We live in an era where most entrepreneurs assume that you have to take out a huge loan and go into debt if you want to make your business idea a reality. One of the biggest reasons for this is that we tend to assume starting a business requires a huge amount of money.
However, the reality is that this does not have to be the case. You can start a business with just a minimal amount in your bank and expand later on. Or the alternative would be to have enough saved so that you don’t have to take out a loan to cover the startup cost.
Different industries and different people might require a different set of cash flowing a business, but regardless, it is always good to avoid debt on the front end of your venture. To help you get to that point, here are 5 practical tips to build up your savings to launch your own small business:
1. Figure out where your money is going
The very first step to better wealth management is to know where your money is going. There are apps such as Spendee and Expensify which helps you do this exact thing and categorises it for you.
What this does is that it will give you an overview of where you’re spending more than you should. Once you have this picture, you will be able to gauge the areas on which you can cut back on. For instance, if you’re spending RM300 per week just eating out, that will tell you that you should lower the frequency of doing that. What is being saved here will then go into your business fund.
2. Reduce the “fixed expenses”
Your fixed expenses are the things that you pay the same amount for every single month. For example, your Netflix subscription, Spotify, a club membership, maybe even your cell phone plan or Internet. What is not included, however, is your utility bills and credit card rates.
If we’re being honest, we don’t really have the time to enjoy that many subscriptions, especially with our busy lives and the fact that there are other free alternatives. That’s the first way of lowering it—unsubscribing to the ones you don’t use. The other way is to find another company that offers the same product and switch over. You might be surprised how fast these little differences can add up.
3. Automate your savings
Open up a savings account solely dedicated to storing your funds for your startup and de-link it from your other accounts so that you’re not tempted to dip into this fund. Then, set up an automatic transfer to this account every time you get paid. If you want to take this a step further, look for those saving schemes that do not allow you to withdraw the money once it’s in the account.
Using automation or budget management apps take a lot of the annoying work out of your hands and keeps your itchy hands away from sabotaging your own finances. It is an amazing way to save for your financial goals even if you’re not starting a business.
4. Cut discretionary spending
There are only a handful of strategies to use when it comes to trying to build a fund on a limited income. One of them is to slash your discretionary income and direct that money towards this specific fund. Identify the non-essentials you can spend less on them.
Not just discretionary spending, there is also a thing called discretionary income. It might come in the form of work bonuses, tax refunds, or even cash gifts. Don’t spend them straight away, instead, send them directly to your business fund account. You didn’t need this extra money to start with anyway so you might as well save it.
5. Save with a goal
Here are 5 reasons why you should save with a goal:
- Allows you to create a realistic plan
- Allows you to track progress
- Forces you to prioritize
- Create accountability
- Give you a reason to celebrate
Maybe you want to get out of debt. Maybe you want to retire at 50 to work on your passion projects. Maybe you want to stash some more money onto your emergency fund. Or maybe you want to start that business idea of yours. Every action starts with a goal. Let that goal give you a direction and a sense of purpose for what you’re doing.
And once you’ve reached your goals, allow yourself to celebrate because you deserve it!