Yesterday we got the chance to meet Nathan, an entrepreneur and personal finance expert to entrepreneurs, small- to medium-sized business owners, and high-income professionals. His blunt style of working with his students helps them to achieve true financial freedom in record time despite their circumstances. He does this by telling it like it is. His upcoming book Your 33-Day Money Action Plan and his blog at NathanWMorris.com , made such a strong impression on me that I asked him to write yesterday’s and today’s posts. Enjoy today’s continuation about getting your financial freedom back on track. Again, here is Nathan:
I’d like to share a few rules that you should abide by as an entrepreneur. I’m not going to sugarcoat any of this and tell you’ll that you get to drive a Lamborghini by next week following a proven system. Entrepreneurship is a difficult, yet rewarding path to go down. However, like building a house or large building for your company to reside in, you must build a SOLID foundation or, no matter how hard you try to build, it’ll still fall down.
Here’s RULE #1 for entrepreneurs: GET OUT OF AND STAY OUT OF DEBT. Avoid it like the plague, my friend, as nothing else will wreck your journey towards financial freedom like debt. There’s a reason that the Bible says, in Proverbs, “the borrower is slave to the lender.” If you’ve ever been in debt, you surely understand this proverb. Debt isn’t leverage; it’s a good way to screw yourself. As an entrepreneur, your first mindset shift needs to be to think in terms of resourcefulness, NOT resources. Using debt blinds you to more creative options that are often just as good, or better.
RULE #2: AGRESSIVELY save for a rainy day. Cash is king in your business and personal life. Just because you start to make a good amount of money doesn’t mean it’ll continue forever. I once went from about $13,000 a month to almost nothing a month despite a highly diversified business, never assume that for any reason you’re untouchable by bad events. You need to have at LEAST six months of personal expenses on hand at all times in CASH. Additionally, the business needs to have enough on hand to cover at least six months of expenses as well.
Until you are very well established in your business, you also need to live humbly with low expenses. Once you’re established, you still need to keep close track of your money and “cap” your lifestyle at some point – a point called the “enough is enough” number. Remember though, especially when you’re starting out, that there will be unavoidable peaks and valleys in your income and so you need to keep lots of cash on hand for bad valleys and avoid the temptation to spend like crazy when the peaks come along.
One of the main reasons small business people go broke is they feel the need to “show” their success. You’ll have plenty of time to do that once you have a firm foundation under you. Don’t fake it till you make it and don’t try to show off to people that don’t care anyway. If they’re paying attention, they’ll know you’re successful without you trying to show it. This, by the way, is particularly difficult if you’re part of the MLM/Business Op/Information marketing scene because so many of the gurus like to “brag” about their success and show you their high end cars and such. Don’t buy into this hype; while the appearance of being able to spend money like water is sexy, it doesn’t work out well in the long run.
RULE #3: Keep VERY CLOSE TRACK of your expenses. I advise my clients to keep track of everything they buy on a day-to-day basis. If you have a smaller business you can do this for both business and personal, but doing it for personal spending is good enough. A lot of financial guys talk about the benefits of cash-back credit cards to get more out of your money. However, this is a sham and you should avoid it (you usually spend way more than the rewards just by virtue of using the cards). Tracking your expenses by WRITING down what you spend on a piece of paper will allow you to free up about 14% of your cash flow each month for more productive purposes. In other words, you wouldn’t drive a car without a dashboard – don’t drive your finances without one. Being aware of how much you’re spending, what you’re spending it on and the physical act of writing the expenses down will automatically curb spending without you even noticing it. This isn’t anything new; as a matter of fact, PT Barnum recommended this same exercise for people in his 1880 work, The Art of Money Getting.
I recommend using a 3.5×5” card that’s folded over in your wallet and keep it with your card or cash.
Otherwise, I have a “magic money booklet” that I’ve designed specifically for the purpose that fits in a credit card slot in your wallet. You can find information about getting a free booklet at magicmoneybooklets.com. Some free training on expense tracking (and my very specific way of doing it) is available through the website as well.
Now, in my upcoming book I talk more about all of these rules and give a 33-day step-by-step action plan to get your money situation organized and to start getting out of debt and establishing aggressive savings, in the right way.
However, for now, let me leave you with the path to a good financial foundation for entrepreneurs:
1. Track expenses EVERY day
2. Put aside at least $1500 in cash at a separate bank for EMERGENCIES ONLY. Do not dip into this account for any reason other than true emergencies.
3. Pay off your debt aggressively using a debt snowball (or my modified / automated version). NEVER BORROW MONEY.
4. Use the money from your debt snowball when paid off to establish an “emergency only” six months of expenses CASH emergency fund.
5. Build up your business’ savings to at least six months of operating expenses over time.
If you can do these things, you will be able to weather all manner of financial storm.
I want to thank Nathan for sharing this great information with you. Please leave some comments for him to read. Head over to his blog, NathanWMorris.com and subscribe to his posts and emails to get more great information.
Until next week, I’m Tim Gillette, the Rocker Life Coach. It’s time to live your dream, to love what you do and those you share life with. Find the right people to help you grow – like Nathan – to become a RockStar in your world.