Start Right Logo

Woman standing in the doorway of her restaurant smiling


Getting Your Personal Finances in Shape to Help Your Business

You have a goal to start a business, and you have a business plan under way. But how do you know when you’re financially ready to move forward? How do you know if you can afford to go into business for yourself? You’ll need capital — or some of your own money — to start a business, but where will it come from?

Perhaps the best way to answer these questions is by looking at your personal finances. Your personal finances will act like a key that can open or close the door to your new business. If you’re struggling to meet your current obligations or using credit cards to supplement your income, you won’t be able to save any money to start your business.

What’s more, lenders and prospective investors will view the way you handle your personal finances as the best indicator of how you will handle your business finances. So if you have a personal history of mishandling your personal finances, they’ll assume you will do the same with your business. On the other hand, if you have handled your finances responsibly, lenders are more likely to work with you. Until you can prove the cash flow of your new business, lenders who might consider giving you a business loan will look at your personal finances. They will want to know whether you could repay a business loan with your current income and assets. What will you do to be sure you can pay back a business loan?

In short, strengthening your personal finances will strengthen your business. When your personal finances are solid, you can build a stronger, more sustainable business.

Find the Money

Finding the money to start a business can seem difficult when you are constantly paying for life’s unexpected expenses — like having a cavity in your tooth filled, buying yet another pair of running shoes for your son or daughter, or replacing the transmission in the family car. You can’t keep these types of things from happening, but you can plan for them.

Plan for the unexpected? How do you do that? It’s simpler than you might think. A written plan, or budget, will be your lifeline when things get tough. With a good budget, you will be able to pay for a blown transmission and dental work and pay all of your other bills. Your budget will also show you exactly where your money is going, giving you the freedom to decide if you want to keep spending the same way. Ultimately, a budget is the best tool you have for saving the money you need to start your business.

Budgets are vital, but they often have a bad reputation. People tend to believe that budgets are too complicated or too restrictive, too unrealistic or just too much trouble. Instead of viewing a budget as something that restricts you, what if you began treating it like something that can help you get exactly what you want? How would this change the process of budgeting for you?

A good budget is always based on what you want to accomplish with your money. Therefore, let the goal of starting your business inspire you to create a personal budget. Knowing that you want to set aside money for a business can empower you to make different choices with your money. You may find, for example, that you will decide to postpone making home improvements so that you have money to buy a business computer, visit an attorney or hire an accountant. If your refrigerator dies and you need to replace it, you may opt to buy one secondhand for now, so you can continue to save for your goal. Goals allow you to set priorities and make choices about what is important to you.

Tyler and Rachel had several goals — to start a family, to open a business and to buy a home. Both had just graduated from college with professional degrees. Soon after, they had a baby, and Tyler opened his own business. Rachel, meanwhile, quit her job to stay home with their new baby. But this created additional stress for the couple, because Tyler’s new business had to make enough money to support his family and his business.

After carefully reviewing their finances, they realized they needed more income. Rachel found a good-paying job, and was able to get her mother to watch the baby until the couple could find full- time daycare. Now, Rachel’s income covers the family’s household expenses, and is allowing the couple to save some money for a new house. Tyler can now concentrate on his goal of running a financially stable business in his chosen career field.

Keeping your goals at the forefront of your mind can help you stick to your budget. An easy, practical way to remind yourself of your goals is to write “My Goals” on an index card. Put your goal card in your wallet or checkbook, or any other place you will see it when you spend money. Carry this goal card with you at all times. There will be many things you may want or need, but when you open your wallet to pay for these things, stop and think — do these things have priority over saving money to start your own business? Is this purchase going to help you reach that goal? If so, great. If not, ask yourself if you really need to make the purchase.

My Goals

  1. Start a business

  2. Watch for and reduce unnecessary expenses

  3. Save each week $___________

  4. Projected date to start business ___________  

Click to download a copy of the above list as either a Microsoft Word document or Text document.

Know Your Personal Income


Calculating the amount of money you’ll need to support yourself and your family while you start your business is the first step in your personal budgeting process. This means that you need to determine your current income, from any and all sources. Your personal gross income is the amount of money you make per hour at your job, multiplied by the number of hours you work before taxes are deducted. Typical tax deductions include income tax withholding, Social Security, Medicare, and state taxes.

