Category: Personal finance

Impact of personal finances on your startup

At the beginning of this month, I read another book on personal finances and decided that same day to put some of the advice to practical use. Some of the stuff might make you laugh (using envelopes to control my expenses), but before I get into that in one of my future posts, I’d like to say how much I feel the personal finances impact your business and especially your startup!

I see personal finances as a set of habits. Do you:

– Measure something or not

– Plan something or not

– Stick to your goals and decisions or not.

Being broke is the result of your habits

Going broke, or being without money is a habitual pattern, nothing more. Unfortunately, I will also have to skip the importance of habits, willpower, goal setting in life and personal finances for some other time, because that’s too broad of a topic.

Maybe you know someone who is really lazy, undisciplined with more than a few bad habits (smoking, alcohol, drugs) and still very successful under some definitions. Let’s say he has a great business, a lot of money, a great wife, a great body, whatever. He is winning in a certain field. Here’s the problem with that, when it’s going great, people think it’s going to be great forever. When it’s going bad, people also think it’s going to be bad forever. But that’s not how it goes. Every recession, depression, and war had an end. Ever economic boom, the revolutionary product had either an end or a major slow down. A lot of people are so successful in certain fields, but so remarkably unhappy in other parts of their life they go so far that they commit suicide.

Remember Curt Cobain? You don’t have to go so far, I am sure you know Robin Williams. All the money and success in the world didn’t mean anything that day when he decided to commit suicide. Then again, if you ask 99% of the people what is their biggest problem, they’ll say, money (so it’s a personal finance problem, a set of habits). Money is not a problem. I’ll say that again, money is never a problem. The problem is you. To paraphrase George Carlin: “The money is fine. The people are fu**ed …”.

Those same people spend more than they earn. I am sure you heard this in the movie Fight Club,: “Buy stuff they don’t need to impress people they don’t like.” So what happens when someone starts a company? Well, in the beginning, it’s just them (or perhaps one or two partners), and their habits and their personal finances have a major influence! Their ability to do budget planning. Skills to do personal finances. It’s the management that decides to buy a new chair instead of investing in the product. It’s the management who decided to buy a new car instead of investing in research. It’s the management who decided to go to a conference instead of doing a real lead generation.

When a startup is failing, it takes some guts to admit that it’s the management problem. In startups, there are so few people that you have no one to point to, then yourself. But many people don’t. They point their fingers at the market, the problem they are solving, the money they don’t have, the people that surround them, and so on. It even gets worse. You don’t only “transfer” your habits to your startup, but since you are personally spending more than you are making, you have to suck out the money out of your startup! In return, more than cripples the startup that maybe had a chance if you didn’t have to buy cigarettes, travel, party, party, party. Who’s going to pay for all that? The fledgling business!

Amazing how so many people start “changing the world” and try to solve a huge problem in the world, and they don’t even know where their personal money is going! I know, I was guilty of this. Right now, I am just mad at myself for being so stupid in the past. But just a little bit, because I know that it’s not important what happened to you, it’s important what you decide! You have to make a decision that from this day you will change your habits, which will have a substantial impact on your personal finances, and, ultimately on your startup! Yes, dear reader, I admitted my mistakes, I sucked it up, and now changing my habits.

Start small, start anywhere!

Skip one coffee per day. Skip one candy bar per week. Skip one dinner in a restaurant. Skip here, and skip there.
Make one more phone call. Do one more interview. Make one more sale. Send one more newsletter. A little bit here, and a little bit there.

Repeat each month, and add just one more. Just one.

Make it a golden rule to spend less than you earn! No matter what! If you make this your habit, so will your startup. Ultimately, that means that you and your startup are making more each month, which means that all you now need is time to pass. If there’s one thing you can be certain of, is that time will pass. Ten years from now, you will still be here. There’s a good chance that 50 years from now, you will still be here! The medical / biomedical, technological, psychological advances will surely improve people’s lives, and increase longevity. So start now!

Don’t be that guy or gal who has to suck the money out of startup, and because of that, pay more taxes. What happens next is that they complain about high taxes, and how the government is the problem. Taking the money out of a business in order to buy junk? Not really. Hey, if you want to buy expensive toys, you better be ready to cough up some dough. I heard the new iPhone 6+ is out, with a nice smartwatch.

