Pi of Life : Personal Finance for Bootstrappers
The word itself conjures up images of a noble struggle, optimism, and the poetry of overcoming impossible odds. Its what you do and figure out yourself, before money becomes a major factor in the endeavours life. Till such time its only about the dreams and making them real, come what may.
However, financially the ‘come what may’ bit can be made a little easier. The business goes through a financial crunch and faces dilemmas with respect to that sooner or later, but many a startup suffers too early because of the financial pressures the individuals involved feel. Oftentimes, its a case of merely being caught unprepared.
Some things you can do to be more prepared -
Know your spend/burn
Its critical to know where you stand, how long you have to go, and have a picture of both your earn and burn rates not just for the business, but individually too. At least a few months before you chuck that job and start on your entrepreneurial journey, a few early steps should be
- Maintain daily accounts – down to the last Rs.2/- (Re.1/- coins are unavailable on BMTC buses as well, so we can safely up the granularity a bit.) Don’t get too stuck looking for the perfect tool to achieve this – a Google Docs spreadsheet works just fine.
- Track both income/expenses in the sheets. And only actually realized income, and actually spent money. Credit cards can help, but will catch up soon, so its money actually spent! Track debt separately if you ever get into revolving credit on the card.
- Never revolve credit on the card :) Its the worst form of debt. Not even “just this one time – I’m expecting a huge payment next month anyhow.”
Define your lifestyle
As you start, you might be a fresh graduate whose friends have suddenly run into substantial monthly credits into their accounts, and cannot seem to spend enough on kingsize lifestyles. You might be a high flying, or at least fast driving executive and team outings, company lunches and weekend family trips to the best restaurants in town happen on a whim. The last three vacations you went on were in Europe, Mongolia and Brazil.
But now, you’re a bootstrapping entrepreneur. In the financial sense, that has more implications than “being retired” had for a whole generation.
For starters, the expense sheets over a few months will give you a clear picture of how much, and how often you spend. Over some time, you’ll be in a good position to define your lifestyle in terms of a 6-month or a 12-month burn.
Its very very important to understand discretionary spending – and indulge only when the aforementioned sheets allow for it. Your UI, product features are data driven – this is as critical! Just diligently maintaining those sheets will help arrive at what’s absolutely necessary, what’s useful and what can wait.
No – that new shiny device is NOT critical for you. Even though twitterverse seems to think so. You don’t really need to spend 750/- on that buffet to have a good evening out, seriously. And there are smart options instead of that Rs.80/- cappucino.
Your goals are different from other people, and should not include brand worship, fitting-in. If you wonder more often that not what the hell you’re doing it for if you can’t even enjoy “these little pleasures” – you’re likely not ready yet so think hard.
Preparation is important
Nothing goes to plan, and we all know that. Yet, its not enough reason to not have one!
- Keep 6 months cash handy to burn, even if you do not have a fixed timeframe in mind. And 6 months will pass before you’ve started “figuring things out” that you gave yourself a month for.
- Identify backup/emergency cash and people. Do you have a support system? Do you have health insurance – buy it early for 2 years if you can.
- Stay healthy. Its very important for your startup for you not have too much downtime, and also stay on the top of your form. Its cheaper than visiting doctors and hospitals as well!
You’re making one ultra high risk one already!
Many of us have gotten investments in various instruments, and we’ve often followed advice from business magazines, papers, blogs, the television and in a few cases, financial advisors.
On thing across all of these advisors is that they dish out most advice semi-customized based on your age – which works for someone who’s part on the mainstream but miserably fails for you.
Your stage in life is suddenly mostly a function of your circumstances, not of your age alone. You have much lower income, or even none, as opposed to assumptions of a certain percentage of growth for N years the financial industry usually makes. Your current liquidity and investments might need to fund you, and also maybe grow conservatively irrespective of how your business does.
You must evaluate your own risk profile, as well as strictly define how much downside your investments can afford to have in the medium term. You also have to keep aside and knock off from your plans whatever portion of the savings you think you’re ok dipping into in the worst case.
Discuss it with the family
Your finances aren’t always your own alone. There’s a whole lot of needs, dependence and expectations around them. It’s important to discuss the financial implications of your decisions with all those who might be impacted directly or indirectly, and get a buy in from them. It’ll be easier picking the right choices when birthdays are being celebrated, vacations planned and upgrades being planned around the house if everyone in on board with the “why”.
Keep business and personal accounts separate
This is a difficult one when you think of the business as your own baby, and more so if you’re doing it alone, and out of home.
Its also a very good habit to develop to stay on top of how both your personal and the business’ finances are doing. Avoid mixing the two from day one
Some lean ideas that work in Bangalore, at least
- Volvos are great to get to most places, especially on a day pass!
- Cycling is a perfect commute tool!
- Every area has a great alternative to the Costa Coffees and the CCDs of the world. Find something that works for various kinds of meetings, especially for networking.
- Try recipes off the net instead of eating out too often.
- Weekday morning shows are much cheaper, uncrowded and the kick you get out of watching a movie when everyone else is at work is indescribable!
- When you absolutely need to buy – scan the classifieds, Facebook groups – there are some awesome deals to be found.
Frugality and financial prudence help a lot. Yet, many spends are good investments – both for businesses and for individuals. Its important to figure out what’s a mere splurge and what’s worth investing into in your specific case. Of course, don’t use this one as an excuse to just buy that new …..