Other deductions may also be taken from your personal gross income. For example, if you are enrolled in your employer’s health or dental plan, you may be required to pay the insurance premium or a portion of the premium. Your employer will typically deduct your contribution to a health or dental plan directly from your paycheck. Even if you must pay for health insurance or a portion of it, it is usually cheaper to enroll in your employer’s group plan than to get medical insurance on your own. However, if necessary, paying for your own health insurance is far better than going without it.

Retirement or pension plan contributions may also be deducted from your gross pay. In most cases today, employees fund their own retirement plans through contributions that are deducted from their gross pay. Making contributions to a retirement program this way is an effective way to save for retirement.

Life, disability, or other supplemental insurance may also be deducted from your gross pay.

After deductions, you can expect to take home about 70% to 80% of your gross pay. Your personal net income is the amount you take home after all deductions are made for Social Security, Medicare, state taxes, federal withholding, insurance premiums, etc.

When making a personal budget, you will use your personal gross income from all sources, less the amount for taxes, insurance paid through your employer, and retirement contributions through your employer. This is your personal net income, or the amount you have to work with each month. Some people may have other deductions, such as automatic payments for a variety of bills, being deducted from their paychecks. These automatic payments should be listed in the corresponding expense category on the budget form.

Create your personal budget based on income you know you will receive every month. If you receive overtime only sporadically, you should not include it in your monthly income. This also holds true for commissions or bonuses that you cannot rely on each month.

It’s likely that the first source of income you think of comes from your job, but you may have other sources as well, including Social Security, disability, pensions, dividends, interest payments, annuities, child support, alimony, or others. Take a few moments to fill out the following form, remembering to include all other sources of income that you receive regularly.

Personal Gross Wages — Household Occupant (1) ______________


Taxes __________________________



Retirement Plans _________________



Insurances ______________________



Other __________________________


Personal Net Income Household Occupant (1)


Personal Gross Wages — Household Occupant (2) ______________


Taxes __________________________



Retirement Plans _________________



Insurances ______________________



Other __________________________


Personal Net Income Household Occupant (2)


Other Income:

Child Support, Alimony ____________



Other Sources of Income ___________


Total Personal Net Monthly Income


Click to download a copy of the above as either a Microsoft Excel worksheet or CSV document.

Once you have determined your net income, you can begin building your household budget. Take a look at the sample budget at the end of this chapter; it contains a list of the most common household expenses. Since household budgets are unique to you and your family, you may have other categories to include in your own monthly budget, or some that appear here may not apply to you. However, you can use this as a guide to help you get started.

A Closer Look at Budget Categories

No matter what categories you include in your budget, you will have fixed, flexible, and periodic expenses. Fixed expenses don’t vary from month to month. Your house or rent payment would be an example of a fixed expense. Flexible expenses vary in amount from month to month. Examples of flexible expenses include clothing, entertainment, and hair care. Periodic expenses occur every three or four months, or even once a year. Insurance premiums, license plate or tag renewals and car repairs and maintenance are examples of periodic expenses.

As you look at the budget form, you may be surprised to see that savings at the top of the form. That’s because a savings account is an essential part of your budget and should be considered a top priority.

People often make the mistake of putting savings at the bottom of the budget. If you do this, it’s likely that you will never have enough money left at the end of the month to put anything in savings. If you don’t put anything in savings, you may not have money when you need it to pay for unexpected expenses. You also won’t be able to save the funds you need to start your business.

If you aren’t accustomed to saving, start with a small amount — even $25 a month is better than nothing at all. Watching your savings account grow can be an exciting process, especially if you make saving money a fun challenge for yourself and your family. Make a game of hunting for bargains at the grocery store or when shopping for clothes. Collect change in a jar. Save money on entertainment by looking for free or inexpensive activities in your community, or by planning game nights or potluck dinners at home with family and friends. Making changes to your lifestyle to save money may be easier when you keep your goals in mind.

Calculating fixed expenses is easier because you can count on spending the same amount each month. Of course, flexible expenses are different. Some months the amounts are lower and other months higher, so you should use your monthly average when calculating your expenses. For example, if you want to arrive at a monthly amount you spend on clothing for yourself and your family, add up the total amount spent on clothing over the past year for all family members, and then divide that number by 12.

