As an entrepreneur, you can either pay yourself or your business first. The lines are often blurred. Many business owners work at home, drive around and take calls on the road. How many of those expenses we categorize as personal are actually business expenses? A lot of them.
I see many business owners make mistakes of buying lavish homes and expensive cars. Much of this stuff is often bought on credit. Anything bought on credit is not truly an asset unless it has appreciated in value or you have paid enough down fast enough to where it has some liquidity if sold.
It often makes sense to buy your house on credit if you have a family, but you should not be overzealous. A car that costs $2,000 and one that costs $200,000 both serve the same purpose: to get your from point A to B. The only reason to get a nicer car is if you have some sort of brand to live up to.
For example, many people would not trust a lawyer that pulls up in Saul Goodman’s yellow beater. A lawyer should have a car that represents them well. Still, you don’t need to spent a shit ton of money to gain respect. Your product and service should do the talking.
The Beginning of Your Company & During Hard Times
If at all possible, you should work for free and reinvest back into your company both during hard times and especially at the beginning. The more money you put back into quality employees, contractors, marketing and product development, the bigger your company will be in the long term.
Many new business owners will take money from their company at the first hint of profit and positive cash flow. This is a big mistake. You should reward yourself for your hard work but it needs to be strategic. The more you can feed and diversify your investments, the better things will be when your company hits inevitable downturn. You should always hedge any investment, especially those that aren’t that liquid.
Think about what you really need – food, somewhere to live and good people. I’m not asking you to be a minimalist, instead be strategic with your expenses and how you pay yourself. Its better to take a small side job such as Uber or Lyft than to rob your business of all its cash as soon as it comes in.
I highly recommend you watch the below video “How The Economic Machine Works” and order the book Principles by Ray Dalio.