The third barrier to business ownership is “I don’t have enough money to start my own business,” which is true for the majority of entrepreneurs. However, where that money comes from is the key to breaking down this particular barrier.
Before we delve into this topic, I encourage you to allow yourself the space to rethink and recreate your money mindset. Most of us didn’t grow up with a lot of money, and in fact, I grow up without much at all. So, our past experiences with money has shaped our current money mindset - either positively or negatively.
Regardless of your past money mindset, I am challenging you to shift your thinking to view money as a “tool” to use to help shape your future and fund your dream of business ownership. I used to have the ghetto fabulous money mindset, which my husband so eagerly would remind me! I would spend money that I didn’t really have maxing out credit cards, getting loans for furniture, going shopping at the mall and using my bill money to buy stuff instead of paying my bills and all types of nonsense. But when my employer, at the time, hired a new CEO and she started laying off people left and right, I got scared! I started thinking what would happen if I lost my job? I realized that we didn’t have any savings to cover our expenses for one month, let alone the 3-month emergency fund that financial gurus recommend.
I started to take a closer look at my money mindset and think about my economic future. I had never thought about my money and the word future in the same sentence believe it or not. I always used a budget, but my budget wasn’t working for me. It was only showing me what bills I needed to postpone or reschedule until I got my next paycheck! Postponing and juggling bills and living paycheck to paycheck was driving me crazy! Enough was enough! It wasn’t that I didn’t have enough income because I was making a 6-figure salary but for the life of me I couldn’t understand where all the money was going!
I embarked on learning as much as I could about how to change my money mindset and then what actionable steps I needed to put into place to avoid repeating my same mistakes in the future. I read books and listened to podcasts and came across a movement called F.I.R.E. This is an acronym for Financially Independent Retire Early. However, I will not delve into specifics regarding the F.I.R.E. movement but I encourage you to learn as much as possible about these concepts and strategies starting with Jamila Soufrants podcast and website at www.journeytolaunch.com. These new concepts helped me to be able to come up with a strategy that catapulted me out of debt, changed my money mindset and started a savings strategy that I never thought was possible.
During the time I discovered the F.I.R.E. movement, I was also in the process of starting my own business and came across a podcast where Lisa Nichols gave her story regarding how she went from a welfare recipient to the CEO of a multi-million dollar corporation. She talked about how she was able to fund her dream of business ownership by – drumroll please….“using her current job as a customer service rep to fund her business dream.”
Now, here was a totally NEW concept to me that I had never heard before. I had always thought that in order to get money to start a business you either needed to have someone give you thousands of dollars, get a business loan or get an investor. But hearing Lisa’s story of how she would save a percentage of her income from every paycheck for 3 years until she had enough money to start her own business was a huge eye opener for me. This gave me the inspiration I needed, and I created a plan to do the same. I will walk you through the steps that I took that allowed me to fund my dream of business ownership using my employment income.
CHANGE YOUR MONEY MINDSET
What our parents taught us about money may no longer be serving us, especially if it is keeping us trapped living paycheck to paycheck and we have no savings in the bank. I know for myself I learned that money is not readily available and when it is spend it because you never know when you will get more! Lisa points out “some of us may feel that money is only available to smarter, better educated or better-connected individuals."
Growing up poor, it is easy to associate money with hardship or something that is difficult to earn and sustain.” But once I challenged my old way of thinking and spending, it put me on a new financial wavelength and different mindset regarding money. Lisa brings out that she too had to approach her relationship with money from a new angle. She began to see the purpose of money very differently and that money was “no longer the root of all evil or about world domination.” She began to think of money as “an instrument as a tool and as a critical team member” for achieving her dreams and desired lifestyle.
She still cautions that “money can have a choke hold on some people” and can very well be the root of all evil but it can also “equally be a source of freedom and a change agent for our lives and for the lives of others. Money can create freedom, memories, possibilities and will help you to take advantage of opportunities when they come along.” So with this new perspective, I began to “stop thinking of money as a struggle and began to see it as a tool that would give me “access to transformation and economic responsibility.”