Don’t fail. Don’t spend, more than you make. We need more people like you. We need people who build startups, who fight, who create instead of consume. Will you be that person?

How to get out of debt

First of all I have to say I am not some financial guru. Just a few years ago, my finances were a mess. I didn’t know it at the time, but once I started improving them, I realized the obvious. My finances were a mess. I knew something was wrong, but I couldn’t pinpoint it. I couldn’t help the people I love, I couldn’t make a difference for the causes I cared about, my business was struggling and I had to borrow cash each time there was big spending on the horizon. Like a minor fix on the car. Sound familiar?

Getting a loan was so easy!

Credit card number one, credit card number two, overdraft, loan number one, loan number two…

Before I knew it, I had too much month at the end of the money, and my only source of income at the time was a new fledgling startup that had just received an angel investment. I was lucky because I was able to sell my first company, which helped take care some of my debt, but that didn’t change my habits. We were barely making any income because the product from the new company was yet supposed to be fully developed, and it was a race against time. Later when it was becoming obvious that we weren’t capable of making the revenue to support the team, and no investor was coming to the rescue, the team started to fall apart. I resolved to what was my final loan to save the company. I was on my own, and I started with myself. I decided to first take care of my own finances before figuring out my business. So I read a few books, watched a few seminars, and more importantly I took action.

I started tracking my personal finances. I created a budget for me and my fiance. Together we made a firm decision to stick by it. We weren’t going to starve ourselves, we were still traveling, visiting family in different cities, there was time and money for our favorite cafe, but when the month was over, our personal finances had to be in the green.

Income > expenses. That was our number one rule. Then we started eliminating our debt, and after we were done with that, we started saving some money. We realized that “income > expenses” is easier if you work both on improving your income AND reducing your expenses. We learned that you also need to financially reward yourself and the ones closest to you, so that the struggle makes sense. When you do it like that, your rewards are thought out, and you make the decision based on your real wants and needs.

I think one of the books that capture those steps is The Total Money Makeover by Dave Ramsey. It doesn’t cover everything, and you still have to act (not just read the book), but it is a great start for someone who is clueless and needs help! Nothing wrong in needing financial help. You are definitely in the majority on this fine planet. I think it’s one of the ultimate mysteries. How do you explain two different families living in the same city, one barely getting by with $1000, and the other also barely getting by with $1500. Shouldn’t the one with $1500 be well off since they are making as much as 50% more than the other family? Somehow we find a way to mess it all up. I remember one of my investors telling me a story about his friend. His friend got a raise, and then he sold his old car, and bought a brand new car with a loan. Why in the world would you do that? A couple of years later, one of my friends did the same thing. Don’t be that guy.

You can get out of debt, only when you decide that you really want to get out of debt. If you put other things before getting out of debt, you will never get out of debt.

Another important thing I found out during my financial crusade was that the little habits I originally thought weren’t that dangerous were in fact really dangerous. Think of it like this, if you pay something EVERY month, you really have to be 100% certain that you absolutely need that. Otherwise, it’s not “just $5”, it is at least “$60” (x12 / per year) and once you calculate in opportunity cost (if you invested those $60 dollars elsewhere), it snowballs into a much larger problem or should we say opportunity. This is especially important if you are an entrepreneur. $60 spent elsewhere is $60 that wasn’t invested in your business. Some may say, $60, that’s nothing. A few years ago, I would agree with you 100%. But now I know my customer acquisition cost (CAC), and I can tell you exactly how many clients I could get with $60. I could also tell you our customer lifetime value (CLV), and how much exactly we didn’t make because the measly $60 was spent elsewhere…

I don’t want to say quit smoking and invest the money in a tobacco company, but if you do the math yourself, you could get a compelling reason to do so. Obviously, you’ve decided that smoking means more to you than financial freedom, which is totally OK if you’ve accepted this as your destiny. I am using this example only to explain the root of the problem. You can get out of debt, only when you decide that you really want to get out of debt. If you put other things before getting out of debt, you will never get out of debt. Some of you may be asking, can I get out of debt and still indulge in that one thing I love to enjoy the pleasure of? Sure, you can, but you will probably have to cut off something else so that you at least start to spend less than you earn.