Even if you don’t pay monthly for some flexible and periodic expenses, you still need to include an amount for them in your monthly budget. Home repairs can quickly wreak havoc on the household budget. If you budget for home repairs but don’t have any repairs for the month, what do you do with that money? Most people spend it in the miscellaneous area. Unfortunately, when home repairs become necessary, they create a problem the budget cannot handle.

How can you avoid this problem? Creating another savings account earmarked for household expenses can help. You can use this account for clothing, household and car maintenance, or anything else in your budget that you need or want to save for. It is important that you put the amount you have budgeted for these items into your savings account each month. This method of planning for future expenses will work only if you do not spend the money you have put away.

People commonly ask what an ideal budget should look like, wondering what percentage of their income they should spend on food, clothing, debt, etc. A budget should be personalized for you and your family. It’s possible to develop an ideal budget for a family of four, but what if you are a family of two or three? What if your income is different than the model? What if your debts are higher or lower? What if someone in your household has a medical problem that requires monthly treatment? The only way to take all these factors into account is by creating a personalized budget.

To make your own household budget, fill in each category on the blank budget form. Use a pencil, as you will likely need to make changes. In the column labeled “current amount,” write what you are currently spending each month in the categories listed. If you don’t spend a monthly amount on a particular category, figure out how much you spend on this item over a year and then divide that number by 12. Include any amounts you write checks for, charge, or put on layaway.

Add up the total for each expense. Is it more or less than your net pay? A budget should cover all of your expenses and bills each month, and you should not need to use credit to make up the difference.

In order for a budget to balance, the total of all the categories must be equal to or less than your net income. If your expenses exceed your income, it is time to examine where you are spending your money and revise your budget. For many people, the natural reaction to this problem is to cut back or eliminate the amount designated for your savings account. If you do this, how will you achieve your goal?

Cutting categories from your budget is not a good idea. Even though some expenses may not occur every month, when they do, you will need the money to pay for them. If you delete items such as, insurance, clothing, or maintenance from your budget, you will find that you do not have the money for these expenses when they occur.

If you find yourself coming up short, look at cutting costs in your flexible expenses, particularly in the miscellaneous and entertainment categories. Reconsider the amount of money you spend on eating out, cable television, cell phones, or Internet service. Learn to handle hair care at home and brew your morning coffee instead of hitting the drive-through. Make whatever changes are necessary to balance your budget and save for your goals.

Once you have determined changes you would like to make, write your revised numbers in the “adjusted amount” column on the budget form.


Doubling your Money Every Day





























































Plug Spending Leaks and Make Adjustments Where Necessary

You should also look for spending leaks in your budget. Spending leaks are items you spend your money on automatically, almost without thinking. They can easily ruin your budget. Spending leaks are different for everyone. They may be books, newspapers, video games, music, hobbies, shoes, car accessories, sports equipment, electronics, or anything else that might be standing in the way of you reaching your larger goals. Be aware of any spending leaks that may be sabotaging your efforts to balance your budget and reach your goals.

  • What is your biggest spending leak and why?
  • What specific action will you take to plug your spending leaks?

Click to download a copy of the above list as either a Microsoft Word document or Text document.

If you have made all the reductions you want, and you still cannot make your budget equal your take-home pay, you may need to earn more money. You might consider taking on a part-time job or working overtime, if possible.

No matter how much juggling you do with your monthly bills, you cannot continue spending more than you make. Many people believe that spending a small amount here or there truly doesn’t matter. However, even small amounts can add up quickly.

Eating out for lunch twice a week may only cost you $10 to $20, but this adds up to $40 to $80 a month, or $480 to $960 a year. What else could you do with nearly a $1,000? Perhaps you could take this money to set up an emergency fund, or save it for business start-up costs.

Take a look at the Doubling your Money Every Day chart to see how just a few pennies can compound to create a growing savings account. While you cannot double your money every day, this chart demonstrates that even saving small amounts over time definitely makes a difference. Savings accounts that earn interest work in much the same way.

Track Your Expenses

If you find yourself falling short each month, you may want to begin tracking your expenses. Before you say that tracking your expenses is too much work or that you don’t have time, remember that you need to bring your budget back in balance if you want to reach your goals.