DON'T QUIT YOUR JOB - THIS IS YOUR NEW INVESTOR!
Some of the motivational speakers who encourage individuals to start their own business often times will tell them to “just quit your day job and go for it!” I don’t know about you but I am a very conservative person and I was never comfortable taking this approach no matter how well they packaged it. What if the business doesn’t make any money the first 3 months, 6 months or 2 years? How will I pay my bills in the meantime while I am working on my business? I have a lot of mouths to feed and bills to pay and that approach always made me nervous.
However, Lisa provided a different strategy that took me by surprise. When she was in her 20s, she was working in a job that she didn’t really like and she knew it wasn’t what she would be doing for the rest of her life. However, she recognized that this current job could be “the catalyst for stepping into her new amazing life she wanted.” How so you might ask? She began to view her current employer as her INVESTOR! So, before you quit that job you hate, first think about how you could use that job to be your first investor in funding your business dream.
If this is you also and you hate your job take a different perspective. When you are on the phone with that rude customer or your boss is demanding more of you than what is in your job description, “take a deep breath….and remember your new mantra “my job is my investor” and immediately you will feel happiness and gratitude instead of frustration.”
Now that you have an investor your path to business ownership becomes much more clearer and you can even start to put an actual timeline on when you will cash in on your investment! But first you need to know what type of business you want to start and how much it is going to cost you to get started. Whether you are making $40,000 per year or 6 figures, you must decide on a financial goal and how much you can put aside out of each paycheck to reach that goal. You will need to be diligent and extremely disciplined to make this happen, but it is definitely doable. Now, that we have started to shift our money mindset, let’s take a look at some strategies you can incorporate that will not only help you clean up your personal finances but also get you on track to saving to fund your business dream out of your own pocket.
REAL BUDGETING
After you have done the work to change your money mindset, it is now time to roll up your sleeves and put some things into action. Let’s look at how you can create a new financial infrastructure that is ready to help you manage your new financial life. The first strategy I used that helped me to decrease my expenses and begin saving 50% of my income (which I never thought was possible) was creating a real budget. A real budget will help you not only monitor and track expenses easily but to see future financial goals 12 months ahead. This type of budget is more than just tracking income and expenses but also shows you how to track for savings as well. You must hold yourself accountable to your budget.
Some people think that a “budget is limiting your ability to spend money on things that you want and it is too controlling.” If that is you, then I encourage you to change your mindset and think of a budget as a tool you will be using to move your “financial picture out of the realm of ambiguity and give you more clarity”. The right type of budgeting will give you peace of mind and help you to see where you are in your current and future financial goals.
Budgeting will allow you to see where you are overspending and from that you can create a plan to reduce expenses, which will ultimately put more money in your pocket for savings to fund your business dream. When you start your own business, budgeting will be crucial to your business financial goals and so why not get some practice in now.
Some people use apps or software to track their spending and income and some people like to use a simple Excel spreadsheet; I use both. I will discuss more of this later but for the sake of this exercise please go ahead and download my 12-Month Financial Action Plan to get you started. This 12-month financial action plan is an Excel spreadsheet that incorporates formulas to help you calculate your income and expenses and also separate your finances into 6 different buckets. These are the 6 buckets I believe should be in every personal budget. The 12-month financial action plan will help you to develop a plan of action and indicate how much of a percentage of your paycheck you want to contribute to each of the 6 buckets. If you don’t have any credit card debt or other bad debt, then the debt repayment bucket can be ignored or replaced with something else you see fit.
Household Expenses
Miscellaneous Spending
Paycheck to Paycheck Fund
Emergency Fund
Debt Repayment
Business Fund
HOUSEHOLD EXPENSES
These are the expenses you acquire to help you manage your entire household. This is where you will put your amounts for your fixed monthly expenses such as your rent or mortgage, gas and electric, cell phone bill, car insurance, etc. Always strive to keep your expenses as low as possible. I encourage you to take a long hard look at what you are currently spending in specific areas and challenge you to try and decrease them wherever possible. For example, do you really need to have cable when you can subscribe to Hulu or Netflix for only $11 per month? Cutting off your cable bill could probably save you about $50 to $100 per month. In addition, if you receive a raise at work or your income increases that doesn’t mean you should go out and buy things that will increase your expense budget.
