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Helpful Hints for Personal and Business Life

You may try to keep your personal life and your business life separate, but they’re bound to overlap, sometimes in surprising ways. Case in point: Two basic principles for managing your personal finances also apply to managing your business.

Before you start divvying up your paycheck to pay bills and spend on other things, tuck some money away for financial emergencies and for your future. Paying yourself first may be difficult in the beginning, but you’ll soon adjust. Make it as easy and as invisible as possible by arranging to have money transferred automatically from your paycheck or checking account to a separate savings account, an investment account, or a retirement account. If you have access to a 401(k) or similar tax-deferred plan, it’s a good way to put your retirement savings on autopilot.

The business version of pay yourself first is to put money into a “profit account” before you spend it elsewhere. As money from sales comes in, deposit a predetermined percentage in a separate account and leave it there. Out of sight, out of mind. Since small business owners generally make spending decisions based on how much is in the bank, having a profit account helps protect you from spending everything.

Diversification is the strategy of holding different investments and different asset types in your portfolio instead of putting all your eggs in one basket. It can help you manage your overall exposure to investment risk because asset classes often react differently in different economic climates.

The business version of diversification is also about reducing your exposure to risk, but here the strategy is to have a good mix of customers. If your company’s sales are dominated by one or two large customers, your business might be in trouble if you lose one of them. Guard against becoming overly reliant on one major customer by adding new customers and increasing sales to existing ones.