When you track your expenses, write down every cent you spend, whether you use cash, write checks, or make credit card charges. The best way to do this is by purchasing a small pocket-size notebook and carrying it with you at all times. If you swing by the vending machine at work and drop in 75 cents for a candy bar, write it down. If you pick up a wedding gift, write it in your notebook. Whatever and wherever you spend, record it in your notebook.

Do this for at least one month, transferring the information from your notebook into the different categories on the budget form at the end of this chapter. You may find that tracking your expenses for a month gives you a firm idea of where your money is going; however, you may need to track your expenses for as long as three months to get an accurate view of where you are spending your money.

For Juan, tracking his expenses became the perfect solution to plug a spending leak. He was frustrated because he often fell short of making his monthly truck payment, so he committed to tracking his expenses for an entire month. During the month, Juan recorded all he spent, including what he paid for the coffee and the sweet roll that he enjoyed each morning during his break with co-workers.

He was amazed to learn that something as simple as eating out for breakfast was costing him $5.25 every day, $26.25 a week, and $105 a month, so he decided to cut this flexible expense by at least half. He was still able to take his break with his co-workers. At the end of the month, it wasn’t as difficult to find the money he needed for his truck payment.

When it comes to your money, you have choices. You have the choice of setting goals or not, of developing a personalized household budget, of making purchases according to your goals or not. You can choose to save or to borrow money for a purchase. You will reap the rewards or consequences of the choices you make. You will either make progress towards your goals, or you won’t.

There is a compelling reason to begin today by setting your goals, developing your budget, and living within your monthly income. Money has time value. Money not spent today, but saved, can earn interest. Interest compounds over time. Even small amounts of money can grow to large amounts when your money earns a return. When your money earns interest, it is growing, giving you more money to achieve the goals of your business.

Look at the Time Value of Money chart below. Although a 10 percent return on your money may not seem possible during challenging economic conditions, over time a 10 percent return can be realistic.

Person A begins saving at age 18 and saves $3,000 a year for five years. He or she saves a total of $15,000. If Person A earns a return of 10% a year, by age 65 the initial investment of $15,000 will have grown to over $1 million.

Person B begins saving at age 28 and saves $3,000 a year for 10 years. Person B saves a total of $30,000. Person B’s investment will grow to $758,451 by age 65 based on a 10% return.

Person C begins saving at age 38 and saves $3,000 a year for 28 years. Person C saves a total of $84,000. Person C’s investment grows to $442,893 based on a 10% return.

The purpose of this chart isn’t to make you feel like it’s too late to begin saving but to show you the power of interest to help you increase your money. The sooner you start saving, the better.

The amount of time interest accrues on your money makes the big difference. If you are under 30 years old, don’t think you’re too young to begin saving. If you are over 30 years old, take heart, because it’s never too late to start.

If you are over 40, don’t be dismayed. Just because you didn’t start saving earlier doesn’t mean you can’t reach your financial goals, including starting a business. Any amount saved makes a difference.

One of easiest ways to begin a savings plan is to have an amount deducted from your paycheck and sent to your bank or credit union savings account. Check with your employer’s payroll department for details.

Time Value of Money
(This is based on earning a 10% return)


Person A


Person B


Person C























































































































































































































From a financial standpoint, you are your business. Even though, for tax purposes, you must keep your personal/household expenses separate from money you will use for your business, the way you manage your personal expenses will affect your business. If you need a business loan in the future, lenders will look at your personal credit to help determine whether you are a good credit risk. That is why, starting now, it’s important to either maintain good credit or take the necessary steps to begin improving your credit.


What is good credit? Most people think they have good credit because they pay their bills each month. Good credit means more than paying your bills each month. It means you make your payments as agreed on or before your due date in full monthly payments. Good credit is reflected in a good credit score. A credit score is used by a lender to help determine whether a person qualifies for a particular credit card, loan, or service. Most credit scores estimate the risk a company incurs by lending a person money or providing them with a service — specifically, the likelihood that the person will make payments on time in the next two to three years.

Generally, the higher the score, the less risk the person represents. The most commonly used credit score is called a FICO score, based on a calculation created by Fair Isaac and Company. The FICO score ranges from 300 to 850. In 2006, the three national credit bureaus developed a new credit score called the Vantage Score that ranges from 500 to 990. At this point, the FICO score is still the most widely used credit score by lenders.