As an example, if you receive a raise of $100 more per week, don’t go out and lease a new car because now you have an additional $400 per month to use. Instead, put that extra $400 into one of your savings buckets and watch it grow! When I started to make these changes, I was able to reduce my expense by 50% and allocate the remaining 50% strictly towards savings! You can get an immediate raise just by reducing or eliminating expenses. Be very diligent in this area! If you like using apps YNAB (You Need A Budget) is a great one that I recommend.
MISCELLANEOUS SPENDING
This is the bucket that gets A LOT of people in trouble. Miscellaneous spending is things like eating out, entertainment, random shopping at the mall, movies with the kids, concert tickets, dinner with friends, etc. Believe it or not, you must also budget for these items as well. One quick and dirty way that I do it is to lump all my miscellaneous spending into one bucket. For example, if you allocate $1000 per month for miscellaneous spending, no matter what you spend it on whether it is eating out, movie tickets, etc. you CANNOT go over that $1000 for the month. This way you don’t have to have separate budget items for clothes, entertainment, shopping, etc.
I am a huge proponent of enjoying life. I don’t subscribe to the coupon-clipping mentality that stresses that we should save every dollar and never eat out. In fact, if you like going to a restaurant once or even twice a week or buying your expensive Starbucks coffee every morning, I encourage you to do so. There is nothing wrong with having a budget for miscellaneous spending and as a matter of fact, I encourage you to make this budget as large as you like.
However, heed this word of caution. The trick is you can only do this AFTER your expenses have been paid and your savings have been contributed to for the month. After that, if you have an extra $500 or whatever spend it on whatever you like, splurge away! But before you do this, I also highly recommend you create a SEPARATE bank account with a debit card allocated only for your miscellaneous spending. This is very important! If this is a separate account, you don't have to worry about comingling your household expenses or your savings with your miscellaneous spending. Then you can rest assured that whenever you swipe your miscellaneous spending card it is not cutting into your bill money or savings fund. We will talk more on how to set this up later.
PAYCHECK-TO-PAYCHECK FUND
This is the bucket that is going to start putting you in a different category from everyone else you know. What most people do, and what I used to do too, is align their bills to coincide with their weekly, bi-weekly or monthly paycheck coming in. This is what is called living paycheck-to-paycheck.
Living paycheck to paycheck simply means you are “using most or all of your monthly income to cover your monthly expenses -- with no money left over and no money in savings.” Based on that, it's easy to imagine how common it is. A lot of Americans fall into this category. For example, if you make $900 each week and you also have $900 in expenses that week then you don’t have any savings left over that could cover you if an emergency occurred. In addition, if you ever go over the amount you bring home in your paycheck that week, then you would be in the hole or as some people say “I ain’t got no money til I get paid on Friday!” LOL.
The cycle continues because the very next paycheck you find yourself in the same situation week after week. That stops today! You must get out of this cycle because this is no way to run your new financial structure. This is a poor person’s mindset. We are trying to get into a new money mindset and there is no room for this type of nonsense anymore. I have been there before so I understand how you can get caught in this cycle. No one ever taught me any differently. But, believe me, once you set up your new financial structure and you can pay ALL OF YOUR bills in a month all at once it is one of the most liberating and satisfying experiences! For you to get out of this cycle, you will be setting aside a percentage of your income from every paycheck.
As an example, if your total monthly bills, including your miscellaneous spending, is $4000 per month and you have $500 leftover after paying your expenses then that $500 should be used to save each month until you eventually have $4000 saved up. Then, once you have accumulated the $4000 you need to pay your bills in full each month put that $4000 in your checking account and don’t touch it! Use it to pay all your bills at once for the entire month. Then when your paycheck comes in you just let it roll into your account each week, bi-weekly or monthly and don't touch it. Continue with this same strategy every month. When you see that $4000 sitting idly in your bank account every month you must resist the urge to use it. Remember it has a purpose. It is there to get you out of the paycheck-to-paycheck cycle. You don't want to go back to postponing and juggling bills would you?!
