’s businesses on the stock exchange!
If you still have a job and receive an employer match, we recommend investing ONLY to the match level, then investing elsewhere where your dollars won’t be locked up.
Mistake #9: You wait too long to get professional help.
You may consider yourself a lone wolf, yet don’t let that stop you from getting support in your business. You may want to do it all, yet eventually (if things go well), your business will be big enough that you cannot do it all. And it’s much easier to grow with a team then to hire on help at the last minute. This includes the support services of a CPA, financial advisor, or personal assitant, for example.
There are other reasons why you might be avoiding getting professional financial assistance:
- You’ve got “trust issues.” You’ve been burned in the past by the market or a planner.
- You have “financial shame” and you feel you should be much further along financially.
- You’ve heard about required minimums and you don’t know if you have enough to work with.
- You think you’re doing alright on your own, even if all your money is in the stock market and subject to huge risks.
- You just don’t know who to contact if you have financial questions!
Would You Like Our Help?
Whether you want to start automating your savings, get professional support, or diversify your assets, we can help. Contact us, and we’ll be happy to put you in touch with a Prosperity Economics Advisor who can help you.