Episode 009 - All My Honeys Who Makin' Money
Small Business Finance 101:
50 percent of small businesses will fail within the first year
40% of small businesses are profitable
30% break even
30% are continually losing money
When setting prices and managing cash, it is easy to forget about all this extra overhead. A good rule of thumb to keep in mind if running strictly on your own is 50% of every dollar owned you can keep, 30% must be saved for taxes (more or less depending on your state and local laws), and 20% is essential for padding in your account to pay for things such as marketing, office supplies, meetings, entertainment (for business purposes), education (reinvesting in yourself), etc. I often see people charging what they were used to taking home. To actually continue making the same paycheck, you often need to double or even triple your old hourly rate to come out in the same place.
Think of debt like a diet. There’s no magical overnight cure.
First things first, figure out exactly how much debt you owe across all accounts
The gist of it is that you pay off debt starting with the smallest balance first. Then your monthly payment from that debt gets applied to the next largest debt until it’s paid off. Then both of those monthly payments go towards the next one in the list and so on until they’re all paid. The mental benefit seems to be the best with this method. The good feeling of accomplishing small goals in a short amount of time is a great motivator to keep going.
Another way might be to take the opposite approach. Start by paying off the debt with the highest interest rate since that’s ultimately costing you the most money. Putting extra money towards the principal every month reduces the amount of interest you owe. This one can be tougher mentally because it could take a while to see results depending on how much you owe. But the longer you stick with it the faster you’ll see the balance drop.
Make a “To-Be” Budget
Whatever method you decide to use to pay off your debt, write it down and come up with a plan. It could be something as simple as writing down your debt in the order you want to tackle it, the amount you’ll pay towards it each month, and the number of months it will take you to get there.
In your “to-be” budget, write down all the monthly expenses you determined were absolute necessities and the amount you’ll be paying towards your debt based on the plan you came up with.
Tell your friends and family about your decision to pay off debt. By letting other people know, you’re holding yourself accountable for seeing it through. If you make this decision in secret, it makes it easier to give up because no one will ever know. And really, you can use the support from those closest to you. They’ll cheer you on and give you a needed boost if it seems like you’ll never be done with it. And if they’re aware of what you’re doing, it’s easier to plan budget-friendly activities.