I personally have 2 months of my expense money saved up because I feel more comfortable knowing if I did lose a paycheck or 2 I would still be okay and not have to borrow any money from those predatory payday lenders! However, it is okay to start off with just one for now. Determine the percentage you want to allocate to this bucket and download my 12-month financial action plan and start putting your numbers on the spreadsheet now.
EMERGENCY FUND
If your paycheck didn't come in this Friday what would you do? Would you be able to withdraw money from a savings account? Would you be able to borrow from family or friends? If the answer is no, then it is crucial that you start to create a savings for a 3-month emergency fund. An emergency fund should strictly be used for emergencies such as your car broke down and you need it to get to work. Needing a new dress for a party or going out to eat with friends at the last minute are not emergencies! You need to save a percentage from each paycheck to contribute to your emergency fund bucket.
First, calculate how much your monthly expenses are, don’t forget to include your miscellaneous spending here too. This is the amount you need to save up x3 months for your emergency fund. So, if your monthly expenses including your miscellaneous spending is $4,000 a month, then you need to save up at least $12,000 to keep in your emergency fund. Download my 12-month financial action plan spreadsheet to help you allocate a certain percentage for this now.
DEBT REPAYMENT
This blog article wasn’t designed to discuss how to get out of debt. However, I do recognize that this is an issue for some people; I know it was for me. If you are in debt, I encourage you to read Dave Ramsey’s, Total Money Makeover book. If you do have debt I encourage you to get rid of it because it will be like an “unconscious burden weighing you down as you try to build your financial future.” If you are confident that you manage your debt appropriately and you limit your debt to specific purchases and that you are on track to pay off the debt in a timely way then continue on this same track.
If, however, your debt is out of control with no end in sight, then now is the time to get a handle on it. Cut up all credit cards now and stop using them immediately if this is your situation. You can also use my 12-month financial action plan spreadsheet to help you allocate a certain percentage of your income to contribute to debt repayment to get a glimpse of when you will have enough to get you out of debt.
BUSINESS FUND
Once you have all your savings financial buckets allocated then you want to ensure that you allocate a certain percentage of your income to fund your business dream. But first you need to know how much it is going to cost you to start your own business. So, do your research in the type of business you want to start. Don’t just guess. If you want to start your own catering business, then research how much it is going to cost for you to buy or rent the equipment. Determine the number of guests you aim to cater to and how much would it cost you to host an event with that many people. Find out how much it costs to rent a shared kitchen on a weekly, monthly or on an as needed basis or how much it would cost if you decided to build out your own commercial kitchen if that is what you prefer to do.
Let’s say you did your homework and your magic number is $20,000 to get started. Now you need to create a strategy to get the $20,000. You can either seek out a bank or investor to loan you the money or you could save that amount from your own earnings over time. If you decide to save the $20,000 out of your own pocket it is very doable. As an example, you could set aside $400 per month for about 4 years and have the money at the end of the 4 years. However, if 4 years is too long then you would need to make a plan to increase your current income or your savings in this area. You could allocated $800 per month instead of $400 and have the $20,000 in 2 years instead of 4. You get the point? It is up to you on how aggressive you would like to get with this.
But don’t let the fact that you don’t make a lot of money right now prevent you from funding your business dream. Lisa Nichols was a customer service representative when she started saving money to “fund her dream” and she would set aside $100 out of every paycheck each week until eventually every chance she got she would increase it from $100 to $200, etc. She did this for 3 years and went to the bank and had saved up $100,000! So, it is possible. Use the 12-month financial action plan to help you to allocate a percentage of your income to your business fund bucket. The spreadsheet will allow you to play around with different scenarios to see how fast you could earn the money if you reduced your expenses or even increased your income.
AUTOMATE YOUR MONEY GOALS
Putting systems in place that will help you automate your budget and savings strategy is the easiest and smartest way to get on the road to your new financial structure. With money systems you can set it and forget it. I find that it helps me to be more consistent with my budgeting and savings goals. My first money system is a good old-fashioned Excel spreadsheet. Yes, I am old school. I like data and I like being able to use different scenarios to see if I decrease my spending or increase my savings how long it would take me to reach my financial goals.