Recently I listened to an audiobook on personal finances, The Total Money Makeover, by Dave Ramsey. Watch the video below to see what 5 takeaways I got from it.

If you are watching this video, and reading this blog post I think we can both agree life isn’t so bad. You can afford a device with Internet access. Billions of people don’t have this privilege and opportunity. Earlier I mentioned $60. What if life was such a struggle that $60 sounds like a lot of money? I hear you. I’ve been there! You have to start somewhere, and the next best thing after money is time. You have to be careful how you spend time. Think of it like budgeting your time in a day, or in a month. If you keep spending time with the same people that aren’t going anywhere, guess what the chances you won’t go anywhere either are? Exactly.

You have to spend quality time improving your skills (books, courses, seminars) and looking for opportunities (networking, cold calls, brainstorming business ideas, sending CVs). If you are not spending at least 8-12 hours per day on these activities (when you are tight on cash), you won’t get far. Again, the same problem with finances, if there’s something more important than getting ahead in life (like playing video games), you aren’t going anywhere. I don’t have anything against you if you are playing video games (I was once like that myself) but five, ten, or twenty years down the road I can almost guarantee; you aren’t going to be happy.

In closing, I can say that getting out of debt is easy once you find a good reason for it. As I mentioned before, once you put getting out of debt on the top of your list, you will find a way. Why? Because the recipe is so simple, it sounds stupid. Spend less than you earn. Don’t buy the stuff you don’t need, sell stuff you don’t need, increase your income, save and invest the difference. That’s step one. Within one year, you can be clear of debt and ahead of the majority of people living around you. Maybe you are going to drive an old car or have to rent an apartment (car and a home are the biggest purchases most people will ever make), but this is secondary! Getting out of debt, in my opinion, needs to be your number one priority!

Fourteen ways to get out of debt

1. Sell stuff that is lying around the house and / or in your garage and attic
2. If you are an entrepreneur, increase your revenue by: raising prices/providing more value, increase the frequency of purchase from current clients, get more clients
3. If you are not an entrepreneur (become one, at least part-time – check job opportunities on Upwork, Fiverr ) or ask your employer how you could provide more value so that you get a raise
4. Track how you spend time and money. This will give you a great clue where you are making mistakes
5. If you don’t have time for the first 4 advices, stop doing one of the most unproductive activities in your day, and do any of the first advice listed here
6. Set a written budget, do whatever it takes to know how much exactly you can spend on each category, and whatever you do, don’t cross that budget
7. When you set your budget, include: emergency saving, debt payoff, donations (if you are not way-way-way in the red). Giving any amount of money that helps someone or something you care about, will fill your heart and give you energy to proceed on your crusade.
8. If the debt is huge, you have no choice but becoming an entrepreneur. As long as you are changing time for money (working for a paycheck) it will take you a very long time to payoff your debt
9. Don’t take new debt to refinance the old debt unless you absolutely know what you are doing. Since you are here, I’ll assume you don’t so I’ll advise you to not to get a new loan. I also made the same fatal mistake few years ago! I got a loan, to clear my overdraft debt. A year later I had a loan to repay, and I was again deep in the overdraft.
10. If the temptation is to great, eliminate it completely! If you can’t control your credit card spending, cut the credit card. If you can’t control your overdraft, call your bank to cancel your overdraft.
11. This one is tricky. If you have already sold everything you “don’t need” it’s time to rethink what you don’t need. Do you really need a tablet if you have a smartphone? Do you need a DSLR if you have an expensive smartphone? Do you need to watch Netflix, or should you work on improving your skills?
12. Once you gain momentum or you get out of debt, resolve to never make the same mistake! Take note of the changes that set you free, keep repeating those actions, and never repeat the mistakes that got you here in the first place!
13. Stop paying stuff with credit cards, or with 6-12 months “easy pays”. It’s very hard to control your expenses like that, and especially if you are in debt. If you really, really, REALLY need to buy something, sell something else, increase your income and talk with a third party to help decide if you really need this thing you can’t afford.
14. Get everybody under your roof to be on the same page! If your spouse spends whatever you saved, you will soon be in debt, or single.

