4 Pitfalls Of Mixing Business And Personal Wealth

In the world of entrepreneurship and business ownership, it's easy to blur the lines between your business's financial success and your personal wealth. Many small business owners and entrepreneurs pour their hearts, souls, and resources into their companies, hoping for financial success. While it's a commendable endeavor, it's crucial to distinguish between business wealth and personal wealth. Why? Failing to do so can have significant consequences for your financial well-being, your family's future, and even your overall happiness.

In this blog post, we will delve into the significance of separating these two financial entities and provide insights into effective methods to achieve this differentiation.

BUSINESS WEALTH VS. PERSONAL WEALTH: WHAT'S THE DIFFERENCE?

Before we dive deeper, let's clarify what we mean by business wealth and personal wealth.

Business Wealth refers to the financial health and assets of your business. It includes revenues, profits, assets, and liabilities directly related to your company. Business wealth can fluctuate significantly, and it's often tied to the performance of your business, market conditions, and other external factors.

Personal Wealth, on the other hand, encompasses your personal financial resources. This includes the value of your business to you, savings, investments, retirement accounts, real estate, etc... Personal wealth is a reflection of your financial security and your ability to achieve personal and family financial goals.

4 PITFALLS OF MIXING BUSINESS AND PERSONAL WEALTH

Risk Concentration: Placing all your financial eggs in one business basket can be risky. Businesses can face economic downturns, market fluctuations, or even unexpected disasters. Relying solely on your business wealth for personal needs can leave you vulnerable.
Lack of Diversification: Diversifying your investments is a fundamental principle of sound financial planning. If your business is your sole investment, you miss out on opportunities to grow wealth through other means, such as stocks, real estate, or retirement accounts.
Neglecting Personal Financial Goals: Focusing exclusively on your business's success might cause you to overlook important personal financial goals, such as additional income streams, retirement planning, saving for your children's education, or maintaining an emergency fund.
Impact on Family: Your family's financial well-being may become intertwined with the fate of your business. This can create stress and uncertainty, particularly if your business faces challenges or setbacks.

SEPARATING BUSINESS AND PERSONAL WEALTH: HOW TO DO IT RIGHT

Create a Clear Line: Start by setting a clear boundary between your business finances and your personal finances. Open separate bank accounts and maintain distinct financial records for both.
Pay Yourself a Salary: As a business owner, paying yourself a regular salary is essential. This ensures you have a steady stream of personal income separate from your business's fluctuations.
Build Personal Savings: Commit to building personal savings, investments, and an additional stream of income outside of your business. This can include contributing to retirement accounts, investing in stocks, or purchasing real estate.
Consult with a Financial Advisor: A financial advisor can help you establish a financial plan that aligns with your personal and business goals. They can also provide guidance on wealth diversification and risk management. Search for advisors who have experience in working with business owners.
Regularly Review Your Finances: Periodically review your financial situation to ensure that both your business and personal finances are on track. Adjust your financial strategy as needed.

IN CONCLUSION: SECURE YOUR FINANCIAL FUTURE

While your business is undoubtedly a significant part of your financial picture, it's important not to mistake your business wealth for personal wealth. Separating these two aspects of your financial life is a critical step towards securing your personal and family's financial future. By creating a clear line between business and personal finances, paying yourself a salary, and diversifying your investments, you can enjoy the benefits of entrepreneurial success while safeguarding your personal wealth and achieving your long-term financial goals.

If you have a question or simply want to talk through your financial planning, we are here to help.

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DISCLOSURE: Jarrod Musick is an officer of Destiny Capital and Entrepreneur Aligned, a DBA of Destiny Capital. This article is for informational purposes only and should not be relied upon as a basis for your investment, business, or personal financial decisions. We recommend consulting with your wealth advisor, CPA/tax advisor and/or attorney, as applicable to your situation, prior to implementing any new tax, legal, or investment strategy. Advisory services provided by Destiny Capital Corporation, a Registered Investment Adviser.

ABOUT JARROD

Jarrod was born into financial planning and solving financial problems. With his financial advisor father Steve telling stories about finance around the dinner table from an early age, the idea that everyone has a different financial situation was always there. After an early professional career spent in nonprofit and government, Jarrod came back to his roots helping people plan and invest in 2011. Since then, he has worked with individual clients, led internal teams and ultimately became partner and the CEO of  Destiny Capital in 2017. With a passion for helping entrepreneurs change the world, Jarrod ultimately oversaw the creation of Entrepreneur Aligned in 2020. With both Destiny Capital and Entrepreneur Aligned, Jarrod leads teams that help people live lives of abundance where money is simply a tool to let everyone be a positive force for the world around them. When he isn’t working with the talented teams for EA and DC you can find him chasing his twins, wily trout or a podium spot at an OCR race.