Business Finance

5 Bad Money Habits You Need to Avoid in 2020

Jan 31, 2020 • 4 min read
Small business owner struggling with bad money decisions
Table of Contents

      Like with most things in life, bad decisions often seemingly outweigh the good. Even if you’ve done everything right with your business, a few terrible money habits could send your financial situation spiraling out of control. But as dark and dreary as that sounds, transforming your bad habits into disciplined responsibility isn’t as hard as dodging a bullet.

      Correcting your poor money habits all starts with awareness, and since you’re taking the time to read this article, you’re already well on your way to top-notch fiscal control. Great job! Below, we’ve outlined 5 bad money habits you need to kick to the curb for good. We also cover how you can turn those vices into positive tendencies. It’s time to make 2020 the year of your business’s money maturity!

      1. Neglecting to Budget

      Your budget is a roadmap to your financial goals. It helps ensure you spend less than you’re earning. Without a budget, any financial disaster could dramatically impact your business. And budgets aren’t a one-and-done ordeal. Creating a yearly or quarterly budget won’t do you much good if you don’t regularly check-in, make updates, and reevaluate your cash flow forecasts.

      Don’t make budgeting more complicated than it needs to be. Start simple. Begin by estimating the amount of money you’ll make in the coming months. Use your past cash flow records to make educated estimates, but keep in mind that your sales may vary month to month. 

      For example, you can’t look at your last 3 months’ sales and predict that the next 3 months will look the same. What if the previous months were during November’s Black Friday and December’s Christmas shopping? January through March likely won’t see the same success, so you’ll need to dig through the archives to find your revenue for the same months during previous years. This step is where bookkeeping software comes in handy—a free tool like Lendio’s software helps you keep detailed records of all in the ins and outs of your cash.

      After you’ve created your estimates, it’s time to predict your expenses. What bills will you need to pay to keep the business running? What costs will be incurred by your sales? Are any insurance premiums or software renewal contracts due?

      A budget is the first step in solving most of your bad money habits. With a budget in hand (no matter how simple it is), you’re ready to move on and fix your other vices.

      2. Not Building a Rainy Day Fund

      It’s important not to spend everything that your business earns. Yes, it’s important to invest in your business, but you need to start building a financial cushion in case of an emergency. There are a couple of ways you can start building a rainy day fund: 

      • Put earnings aside every month toward your rainy day fund until it’s reached a level you’re comfortable with. A safe rule of thumb to safeguard your business from cash-flow issues is to maintain a cushion comparable to about 2 months of operating expenses.
      • Secure a business line of credit. A line of credit is a safety net you can tap into if you need it, but you’re under no obligation to use it. There’s no reason not to keep a line of credit in your back pocket in case of an emergency.

      3. Saving Too Much

      You need to spend money to make money. Once you’ve built a sufficient rainy day fund, you need to put your hard-earned capital to work for you—it’s not going to do much good sitting in the bank.

      Many small business owners get stuck in the do-everything-myself mentality. It’s not necessarily a bad trait to have, but if taken to extremes, it can negatively impact your business. Take off some of your many hats and start delegating work. You don’t always need to be your business’s accountant, lawyer, marketer, 24/7 customer service, and salesperson—invest your cash into hiring some help.

      4. Forgetting About Taxes

      Proactively set money aside for taxes—don’t wait until tax season hits you in the face with a huge surprise expense. It’s a safe rule to save 30% of your earnings to cover your federal taxes. Stay on top of your taxes month-to-month and quarter-to-quarter to make tax season a breeze.

      5. Paying Bills Late

      Don’t waste money on interest due to late payments. Make it a habit to always pay off your business credit cards by the end of the month, even if that means slowing your business’s growth pace. Paying your bills on time will keep your credit in tip-top shape and reduce unnecessary interest expenses.

      Don’t revert to the other extreme and avoid taking on debt to eliminate late payments—that’s not what we’re saying. Just like trying to eat healthier doesn’t mean you stop eating altogether. Debt is a powerful growth lever when used appropriately—it just needs to be managed. Control your debt, stay on top of your cash flow, and make all of your payments on time. Easy as that.

      Make 2020 the Year of Good Habits

      Fortunately, kicking these bad money habits out almost always replaces them with good habits automatically, so you don’t need to fight 2 separate battles. Bad habits out—good habits in. You’re in charge of your business’s destiny. Eliminate these bad habits now and start paving the way for your business’s bright fiscal future.

      About the author
      Jesse Sumrak

      Jesse Sumrak is a Social Media Manager for SendGrid, a leading digital communication platform. He's created and managed content for startups, growth-stage companies, and publicly-traded businesses. Jesse has spent almost a decade writing about small business and entrepreneurship topics, having built and sold his own post-apocalyptic fitness bootstrapped startup. When he's not dabbling in digital marketing, you'll find him ultrarunning in the Rocky Mountains of Colorado. Jesse studied Public Relations at Brigham Young University.

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