How To Save Money To Start Your Own Business

So you have decided to make the switch from being an employee, to owning your own business. Congratulations! This is huge! Now what? We would not recommend quitting your job just yet. Starting a business almost always costs money. It can be hard to know where to start and how much you need to be successful. Keep reading for some tips on how to save money to start your own business.

How much money do I need?

When planning how much money you need to save, be sure not to sell yourself short. Don’t stop saving when you have just enough to “buy” the business. You will need so much more than that! On top of the initial expenses that come with starting a business, you will also need to consider operating expenses like payroll, taxes, and rent. Additionally, it is a good idea to set aside 6-12 months of personal living expenses to cover you until your business starts turning a profit and generating a reliable income. 

There isn’t a perfect formula for launching a business. Sometimes they start as hobbies and gradually mature into something much grander. Other times, they start as formal ventures and end up pivoting into something else entirely.

Different strokes work for different folks, but there’s tremendous value in cash flowing a business and avoiding the weight and burden of debt on the front end of your venture. But in order to fund your own business, you have to overhaul your savings habits and get a better grip on your financial situation.

Here is a five-step plan to help you start cutting costs, save money to set you up for success, avoid getting overwhelmed, and get your business up and running as soon as possible.

Step 1: Get Rid of Your Debt

Let’s start with the topic nobody wants to discuss: debt. We all seem to have it, yet very few of us ever directly confront it until we’re in over our heads.

Whether it’s student loan debt, car debt, credit card debt, a mortgage, a personal loan, or anything in between, we all have it. Run a quick calculation on all of your monthly payments. If you’re like most, you spend hundreds of dollars (if not thousands) per month on debt payments.  Now imagine what you could do if these debts were gone.

When you get rid of debt, you’ll feel like you got a raise. Suddenly all of that money that was going towards repaying a debt can be put towards something else — like startup money for your business.

Step 2: Start Budgeting

Budgeting is a vital component in the success of any business. If you haven’t started a budget yet, now is the time! There are several ways you can do this, from an old-school pen and paper system to using budgeting software that lets you manage your personal costs in addition to your business finances, to keep tabs on your various sources of income all in one place.

Cutting your discretionary spending goes hand-in-hand with budgeting and getting rid of your debt. Between eating out, online shopping, grabbing drinks on the weekend, and buying things you don’t really need, you should be able to come up with a few hundred dollars per month. Over the course of a year, this can add up to a considerable chunk of change.

Step 3: Build Up an Emergency Fund

Before you can focus on cultivating startup money for business, you must build up your own cash savings.

As mentioned above, you should set aside at least six months of living expenses before quitting your day job and running a startup. That’s because it’ll take a while — at least six months — before enough money comes in to begin paying yourself a salary. (In many cases, it’ll take more like 12 to 18 months, so the more you can save the better). 

If you can’t build up a sizeable emergency fund to pay the bills, you’ll need some other type of plan in place. For married couples, having the other spouse go back to work, increase hours at a current job, or add another part-time job will help pay the bills.

Either way, be sure you have enough money to live on, even if this means working your day job a little longer than you want to.

Step 4: Automate Savings

It’s easy to get so caught up in spending that you don’t even think about savings. Over time, this can have some pretty dramatic effects. And while there are plenty of ways you can deal with this issue, automating the savings process is one of the smartest options.

If you can find a bank that helps you automate savings, this is a good place to begin. In an article for Entrepreneur.com, entrepreneur Renzo Costarella calls ChimeBank.com one of the best money savings apps on the market.

“The mobile banking app also offers an automatic savings account, which allows you to start saving money without thinking about it by automatically setting aside 10 percent of every paycheck you deposit into Chime,” Costarella explains. “You can also enable rounding-up on your purchases and have the difference transferred to your savings every time you use the Chime debit card.”

Other good money savings apps include options like Digit, Clarity Money, Qapital, Mint, Acorns, and more. The key is to find a solution that takes you out of it. You are your own worst enemy and automated solutions like these will keep you grounded.

Step 5: Slow and Steady Wins the Race

When you first start your business, there’s a temptation to do everything at once. In many cases, this leads inexperienced entrepreneurs to tackle surface-level tasks (rather than the foundational building blocks that really make a business).

Marketing materials are the fun part of starting a business: choosing a logo, designing business cards, picking out graphics and colors for your website, getting business stationery, etc. Unfortunately getting caught up in colors and patterns doesn’t make you money. Yes, marketing materials are important but making money is more important.

By starting small and slow, you can avoid putting yourself in a compromising position down the road.

Now That You’re Making Money… Reinvest Profits

The final rule of thumb is simple in theory, yet challenging in practice. While your natural inclination is to start spending the money you make from your new business, it’s a much more sound practice to reinvest your profits. This will allow you to continue growing without needing to take on debt.

When launching a business, how you manage your money is one of the key factors that determine whether or not you’ll be successful. When you don’t have money saved up to start a business, you either have to table the idea for another day, give up equity in your startup, or attach a bunch of debt to your name.

Since none of these scenarios are ideal, it makes the most sense that you would change your personal finance habits and find a way to increase your savings. Follow these tips for how to save money to start a business and breaking into the world of self-employment.