There’s a specific step every entrepreneur needs to take that isn’t talked about nearly enough.
The news likes to cover the “overnight” success stories like Facebook buying Instagram for a billion dollars or Angry Birds selling millions of copies, but they don’t share the key first step that the people who built these stories took.
So, what is this secret phase that almost every successful entrepreneur has gone through, but that no one cares to mention?
Keep reading and I’ll tell you.
The First Step Towards Entrepreneurship
You might think that all entrepreneurs are generally risky people. You picture them:
- In Vegas putting all their chips on red and letting the roulette wheel spin.
- Speeding sports cars down the highway, dodging between traffic.
- Constantly jumping off of things with parachutes attached to themselves.
From what I’ve seen, that couldn’t be further from the truth.
Recently at the College Investor, Robert asked five highly successful bloggers about how they made the leap to self employment. The trend in the answers below may surprise you.
- Pat Flynn had a $12,000 emergency fund when he lost his job as an architect, before he started Smart Passive Income or even earning money online.
- Leo Babauta saved up two months worth of expenses before he took the leap to work on Zen Habits full-time.
- Sam from Financial Samurai saved up 15 YEARS of expenses before making the leap to semi-retirement/self-employment.
- David Risley always keeps his emergency fund high with investments in both cash and gold.
- And our own Corbett Barr worked in the corporate world for close to a decade while amassing savings that he could have lived off of for a few years.
If you are sensing a trend, that’s because there is one.
Most successful entrepreneurs got their financial shit together before they ever made the leap.
Why Is This?
The reason that entrepreneurs need to have their personal finances in order before they start taking risks is the freedom and flexibility it offers.
When you aren’t spending every waking moment worrying about making ends meet or paying off your debt you free up energy to tackle your bigger problems:
How are you going to make this world better through the work that you do and how are you going to get paid handsomely doing so?
When your own money is not an issue you stop thinking about fixing your own problems and start solving other peoples’ problems (which is the basis of most businesses).
Not Everyone Gets Angel Funding
It is hard enough to bootstrap a profitable business from the ground up when you have capital to work with, but when your own finances are in ruin, it can be close to impossible to turn a profit.
Yes, there are businesses that you could start on the cheap, but most are going to take a decent amount of cash to get off the ground and even more to actually start earning a living from them.
And eventually you’ll want to make the leap to work on your business full-time. This will probably happen before the business can support you entirely. Without a safety net, this won’t be possible, and you may never get enough momentum to push your new business over the hump to success.
I’m sure you could easily list ten things you’d like invest in that would make your website or business bigger/faster/stronger/smarter that you haven’t bought yet because you can’t afford to.
Well, there is just one piece of advice I have for you: do something about it.
What You Should Do About Your Money Woes
If you want to turn your personal finances around there are four simple steps to take.
You have to become educated. Money is one of the most complex and intimidating aspects of life. Not learning how to manage your money before you build a business is like not knowing how to drive a car and then going on the German autobahn. Prepare for flames.
When I started my first full-time job after college, I was deep in student loan debt and was suddenly making more money than ever before. I spent a bunch of my free time learning about saving, investing, and earning. Without that foundation I would have never gotten out of debt or been able to leave my unfulfilling corporate gig.
“Anyone who stops learning is old, whether at twenty or eighty. Anyone who keeps learning stays young. The greatest thing in life is to keep your mind young.”
– Henry Ford
Action #1: Pick a new personal finance resource this week to start learning from.
Planning is the step that most people quit on. There are thousands of personal finance books, blogs, and podcasts but they often don’t tell you where you should start.
Does debt come first? What about saving? How can I earn more? What in the world is an IRA?
This why I created Make It Rain, which I’m launching today. It has ten weekly plans, each with ten action steps for you to turn your finances around. You don’t have to spend time deciding what you should do to get a handle on your money because it is all right there for you.
Action #2: List the specific problems you have with money and pick one to tackle first.
If you don’t take action, steps one and two were a complete waste of time.
“An ounce of action is worth a ton of theory.”
– Ralph Waldo Emerson
Unless you start changing your spending and saving habits your plan will fail. Use either physical or mental hacks (such as freezing your credit card in ice or using a 30 day “wait to buy” list) to keep yourself from spending all of your discretionary income.
Action #3: Figure out your five worst spending habits (big or small) and quit doing them.
4. Become an Expert
Here at Think Traffic we’re huge fans of becoming an expert at things and personal finance is no different. Once you get past the basics of how to manage your money and get a handle on the pyschology behind it, there are plenty of advanced tips and tricks that you’ll pick up.
One of the “pro tips” I mention in Make It Rain is that the specific retirement funds that you invest in, such as an S&P or International index, through a 401(k) or a Roth IRA all have management fees associated with them. Investment firms will try to get you to pick their funds that are highly “managed” by actual teams of employees, but these will have much larger fees on them. Some as high as 3% or 4%.
This fee eats directly into any return on investment you get, but it is also charged even if the fund loses money! The alternative to this is to go with funds that have low fees like the low-cost funds at Vanguard (aim for less than 0.25%).
Be on the lookout for money hacks like this to maximize your savings over time.
Action #4: Look up all of the fees associated with the investment/retirement funds you have and switch to options with lower fees.
Do It For The Freedom
If you are completely overwhelmed by money or even if you’re on the right track, I challenge you to take a hard look at your finances more often than you do now and make the decision to improve them.
Whether you use a course like Make It Rain or some other resource, give your financial life the attention it deserves.
It will not only help your personal life; it will give you more freedom to let your website and business grow too.
Do you agree that aspiring entrepreneurs should fix their own financial problems before they start a business? What personal money issues keep you from investing more (time or money) in your own business?
Tell us in the comments, we’d love to hear your answers.
The Top 10 Mistakes in Online Business
Every week we talk with entrepreneurs. We talk about what’s working and what isn’t. We talk about successes and failures. We spend time with complete newbies, seasoned veterans, and everything in between.
One topic that comes up over and over again with both groups is mistakes made in starting businesses. Newbies love to learn about mistakes so they can avoid them. Veterans love to talk about what they wish they had known when starting out.
These conversations have been fascinating, so we compiled a list of the 10 mistakes we hear most often into a nifty lil' guide. Get the 10 Most Common Mistakes in Starting an Online Business here »