What I learned after tracking my personal finances – for 30 months

Most of the time, I am writing about buying domain names for your new or existing business, when really your business and domain name investments don’t stand a chance if your personal finances are wacky. I already wrote about the impact of personal finances on your startup. I certainly made the same mistake, and that’s definitely one of the reasons why I wasn’t able to cash in on the four-letter .com domains back in 2012 when I raised a lot of attention with WhoAPI research that found we were out of four-letter .com domain names.

I’ve been planning on writing a “personal finance” post for some time now, but I was hesitant because most of my friends and readers know me as the “domain and web hosting guy”. I was also hesitant because a lot of people have several “startups” and often, when I write about something that’s not directly connected with WhoAPI someone asks me if I gave up on WhoAPI and what this new startup will be about. Geez… So relax, there won’t be a pitch at the end of this post, and I am still 100% committed to WhoAPI.  Anyway, I became very passionate about personal finances at a low (financial) point in my life. Ever since, I’ve read several books on the topic, and more importantly, I took action! Looking back, I am extremely happy with the progress I’ve made since. Hopefully, this story will motivate you to take action, and also provide some valuable steps. For me, it all started with a Jim Rohn seminar on Youtube…

The sentence that improved my financial destiny

I was looking up Jim Rohn on Youtube, and I found an old seminar (video), and during the seminar, there was a part about personal finances. Jim Rohn joked about it how some people “don’t know where it all went,” alluding to the fact that the person who isn’t aware of his expenses can’t really run a business. I felt ashamed because, at the time of watching this video, I also didn’t know “where it all went”. My bookkeeper tracked all the company’s expenses, and she was mad if I was late or failed to send an invoice when we purchased something with the company’s money, but I never tracked my personal expenses. Now bear in mind this was a few years ago, and the story has a happy ending since I’ve changed so much. (Side note, if you are a startup founder and you struggle with your personal finances, but don’t think these two are connected, I recommend my post on “Impact of personal finances on your startup“). What really started my financial renaissance weren’t fancy cars or yachts or positive thinking. It was the fact I hated that I didn’t know “where it all went”!

I decided to make a move on my personal finances because my startup was falling apart at the time (I promised a happy ending, so yes, I saved my startup), I was in debt (credit cards, 2 bank loans)! I remember a while back, I heard about a book about a past client of mine Financial Renaissance by Sanjin Frlan, and I got some pretty good tips there and I was able to use them. More importantly, I got obsessed with “tracking where it all goes”! And as another personal finance expert Robert Kiyosaki says, I started treating my personal finances as a business. More than 3 years ago, I started collecting every single invoice for every single expense I made (both business and personal). I am still doing it to this date. Yeah, I am crazy… Crazy about getting out of debt, and crazy about saving some money so that I don’t end up broke like more than half of the planet I am living on! That’s crazy if you ask me…