If you make a partial payment, late payments or have accounts in collections, your credit has been affected. Using all your available credit by spending to the limit on your credit cards also affects your credit score. If you need to improve your credit score, you can — but not by paying some business to do it for you. This is something you must do over time.

As you seek to improve or repair your credit, you should obtain a copy of your credit report. There are three major credit reporting agencies: Equifax, Experian, and TransUnion. These three national credit-reporting agencies maintain your credit report. Your credit report contains your full name, current and previous addresses, Social Security number, marital status, date of birth, and current and previous places of employment. It also includes information that is a matter of public record — bankruptcies, tax liens, and any judgments filed against you.

A list of creditors who have extended you credit, what you currently owe them, and whether you have paid your accounts on time will also appear on your credit report. Most banks, credit unions, finance companies, and mortgage lenders report information to the credit bureaus.

Any time you apply for credit, an inquiry is made on your credit report. Lenders may view too many credit inquiries in a short period of time as a potential warning sign. They may ask you why you are applying for credit with so many lenders. These types of inquiries, however, are different than what are known as soft inquiries. A soft inquiry will appear on your credit report when you receive unsolicited credit card offers.

Thanks to the Fair and Accurate Credit Transaction Act, you can now get a free copy of your credit report every year. You can go to, call 1-877-322-8228, or request one by mail by writing to Annual Credit Report Request Service, P.O. Box 105281, Atlanta, GA 30348-5281. If you request a credit report by mail, you must include a form with your request. The form is available for download at the Federal Trade Commission’s web site at

When you request your credit report online, you will be asked to provide your name, address, previous address, Social Security number, and birth date. You can choose to receive a report from all three credit bureaus at once, or you can choose a report from one bureau, wait four months, and choose one from another bureau. This allows you to have updated copies of your credit report throughout the year. You should review your credit report at least once a year.

Review your credit report carefully to make sure there aren’t any errors. Reading the summary statement can help you understand the information on your credit report and spot errors. If you find errors on your credit report, you need to contact the credit bureau where the report came from to dispute the incorrect information. You may be asked to fill out a form provided by the credit bureau. Before you go into business, you want to clear up any errors on your credit report. If you have a low credit score, you can legitimately improve your credit score in a number of ways.

• Pay your bills on time every month.
• Pay down your debt.
• Keep your debts from going into collections.
• Avoid applying for too much credit.

Improving your credit score takes time and commitment, but it is possible to do and maintain it.

“Real success comes in small portions day by day. You need to take pleasure in life’s daily little treasures. It is the most important thing in measuring success.” - Denis Waitley, author, motivational speaker and productivity consultant

Budget Form

Person 1

Person 2

Gross Income

Deductions from Gross, List:





Net Income



Adjusted Amount

Current Amount

Adjusted Amount



Savings (Goals)


Savings (Emergency)

Charitable Giving




Housing & Utilities


Miscellaneous &

Second Mortgage

Insurance (if not in payment)

Bank/Other Financial Fees

Property Taxes (if not in payment)

Birthday gifts

Association Dues


Home Maintenance



Children's allowance

Gas/Heating Oil

Christmas Gifts




Health Club/Training

Cell Phones


Cable TV

Movie/TV Show Rentals


Music/Video games


Pet Care



School Supplies/Activities

Car Payment(s)

Sporting Events







Public Transportation








School Lunches

Meals Out


Other Debt

Dependent Care


Child Care

Student Loan

Child Support/Alimony

Credit Cards


Medical Bills


Furniture Loans


Personal Loans

Personal Care






Hair Care

Total of all Expenses

Laundry/Dry Cleaning







This will open an Excel file that will allow you to enter your information.
You can then save it to your computer and/or print the file.

Action Steps

To Do
  • Make a goal card and put it in a place where you will see it regularly.
  • Using the budget form in this chapter as a guide, make a budget for yourself and/or your family.
  • Identify spending leaks in your budget. Make a plan to stop spending leaks and decide how you will spend or save this money.
  • If you don’t have any savings, make a plan to begin saving some amount of money each month.
    Get a copy of your credit report. Begin taking steps, if necessary, to improve your credit.

Print Icon




Take me back to:


Take me to: