This might sound laughable, but far too many entrepreneurs and business leaders have no idea how to spend money.
Here’s what I mean: you’re used to spending large amounts on your business, signing off on international flights and new equipment for your staff. Four digits, five digits, six digits … so long as it’s helping the business produce more, you’re fine with signing on the dotted line for big-ticket items and investments.
The problem with this is that it’s easy to go blind to the true value of a dollar.
You can’t spend like that in your personal life and expect to build the lifestyle of your dreams. The way you spend for your business has to be completely different from how you spend in your personal life.
Separate Business and Personal
Your financial independence will come outside of your business spending. It will only be achieved through smart, prudent decisions on your cash flow and personal balance sheet. Just because you’re spending a high amount on your business doesn’t mean you can do so in your personal life -- and expect to build sufficiency on your personal balance sheet.
It can be easy for dollar amounts to seem comparable, but avoid this fallacy. Intelligently spending a large amount on business-boosting items and programs will reap a benefit. However, 99 percent of the time, dropping several thousands of dollars on luxury goods will not net you any kind of return on investment.
That is the key difference between business and personal spending: one will have ROI, one does not. It’s OK to spend money if you know that it’s helping your business grow. It’s not OK to spend money on frivolous items just because you’re used to writing five-digit checks. Don’t let the firewall between business and personal become blurred.
Some of the most successful business leaders I know don’t blink at writing heavy checks -- but they’ve also been driving the same reliable car for the past 5 years. They understand the relationship between spending on themselves and their business.
Acting rich without a clear focus on your goals will set you back years, maybe even causing you to miss the goals you’ve worked so hard to achieve.
Don’t Lose Focus
It’s easy to be blinded by the high amounts you’ve invested in your business. You want your company and your team to have the best technology and to arrive at meetings well-rested via first-class flights. When it comes time to upgrade the used car you’ve been driving or take the family on a vacation, you need to show restraint.
Your business goals and personal goals may seem similar (long-term success), but they’re quite different. With your business, you’re spending to fuel growth. With your personal finances, you’re investing in your future.
Just as you are laser-focused on KPIs and big-picture goals with your business, you need to keep that same focus on your saving goals of sufficiency, surplus and superfluency. Even if you need to write this down and keep it somewhere permanent, make sure you know and respect the difference between business spending and personal spending. Many of your business expenditures have short-term benefits, but the goal for your personal finances is long-term wealth.
Entrepreneurs and business leaders need to develop some sort of strategy when it comes to personal expenditures. Here’s what I recommend: take 20 percent of your gross income and put it into something other than the business. Put that money into assets that will reap a return on investment.
You need to be able to spend money intelligently on your business and yourself. The two are completely different animals, and financially independent entrepreneurs know the difference.