A lot of talk around entrepreneurship is focused on the tips for growing a business, money making strategies, and other related matters. However, anyone who’s ever set up a business from scratch will know that the first few months can be hard on your personal finances.
Unless you get really lucky, you don’t start your business on day 1 with a queue of customers (literal or metaphorical) ready to spend large sums of money. Instead, you will likely have to fight to acquire the customers that you do get.
During the first months and even years of your business, you will likely not pay yourself very much either. Instead, you’ll retain as much cash as you can to help your business grow, in the hopes of being rewarded for your sacrifice in the long run.
So while you’re going through this period you need to find ways to slash your personal spending as much as possible. Reducing your personal “burn rate”, the speed at which you spend money, can be difficult if you’ve never had to do it before. So here are some tips.
If You Don’t Need it, Don’t Buy it
This may seem like a simple idea, but it’s something many people struggle with. If you have gone from having a large disposable income from a salaried job, you’ll likely be used to going into shops and just handing over cash for things that you like the look of.
Instead, you’ll need to start asking yourself “do I need this?” as you stand there in the shop. Apart from basic foods and other essential groceries, the answer is usually no. You may have to slowly wean yourself off discretionary spending at first, especially if you used to enjoy a shopping spree.
Start making do with old clothes, keeping them until they wear out. Keep your existing phone; you don’t need a brand new smartphone every two years. Cut expensive TV subscriptions, and cut back on your travel.
Trade down from premium brand products to store brands. In the UK, the Money Saving Expert website calls this the “Downshift Challenge” and claims that it could cut your spending by 30% every year. You’ll often find the quality is similar, if not exactly the same too.
Use Vouchers, Coupons, Discounts and Cashback
In addition to not buying things you don’t need, using vouchers, coupons, discounts and cashback to get the things you do need for even less money is going to lower your burn rate even further.
Some supermarkets may offer weekly savings on different staples, so be prepared to be flexible with your shopping list a little. For example, if you planned to buy cherry tomatoes, but plum tomatoes are 30% off this week, buy the plum tomatoes - they’ll work just as well in almost all recipes.
You can also find coupons to get free or significantly discounted products. You should continue to only buy these products if you need them, but you’ll regularly find discounts on common household items and food products.
You can also find vouchers, discounts and other promotions from many other businesses. For example, online casinos often offer free spins, no deposit promotions, while online travel sites often have loyalty programmes that let you earn free hotel stays.
Finally, a cashback credit card can be a great way to get some extra money back on your spending regardless of what you’re buying. Cashback rates have recently been slashed in Europe because of changes to legislation about the fees card companies can charge businesses; however, elsewhere in the world you can still get 1-5% cashback on your spending.
Bulk Buy When There Are Discounts
There are few times you can increase your buying power by 50%. If you invest in a leading stock market index over a long period, you can expect an average annual return of about 8-10%, while if you put your money into a savings account, you’ll likely earn less than 1% per year in interest.
However, you could increase your buying power by 50% if you find toothpaste is half price in a sale in the supermarket. Products that don’t spoil, like basic toiletries, dried foods, and even herbs and spices can be bought in bulk when they’re cheaper.
Using tools like camelcamelcamel.com to track the prices of products on Amazon could allow you to spot when there are big price reductions and stock up so you have enough to last you until the next sale.
There are also social media groups and dedicated sites filled with people that share these types of discounts. For example, in the United Kingdom, Hot UK Deals has millions of members that share deals and promotions with an app that alerts members to the “hottest” offers via push notifications.
Keep Some Fun Money
While it may seem counter-intuitive, while you’re trying to save money it is also important to keep some money set aside for you to enjoy yourself. It can be stressful as an entrepreneur of a new business, as you are responsible for your own livelihood, and the livelihoods of others.
Saving money can also be stressful, and when it isn’t it can make your life seem more boring. This is why having some fun money set aside in your budget each month is important.
This money can be used for a night out with friends, going for a meal, buying a new gadget, or a trip to the cinema. Keeping these types of activities in your routine can help look after your mental health and maintain your social life, both of which can take a hit when you’re starting your own business.
These tips can help keep you from running out of cash while you get your business off the ground. However, they can be difficult to follow over long periods of time. So when you’re struggling, remind yourself of why you’re doing it and why reducing your burn rate will help you to make your business successful.
After all, your business will only make it if you can sustain your focus and energy on it.