Entrepreneurship 101: 3 steps to take care of your personal financial plan

By Shlomo Freund

I’ve met an endless number of entrepreneurs in China perusing their dream. Typical startup life in China is called “996”. Meaning, working 9am-9pm 6 days a week and that’s the absolute minimum. 

China is ultra fast-paced and those entrepreneurs want to make it big, but what they forget on the way is their personal lives and within this their personal finance as well. Having a large pile of money in your bank after selling your company is not a good strategy to reach financial freedom. The percentage of startups that really makes it is tiny. What happens if it fails? 

A staff member works in a real estate agency in Beijing, capital of China, March 31, 2015.[Photo: Xinhua]

I’m not here to discourage. I’m an entrepreneur myself and been pushing myself to succeed ever since I started this journey a long time ago, but it’s the reality check that those entrepreneurs are lacking. 

Thinking and planning your personal finance is as important as planning and succeeding with your startup. You are your own CEO as well, not only of your company's

Here are a few steps you should go through.

1. Find your number - How much money do you need for you and your family when you’ll retire (at whatever age that would be). This amount is important as it sets yourself a goal. It doesn’t mean that you have to stop working once you’ve reached that, but it means that it’s enough for your personal life and can now choose to work and not have to work. It’s a different mindset. 

2. Calculate your net worth - The next step is understanding how far are you from that net worth number? Keep a monthly or quarterly track of that number. Are you making progress or getting further behind?

3. Find out what’s your cash flow each month by tracking your expense and income. If you are a positive cash flow then you obviously in a better position than if it’s negative as you are making progress. But you need to make sure it’s at a sufficient pace for your retirement plan. If it’s negative, cut down on expenses. Separate between the things you want and consume versus the things that you have to consume and get back on track.

Going through this process will make you better of most people. 

You might realize that you need to move to a smaller house or a different area in town to cut expenses. Or perhaps you’ll realize that you can save even more and retire earlier than you thought. It’s all a matter of choice and understanding what’s the meaning of our financial decisions. 

As an example, if you buy your coffee every day at Starbucks in China and that costs you 500 yuan a month, you might want to give up on that expense. Or alternatively, make a decision that this daily cup of coffee is what makes you a happier and more productive person and therefore willing to postpone retirement because of that monthly expense. 

This monthly expense can be a difference of the time you retire in an even a year and in larger ones even a more significant time, because of the compounding interest effect on the money you save. 

After going through those expenses you really understand the value of those decisions and can address those as needed. 

All this might be a different mindset than what you are used to but will prevent you from making financial mistakes you can’t fix later on.

(Shlomo Freund Is the co-founder of Free Financial self helping entrepreneurs reaching their financial goals and financial freedom)