There are many reasons people develop health risks due to mental health problems. One of the biggest is anxiety over their finances. This is why we emphasized there are a lot of health benefits associated with being financially stable.
How important is financial stability to your mental health? The answer is that it is huge.
A 2022 study by Bankrate and Psych Central found that 42% of people had mental health issues due to stress over money. This figure can get a lot worse if the economy goes south.
Entrepreneurs are particularly prone to dealing with mental health issues caused by financial anxiety. They have more variable incomes, which means that they have to deal with the stress of not knowing how much money they will make month to month. The good news is that there are tips they can follow to improve their financial stability, and therefore their well-being.
How Entrepreneurs Can Minimize Stress by Maximizing Financial Security
Earlier this year, the Journal of Family Economic Issues found that there was a strong correlation between financial worries and mental distress. This in turn leads to a higher risk of physical illness, since stress harms the immune system.
Therefore, entrepreneurs need to take the right steps to help improve financial well-being. As an entrepreneur, we strive to improve ourselves by sustaining our businesses and creating opportunities to make new endeavors. However, the biggest roadblock in making your endeavors self-sustaining is keeping your business financially stable. Understandably, it takes expertise in financial planning to maximize your assets and create long-term wealth.
So, in this article, we’ll share the best practices in financial planning fit for many entrepreneurs. Whether you’re a startup or an established businessman, these tips can help you realize your dreams while keeping your expenses manageable.
Track Your Finances on The Regular
One thing to keep your finances on track is to maintain financial management protocols. It would help equip your business with financial-savvy experts and software tools to record financial transactions. Credit history, invoices, investments, and more are a few of the variables you need to keep in mind regularly. Keep those documents and organize them so you realistically see your finances.
Maintaining this practice can help you address excessive expenses better with each evaluation. For example, most businesses do quarterly reviews with executives wherein they assess their spending, compare thoroughly with previous records, and make efficient choices. Further, this can naturally help streamline long-term records of your tax filings annually. From here onwards, your finances and tax deductions can be processed without much effort.
Build a Dedicated Company Bank Account
One of the simplest ways to improve your finances is to separate your personal and business bank accounts. This is because having a dedicated account for business finances lets you procure a more precise record of your company’s spending and revenue.
Additionally, this can simplify your financial structure since most of your documented financial records, business deductions, and taxes are kept in your bank. Moreover, it differentiates your personal spending and business expenditures better.
Overall, not only does this practice make your business more legitimate and streamlined, but it also shows your future investors that your business is well-managed in financial processes.
Think Twice When Taking Business Loans
All experienced entrepreneurs know that maintaining a consistent and robust cash flow is challenging, especially if you’re starting a small to medium-sized business model. That’s why most of us refer to business loans as they are accessible to most digital and traditional banking institutions and often tailor-fit to your business model.
Undeniably, business loans are a great financial lifeline to scale up and sustain your business. However, if you’re not careful, it can be a liability over time. To understand the risks of business loans, remember that existing loans in the business can often impact the ratio of your earnings and expenses throughout the year.
The bigger the loan you’ve acquired, the more resources are allocated towards paying them on time, especially if you want to scale up within a time period. Nevertheless, always think twice about business loans, and make sure you have the knowledge and business capacity to handle one responsibly.
Be Realistic of Your Expenses And Earnings
This is often the problem with some aspiring businessmen: understanding the actual business costs. For some of us, it can be easy to conceptualize a business model without evaluating the costs of managing it. That’s why we see so many attractive startups only failing within a few years. That said, you must try to research the costs of financing it.
This is especially true for small businesses, as most are less likely to have the assets to drive an aggressive growth plan. It might be best to slowly build up your business, evaluate your business holistically, and be aggressive when the business affords the risk. At the very least, when the new endeavor or innovation fails, your business can recover and maintain its finances.
Point Out Key Financial Expenses
This point is beneficial if you already have financial management software. In a business, there are vital variables or expenses in every financial record; you can always add, separate, and categorize other expenses, but the more you have, the more complicated it gets.
To keep it simple, identify your company’s fixed and variable financial drivers. Fixed expenses are, for example, utilities or employee compensations, while variable drivers are those that are not fixed, like marketing budgets, maintenance, and office repairs. After that, adjust your variable drivers to reduce your overall expense or make adjustments to meet other business needs.
Always Forecast and Predict
While collecting financial and research data takes time and effort, having excellent forecasting to predict your upcoming expenses and revenues is advantageous. Through this, you can build up and prepare for these predicaments that your business can capitalize on.
In other words, this practice lets you prepare ahead and keep your business future-proof. It signifies that a business is thriving and has growth potential.
Improving Financial Stability Can Boost Your Mental Health
Financial management is one of the most critical components of building a business, and it is a powerful asset that allows you to acquire resources for growth and protect your business from economic threats. This can be a surprisingly effective way to help mitigate stress and anxiety.
That said, the practices mentioned above are just some of the most effective practices most established companies do. If you are starting in entrepreneurship, take note of these practices as a successful businessman is not just a visionary but also an excellent financial manager.