What would you do if you went from making $60,000 per year to $500,000 per year or more, over the course of 12 to 24 months?
Logically, you’re thinking that you’ll pay off debt, save some of it. You know, “responsible” things.
Realistically, spending tends to almost immediately jump up to meet the new money supply, and after several months or a year (or more) of higher income you may look around and why your savings aren’t overflowing with extra cash. If you’re scratching your head right now wondering where your money is going, because you know you should have more of it to show for all your hard work, these next steps are for you.
First, let go of any guilt or shame around your money habits. It is incredibly common for people who were struggling to afford health insurance for their family just a year ago, or making just enough to cover the needs and afford a few wants here and there, to feel guilt and shame about not handling a large influx of money “the right way.” There is no need for guilt and shame, this is part of your learning journey. The faster you let those feelings go and take an objective look at your finances, the faster you’ll move to acceptance, excitement, and financial stability.
Second, take stock of what you’re earning and what you’re spending. If you get a paystub, print off the last several. If you take owner’s draws, print out the last several months of income into your business. Then, do the same for your spending. Look at your last few bank statements and credit card statements. Write it all down so you can see the incoming money and outgoing money side by side. Don’t make any judgements about whether you “should” be spending money on anything in particular, just take note of what’s coming in and what’s going out.
Third, list out your desires. Those desires might include paying off debt (credit cards, student loan debt, high interest rate loans, etc.), building up retirement savings, planning a special vacation, saving for college for your kids, or all of the above! Knowing what you are earning money for helps you channel your money into the right places. When spending is a free-for-all, it can feel like you’ve spent a ton of money and you have little to show for it, because you didn’t actually get what you truly desired. Working towards a defined goal makes saving money, and eventually spending money, much more satisfying.
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Fourth, enlist the help of both a professional wealth advisor and an accountant. When you’re an entrepreneur making multiple six-figures or more, especially if you’re in the first few years of managing that much income, you will save yourself a lot of time, money, frustration, and lost opportunity if you hire the right financial team to guide you as early as possible. You should be talking to people versed in small business tax and accounting needs, coming from both the wealth advisory and accounting sides.
It can feel like a dream come true when your hard work finally starts paying off, literally! Make sure you’re allowing yourself to fully enjoy the fruits of your labor and optimizing that income to grow both your business and your personal wealth at the same time.
Hannah Chapman is a Certified Financial Planner (CFP) and wealth advisor based in Cincinnati, OH providing financial planning and investment management for entrepreneurs and business owners from coast to coast. Sign up for her weekly newsletter for even more content on wealth building and entrepreneurship!