You can download my 12-month financial action plan to get started with yours now. I also use an app called Prism. Prism is a bill pay app that allows you to connect all of your bank accounts and link all of your bills and pay your bills through the app electronically. It cuts down on the time it takes me to pay my bills. I don’t have to go to numerous websites and remember all the different passwords, etc. I just do it all inside Prism. I love this app! It has made my life so much easier. I also have 4 separate bank accounts. This may sound absurd to some people but if you ever get into the F.I.R.E. movement 4 accounts is nothing compared to some of those individuals having 10 or more! At the time of this writing, I have a PNC Virtual Wallet account, which is one account but is technically 3 accounts in one. Meaning, you have 2 checking accounts and 1 savings account that are connected to each other using one username and password login. The PNC Virtual Wallet currently includes the following 3 accounts:
Spend Checking Account
Reserve Checking Account
Growth Savings Account (which right now provides 1.50% interest at the time of this writing)
What I love about this set up is not only does it provide you with 3 accounts for free with direct deposit it also lets you set savings goals! You can create different buckets for your emergency fund, paycheck to paycheck fund, debt repayment fund, etc. These savings rules, as they call them, allows you to see exactly where the money is and how soon you will reach your goals.
I mentioned miscellaneous spending earlier. I have a separate account from Chase bank which is called a Chase Secure Bank account. I use this strictly as my “whatever” money. I do not combine this money with my PNC accounts ever! When I pull out my Chase debit card, I know I can use it for whatever I want, whenever I want and I don’t have to worry about if it is dipping into my expenses money or savings money. The other great thing about this type of account is there are NEVER any NSF fees! Yes, you heard me right. A checking account that allows you to go negative and they never charge you anything! The only catch is, at least at the time of this writing, there is a $4.95 monthly fee to have this account. But I will take $4.95 a month over a $40 NSF charge any day! I use this Chase debit card when I want to take the kids to a movie, go out to dinner with friends, if I need a new pair of shoes, etc.
AUTOMATE YOUR PAYCHECK
Let’s take this automated process a step further. I recommend you also automate your paycheck so it can automatically to into your separate accounts. So, for example if you bring home $4,000 every month and your expenses are $2500 per month then you could have $2500 go into your PNC Virtual Wallet spend account to pay bills and then you can have $500 go into your Chase account for miscellaneous spending and then have $1000 go into your PNC growth savings account where you can now split that $1000 up into your individual savings buckets for debt repayment, paycheck to paycheck fund, emergency fund, etc. Go ahead and download the 12-month financial action plan and follow the steps outlined in the following exercises and you will be on track to creating your new money mindset and funding your business dream in no time!
WHAT SHOULD YOU DO RIGHT NOW?
Change your money mindset – Start thinking of money as an instrument or tool and as a critical team member for your new financial structure
Maintain a new positive attitude about your day job. Remember this is your first investor for your business dream so don’t quit - yet!
Determine what type of business you want to start and research how much it is truly going to cost to get it started
Root out the “living paycheck to paycheck” mentality for good
Download and complete the 12 Month Financial Action Plan
Finally follow the steps outlined in my 6-Step Action Plan
Read the following case study, then create your own 12-month financial action plan
CASE STUDY
Tiffany works as a human resources manager at a local hospital. She brings home $4,000 per month or $2000 bi-weekly. She is just now starting her new financial journey and is excited! She has downloaded my 12-month financial action plan and has listed all her monthly expenses including her rent, car insurance, cell phone bill, grocery bill, etc. She has a total of $2500 for fixed expenses. She decides to set a miscellaneous spending budget of $500 each month. She is excited that she can use this money however she likes and doesn’t have to feel guilty if she spends it all in the month. She understands that once she spends that $500 she cannot dip into her expense money or savings account for any miscellaneous spending. In addition, she notices that she has $1000 left over in the month after all her fixed and miscellaneous expenses are covered. She never noticed that she had this much income left over in a month because she has never completed this type of budget planning before and never tracks her spending.
