I recently came across this Forbes article, which discussed personal finance tips for new entrepreneurs. Understanding how to manage money during any business endeavor is extremely important. If your finances are in bad shape then your business will likely be in the same position. Before you take on the challenge of entrepreneurship, this is what you need to know about personal finance in order to be successful.

1) Make Debt Reduction A Priority

Reducing debt is a really important step when it comes to taking control of your personal finances. It is important to begin paying down your debt because you risk damaging your credit score should you ever have a difficult time making payments on time. A poor credit rating could severely hurt your ability to borrow the necessary money you need to grow your business down the road.

You should focus on eliminating debt with the highest interest rates first. Credit card debt will usually carry the highest interest rates, so make this your number one priority. If you have student loans then these should be a close second on your list. If you have multiple loans, you should strongly consider debt consolidation. However, you need to do the math first to figure out what makes sense for you. Consolidated debt may be lower, but the repayment term is usually longer.

2) Scrutinize Your Spending Habits

Take a hard look at how you spend your money and why you are spending money on particular things. Were you borrowing money for your education or an investment? Or were you borrowing money to purchase a car or luxury item that loses value? Evaluating the way in which you spend your money is a fundamental way to get your personal finances in order. If you have any bad spending habits then now is the time to get these under control.

3) Start Building An Emergency Fund

An emergency fund is essentially money that’s been set aside to cover any of life’s unexpected events. This money will allow you to live for a few months should you happen to lose your job or an unexpected medical emergency arises. An emergency fund could also help your business through lean periods  when you might struggle to pay employees or suppliers. Your safest bet is to put money in an FDIC-insured savings account or money market account.

4) Start Thinking About Insurance

Nobody enjoys paying for insurance, but when you need it, it is extremely valuable. Health insurance is a must; you should purchase the best health insurance you can afford and consider adding disability coverage to your plan. Life insurance is also extremely important for both your family and business. Should an unfortunate event arise and you pass away, you will want to make sure your family will be able to meet their needs for the years to come without taking on any debt. The younger you are when you buy life insurance, the better. As an entrepreneur, you need to put in some time researching exactly what is right for your business and personal needs.

Main Takeaway

These principles should only serve as guidelines that can help you reach your goals entrepreneurship goals. There are many entrepreneurs who have built successful business while in debt or with poor insurance. If you approach your personal finances with the same rigor as you do your business, then you will be well positioned for success down the road.