My first company was built during my college Sophomore year; since then I have built over ten different companies or ventures. More than half of them failed, but the ones that lasted are still paying me a nice dividend to this day. In this article, I am going to break down my entrepreneurial journey from a financial perspective. I will share my hard lessons and the lucky wins that got me where I am today. My goal is for you to learn from me and improve your financial situation on your entrepreneurial journey.
Separating your finance from your company’s
The first concept I want to share is the dichotomy between personal finance and your company’s funding. I learned this the hard way when I started my second company after college; I tied 100% of my income into the business. When the business made money, I did; when the business lost money, so did I. Like everyone had been telling me to do, I re-invested everything I had back into the startup. I gave the company everything I had; I was in constant survival mode. In those days, I honestly can’t remember a single night I went to bed feeling secure and relaxed.
I kept working like a dog and living with three other guys in a small apartment for another two years, and even though the business was doing a lot better, I got a partner and a couple of employees, I still didn’t have a penny to my name, and I was always stressing out about every single dollar. I was so sick of living under this constant pressure and uncertainty; it was a huge mental drain for me.
Then I finally decided to decouple the company’s finances with my personal finances. I took some of the company earnings (salary and dividend distribution) to improve my living situation and build up an emergency fund.
The next year, while the company was still growing, I decided I had saved enough money to buy my first condo in the city using cash. This was a huge relief for me, as I didn’t need to worry about paying rent or dealing with a landlord anymore. I admit, if I kept reinvesting everything back into the business, the company might have been even bigger; I guess I’ll never know. But in my mind, I needed stability in my life; also, this move allowed my mood, and my stress levels to not be tied to how well the business was doing. I finally came out of the constant survival mindset and into a growth mindset.
Diversify your investments and efforts
The second lesson I learned is to strategically diversify your entrepreneurial investments and efforts. This is a controversial opinion, so I am only talking about what works for me. Since my first company has grown big enough to stand on its own, I diverted part of my attention to other related, but not dependent ventures. With partners, I started a skincare line, a lifestyle brand, an online publishing company, and developed Shopify apps. Since each one of them is in a different industry, I am less dependent on market trends. If any of the industries I have a business in are trending up, we enjoy the rise.
Furthermore, I purposely build each company so they can also support each other. It’s a mini-ecosystem ( let me know if you guys want to hear more about that, I can make another video to explain further). So while my main company continues to grow and bring in a profit, other ventures continue to mature and subsidize future investments.
Establish multiple levels of financial foundations
The third and most recent lesson learned is to establish multiple levels of financial foundations for your personal finance. People think entrepreneurs are risk-takers, but that’s not entirely true. Yes, we are more risk-tolerant, but we are not reckless. The way I balance taking on high-risk high reward projects versus stability is through establishing different levels of financial foundations.
About four years ago, I consistently diverted part of my earning away from investing in startup projects and into real estate deals. With the help of leverage and other investors, I built a passive income from real estate alone. This income covers all my living and basic expense. So I don’t have to worry about paying rent or mortgage, and with enough to cover unities and food for myself.
I am extremely risk-averse when it comes to this first level of my financial foundation because I want to make sure this is my last line of defense. So I know in the worst-case scenario, I can still count on this source of income to support myself.
The next level of the foundation comes from my other passion startup projects. They don’t pull in a huge chunk of income, but most of them are semi-passive. They are agency clients, advertisement deals, and apps sales, etc. In the second level of my foundation, I look for something that doesn’t require active management but is still able to pull in some income whether I’m asleep or awake. I can tolerate a medium risk and expect a medium reward.
The third foundation is also my front tier. It’s any high-risk and high return projects. They might very well not work out, but if they do, I expect a much higher return. So I make sure I pick the ideas I don’t mind spending nights and weekend building. So these projects are more VC or investor-friendly, with the ability to scale and even explode.
These three tiers allow me to mitigate any lifestyle risk, so I can focus on building something that I love and feel passionate about.
One bonus personal financial tip for entrepreneurs out there: the sooner you see money as a tool for building your empire, every dollar you spend becomes more and more meaningful. So you’re less likely to become a glorified penny pincher or a reckless spender.
So these are my thoughts on personal finance for entrepreneurs after ten years of hustling, grinding, and hitting walls. I hope you can learn from my experience and better your financial situation during your entrepreneurial journey.
Let me know what you think and if you have any specific personal financial questions you want to ask a fellow entrepreneur, leave it in the comments.
This article originally published on GREY Journal.