The Importance of Financial Planning
Planning one’s financials as an entrepreneur is one important task that is often neglected. Personally, having run a design studio and launched an edtech start up, I’ve been through that phase. As many entrepreneurs — including myself — will tell you, the volatility of revenue is one of the craziest financial roller coaster rides you’ll be taking in your life. For a bootstrapped and eventually client-funded company like my design studio, the frequency of clients and payments can be uncomfortable for a single working parent with dependents and loans to pay.
For someone like me in her late teens and early 20s who has never developed a sound financial strategy or plan for my personal life and business, I signed myself up for the same roller coaster ride you might end up taking. Here’s what I’ve learnt from my experience, and how you as an entrepreneur / entrepreneur-to-be can get started with a basic financial plan and strategy.
Figure out what your “bare minimum” lifestyle is and start reducing expenses if required
“Bare minimum” means what you’re willing to accept as the minimum required for survival. In Singapore, if you’re living with your family, chances are you won’t have to pay rent or any sort of loan. Public transport and hawker food can be relatively affordable and sustainable for days when you don’t need to be out and about meeting people. Avoid spending unnecessarily because you never know when your next paycheck comes, if any at all.
Ensure that you’re still saving before spending
Saving an amount before spending the rest is a habit that will do you much good in the long run. It goes without saying that it is much easier to spend first, then think about savings later, especially if you’re a high-income earner or have a large pool of savings already set aside for rainy days. Still, if not for security, consider this a good habit that you should keep.
Accident insurance plans and medical insurance plans
If you’re not working for a company, your chances of being covered by some medical or accident insurance plan is much lower. If you’re raising a family, or have a couple of dependents, you may end up hurting them more if you cannot continue working and earn an income to support them. A proper life insurance will help your family in case of the sudden demise of the sole breadwinner-entrepreneur, and an accident plan can provide some financial relief to help ease up the days you need to take off to recover.
If you don’t already have these two key plans you need to ensure you’re covered for unfortunate events, it’s time to get this done and over with so you can focus your time on the bigger plans without this small yet important task hanging over your head.
Rainy day savings
This might seem pretty obvious, but most entrepreneurs don’t take this seriously enough until it’s too late. Tough times can hit you hard and fast, at your blind spots, and stretch on for incredible lengths of time. Hopefully, with adequate insurance coverage, you’d be protected if something unfortunate should happen to you. However, even if you’re healthy, running out of cash and credit completely can put unnecessarily large amounts of stress on you and your family. This often snowballs into a series of other personal and family issues you really want to avoid. How much is enough? The general rule of thumb is 6 months worth of expenses, but I’d stretch that for an additional month or two.
Anyone - and everyone - should be empowered to take charge of their finances, high income earner or not.