Many people are inclined to join start-ups and there are multiple reasons behind this: from getting more opportunities to learn to being able to generate new ideas and exercise creativity. In exchange, it’s your responsibility to put in the hard work required for your start-up company to grow. But while doing this, do not forget the most important thing that will shape your future: planning and managing your personal finances.
Most money management guides cover the basics – like budgeting and investing – and while these are important factors, they usually don’t focus on subjects exclusive to start-up employees. We’ll run through a detailed list of personal finance measures every start-up employee must take.
Establishing an emergency fund now can come to your aid later in more ways than one. In fact, it is an essential part of a solid financial plan. Say you get a better offer and make your exit from the start-up or the company loses traction, or you need to quit for private reasons. An emergency fund will rescue you through unanticipated periods of unemployment. If you ask finance experts or certified wealth managers, they suggest that you set aside enough funds to last 6 months without income, and ensure that money is easily accessible. Factor in your monthly expenses, long-term investments, and loan payments, if any, when evaluating the value of an emergency fund. Remember, during your time of employment and in its absence, too, building an emergency fund comes second after fulfilling your financial priorities, like clearing your debts.
A common mistake that most employees make, particularly the younger workforce, is not being able to maintain a balance between saving and paying debts, which are equally important. If you do not prioritize your debts, in the long run, you will end up paying more interest imposed on your borrowings. On the other hand, setting aside funds for your regular expenses and retirement is very crucial, as your future life depends on this. Also, make it a point to regularly transfer extra money (other than your emergency fund) to pay off your high-interest loans and other debts, whilst also multiplying your savings.
You can’t expect to create wealth by simply accumulating money in your bank account. To increase the value of your money, identify the best investment plans with the help of a finance expert. Most importantly, focus on long-term investments offering high returns, so you can enjoy reaping the rewards of dividends in the near future. Mutual fund SIP investment, real estate, Initial Public Offerings (IPO), or stock market have proved to be high-return investment options that most certified wealth managers swear by. But always remember to spare funds for investments after having directed enough money towards your emergency corpus.
Start-ups generally offer stakes in the company to their employees in the form of equity, which has been looked upon as a great compensation. Employees can garner a good return on investment through shares when the company is performing well, implements a buyback, or launches an Initial Public Offering (IPO), which ultimately increases the value of ESOPs. In a way, a compensation like this provides higher profits at reduced rates, job stability, and an additional income source for the employees. The only important thing is to understand the workings of this investment option with the help of a reliable finance expert.
When you plan to start out with a start-up, understand the benefits they offer. For example, some start-ups provide health insurance while some offer commuter perks. Being aware of what the company compensates can help save significantly and streamline your personal finance goals. Money management for start-up employees isn’t just limited to learning and enhancing skills and waiting for the paycheck at the end of each month. Saving money, creating a strong professional network, and establishing good systems will pay higher dividends in the form of personal and professional growth down the line. On the path to financial growth, have a wealth management company like Dezerv lead the way!