10 things I learned after tracking my personal finances for 30 months

1. Spend less than you earn
   Wow, what a revelation, I know. Probably the best financial advice that absolutely everybody knows, but almost everybody ignores! After tracking all my expenses and income after first few months, I quickly realized I was spending more than I was making! It was time to increase my income and reduce my expenses fast!
2. Habits and subscriptions are a bigger problem than one time large purchases
   Before tracking my expenses, I thought that if I stayed away from large purchases, I would be OK. But once you see the numbers crystal clear, it makes total sense to you. Jim Rohn said it best, “Success is a numbers game”. Details might be different in your case, but for me I realized I was losing way too much money on habits (cafe bars, coca-cola + chocolate) than when I was making a large purchase. I stopped drinking Coca-Cola (it’s bad for my health anyway), and I reinvested that money into customer acquisition for my business (win-win). This also goes into “opportunity cost”. If you are an economics major you probably know what this means. I am not, so I had to find out on my own. Wasting money on expensive coffee every day of the year could be instead reinvested in a Vanguard Index fund with an 8% return. The story goes that you lost $800 dollars per year on coffee, but if you invested that $800 in that fund, you would probably have millions in a few decades. That’s opportunity cost.
3. Psychology plays a huge role
   Do you think you are in charge? If you don’t have any money saved, you are not in charge. People mostly buy things they don’t need to impress the people they don’t like. Do you really need to get a new iPhone every year? How about your smartwatch? How about your perfume? How about that $2000 Louis Vuitton bag? I am not saying you should live like a Buddhist monk. I am saying plan your purchases and purchase only the things you will adore using every day, or at least every week! Even more importantly, invest in “something” that will increase your cash flow or create a secondary passive income. Hint, you could look into website investing.
4. Tracking your income is equally important
   If you have several sources of income or several startup projects (oh no…) then you need to track how much profit or income you are paying yourself from these sources. After a few months, it will become crystal clear where you need to focus and spend time. This will also show you what is a hobby, what is your business and what is a complete waste of time.
5. Separate your personal finances from your business
   This probably makes total sense, but I made this mistake early on and tracked business and personal expenses in the same sheet (because it was easier for me), but I improved this as soon as I got the opportunity. Track how your business is doing, and track how you are doing, just do it separately.
6. Married? Track your spouse’s finances as well (or ask that they track it themselves)
   Words can’t begin to describe how happy I am with my wife on topics of personal finances. Finances, or should I say money problems are one of the most common reasons for divorce (article 1, article 2, article 3, article 4). You can track and save all the money you can, but if the other side is on the wrong side of the equation, you will either be broke or single. It is extremely important that all the members of the household are on the same page when it comes to personal finances.
7. It makes sense to start saving, even if you are in debt
   Why? Because habits are extremely powerful. Once you get that habit of putting that loose change in the piggy bank, there’s no stopping you. But don’t forget, at the same time, you need to eliminate your debt! Imagine you are Neo in the Matrix and loans start flying at you like the bullets. Just say no, and stop them. In Croatia, besides a typical loan, banks often offer overdrafts that allow you to take as much as 3 times more money than your monthly paycheck. Once I understood interest rates on those overdrafts and on the credit cards, I renamed those services: “Highway to hell”. If you are paying for those services (and I know you are paying for them probably every month, then checkpoint #2 once more).
8. Budget is the king
   Set your budget and stick to it, or at least give it your best effort! If you don’t know your “restaurant budget” for this month, what do you think are the chances of you missing that budget? Combine that with every other expense you can think of, and you have a recipe for disaster!
9. Custom is better than a template
   Although I will give you two templates for tracking your personal finances, keep in mind that the best template is the one that you will use. For example, I might have created an expense box for traveling, while you might want to create a box for “John’s college” or any other priority. This is something that needs to evolve over time as your life changes.
10. Lastly, contribution gives meaning
    Being able to contribute money to a cause or a family member in need is far beyond any words can describe. I’d rather not go into the details of my contributions because I don’t do them to brag or to be significant. I do them out of love, respect, and compassion. Both my wife and I give away almost 10% of our profits every month and every struggle we have is worth the opportunity and privilege of helping someone. Giving away without expecting anything in return truly is the greatest gift you can receive.

Two excel sheets you can choose from.
This is an old version of an excel sheet I created – https://docs.google.com/spreadsheets/d/1lHiT-0XDA5YIbCBOsD2z3z7UqjKv1BRfOKMuCSs7H-E/edit#gid=0

This is a Google spreadsheet template – https://docs.google.com/spreadsheets/d/14IpBxrUlJ2T6SycnbXDVH2FLk1wEEHmvEGZBH83daLw/edit

Whatever works better for you, start using it today!

I hope this was helpful and that you start eliminating debt today and start saving some money. Your future YOU and your community will be very grateful. As for me, I’d rather not disclose how much money I saved, but I can tell you it’s the most I have had in my life! Not to mention I have no credit card debt or loans (for the first time in my life)! To think that it all started with that thought that provoked me beyond reason! I was sick and tired of being sick and tired! “I don’t know where it all went!”.  Remember, you don’t need more money to start saving, you need to start managing the money that you have and life will reward you! It will happen during that process, you will start eliminating debt, start saving money, and get new ideas on how to make more money!

If you liked what you’ve read so far, I recommend watching this video where I talk about 5 takeaways I got from listening to “The Power of Ambition” by Jim Rohn. Spoiler alert, Jim Rohn talks about some of the same things in this audiobook, so one of the takeaways is that same sentence that took me on a journey of financial freedom. “I don’t know where it all went”.