Tiffany is ecstatic and eager to start allocating money to her savings goals! Tiffany decides that what is most important to her, at this time in her life, is to stop living the paycheck to paycheck lifestyle and to create an emergency fund. Therefore, she allocates 30% or $300 to her emergency fund and 35% or $350 to her “stop living paycheck to paycheck” buckets. Tiffany has done her research on what it would take to start her massage therapy business and she calculates she would need about $6,000. Then 25% or $250 goes towards funding her business dream and 10% or $100 goes towards debt repayment; since she has a $2000 credit card that was sent to collections that she would eventually like to pay off. She logs into her employers’ human resources portal and notices that she can add up to 5 separate bank accounts to distribute her money from her bi-weekly paycheck. Therefore, she allocates money to go into 3 separate bank accounts:
$1250 from her bi-weekly paycheck to go into her PNC Virtual Wallet Spend account for fixed expenses
$500 from her bi-weekly paycheck to go into her PNC Virtual Wallet Growth savings account for savings goals
$250 from her bi-weekly paycheck to go into her Chase Secure debit account for miscellaneous spending
See the 12-month financial plan in action
If your paycheck fluctuates from week to week then you can use percentages instead of exact dollar amounts. If Tiffany stuck to this plan this is what her savings would look like for her in 3, 6, 12 and 18 months:
Remember Tiffany’s monthly expenses were $3000 which includes her miscellaneous spending. So, in just 12 months, Tiffany would have accumulated $4200 to use for her bills each month so she can get out of the paycheck to paycheck cycle and pay her bills all at once each month. She would have $3600 saved for her emergency fund, which is only 1 month of expenses for her, but it is a good start.
She would have saved $3,000 out of the $6,000 she needs to start her massage therapy business, which puts her at the halfway mark of seeing her business become a reality and no more just a mere dream. Finally, she would be able to pay off a little more than half of that $2000 credit card that she owed. Now, let’s say Tiffany looks at this plan and decides that she would like to speed up this process and achieve these goals sooner than 12 months. What would Tiffany need to do in that case? She has 2 options. Therefore, she can continue to see where she can decrease or eliminate her expenses; usually your grocery bill and miscellaneous spending is a good place to start. Or she could increase her income by $1000 extra each month; which is only roughly $250 per week. Tiffany has been enjoying having the extra $500 to spend each month on miscellaneous stuff and is NOT willing to decrease it. Tiffany plugs in the new numbers into the 12 month financial action plan and it shows her that if she increased her income by $1000 every month, she would DOUBLE her savings goals at the end of the 12 months! Instead of having only $12,000 saved at the end of the year, she would have $24,000 saved. So, that is what Tiffany decided to do.
Tiffany decided to get a part-time customer service job in the evenings and was able to make that extra $1000 per month and doubled her savings goals. Tiffany was determined to make her financial goals a reality and was willing to put in the extra effort to make it happen. What about you? The lesson here is “allow your revenue to expand to the desire of your lifestyle, rather than limiting your lifestyle to your current revenues.” I hope that after you have read this section and downloaded and completed your 12-month action plan that you can now begin to look at money in a different way. Seeing it as a tool that is going to allow you to get to your dream of business ownership a lot faster and get you out of the 9 to 5 rat race.
Download the 12-Month Financial Action Plan for free today so you can get started setting up your personal action plan, which will put you a step closer to realizing your dream of business ownership.
NEXT STEPS
Download my 12-month financial action plan for free and create your own 12-month plan
Download or purchase a hardcopy of my book & complete the exercises for step 3 and follow the 6-step action plan
Read the next article - " Before You Start Printing Those Business Cards, Ask Yourself These 3 Questions First"
Get a copy of my No More Excuses Planner to help you set your new goals and monitor progress in your personal life and during your entrepreneurial journey
Take my Side Hustle Masterclass where I not only walk you through all the 7 steps with videos and other exclusive content. You will also be setting up your own business using just 9 easy steps, and at the end, you will be ready to accept your first paying customer.