It takes guts to start your own business. But many people, after weighing the pros and cons, feel they can’t not make this move. As Amazon’s Jeff Bezos said, “I knew that if I failed, I wouldn’t regret that, but I knew the one thing I might regret is not ever having tried. I knew that that would haunt me every day, and so, when I thought about it that way, it was an incredibly easy decision.”
While the failure rate for small businesses is sobering—one in five go under within the first year—pursuing a vision for yourself and overcoming all the obstacles has definite rewards. And learning how to grow your business often goes hand in hand with learning how to be your own boss, followed by being the boss of others.
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Recommended: How to Run a Successful Business: 9 Helpful Tips
Are People Who Work for Themselves Richer?
The adoration our society doles out to the self-made actually has some basis in the data.
In late 2019, a market research firm created headlines when it said that 67.7% of the world’s “ultra-wealthy” population—those with a net worth of $30 million or more—were self-made, while 23.7% had a combination of inherited and self-created wealth.
Bringing this down to earth, research from Payscale showed that U.S. small business owners make, on average, $70,300. (Worth noting is that many company founders take no salary in the first years of running a business, while others take so much that they have trouble scaling their business.)But creating a successful business can lead to long-term and life-changing financial gains.
According to a report released by the Small Business Administration in early 2021, “On average, the self-employed are wealthier than the non-self-employed and are significantly wealthier than workers and retirees.” What must be factored into the equation is that the person who started the business spawning generational wealth may have had significant advantages in education, inheritance, and connections. As the SBA says, “It is not clear if the self-employed choose self-employment because they started with greater wealth, or if they created it, or both.
”Moreover, racial disparities are glaring in these analyses.
“Business equity makes up a larger share of nonfinancial assets for white (non-Hispanic) families at about one out of every three dollars than it does for Black (non-Hispanic) or Hispanic families, where business equity makes up about one out of every eight dollars for each,” said the SBA. “Over the last 20 years, business equity shares for Black and Hispanic families fluctuated with the business cycle, while white families have had pretty steady increases.”
According to the US Census’ 2020 Annual Business Survey (ABS), only 18.7% of U.S. employer businesses were minority-owned.
Are People Who Work for Themselves Happier?
Despite the long hours and serious challenges, entrepreneurs report consistently higher rates of happiness than wage-earning employees, says research reported by The Wall Street Journal.
“If you look at the data, it turns out that entrepreneurs on average earn less money than a typical employed person, work 13 hours more a week, and report that it’s a very stressful occupation,” says Boris Nikolaev, assistant professor of entrepreneurship at Baylor University in Waco, Texas, told WSJ. “But despite that, there’s overwhelming evidence in the literature that entrepreneurs report significantly higher levels of job satisfaction.”
Harvard Business Review found a similar breakdown when studying work and happiness. “We find that being self-employed is associated both with higher overall life evaluation and with more negative, daily emotions such as stress and worry,” wrote one study author. “It will most likely come as no surprise to anyone who owns a business that being self-employed can be both rewarding and stressful.”
No, it’s not a surprise. But can anything be done about the worry and stress that devour so many small business owners?
How to Recognize and Banish Burnout
Anyone might think they know what burnout feels like—you’re exhausted and overwhelmed—but it has specific markers for small business owners.
- Passion for your startup is being replaced by resentment and cynicism
- You keep putting off important things because procrastination is a habit
- You’re plagued with brain fog and forgetfulness
- You’re wiped out even after a night of unbroken sleep of at least seven hours
A small business owner with no staff or a small one is in a tough corner when it comes to reducing burnout. Delegating is not always possible and every minute seems to count toward staying in business. But the bottom line is if you fall victim to serious burnout, your business will become toast along with you.
Do you want to ruin your health as well? According to Harvard Business Review, research has linked burnout to many lingering health problems, including hypertension, sleep disturbances, depression, and substance abuse. Here are three advice points that can help.
Don’t “Fake Relax” — Really Do It
For at least 30 minutes a day, you must truly relax and take your mind off work completely. Sitting on an exercise bike while you worry about invoices is not cutting it. Empty your mind of stressful thoughts without judgment and do deep breathing. Or do something you really enjoy: Listen to music, garden, split wood. This is not a cop-out from keeping your business going. It’s a key to business survival.
Go Big Picture
It’s easy to slide into feeling bad about the setbacks and fretting over the competition, but a proven way to restore perspective and fuel yourself anew is to reflect on how far you’ve come. Reflect on your past achievements and successes. Get away from the day-to-day. Look at what you achieved over a longer period of time to remind you how successful you’ve been.
Get Better at Saying No
Over-extending yourself is a path to burnout. It’s too easy to build up stress and anxiety when too much is on your plate. Try saying no more often.
Reach Out to Others
“The best antidote to burnout, particularly when it’s driven by cynicism and inefficacy, is seeking out rich interpersonal interactions and continual personal and professional development,” says the Harvard Business Review. “Find coaches and mentors who can help you identify and activate positive relationships and learning opportunities. Volunteering to advise others is another particularly effective way of breaking out of a negative cycle.”
The Takeaway
Worrying about running out of funds is a top stressor for new business owners, and many forgo salaries in order to keep the lights on and keep up with payroll. Getting a small business loan can help ease some of that stress.
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This article originally appeared on SoFi.com and was syndicated by MediaFeed.org.
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Are you living beyond your means? Here’s how to tell
Living beyond your means is an easy trap to fall into. And if you’re not keeping close track of everything that’s coming in and going out of your financial account, you may not even realize you’re doing it. But if you often run out of money before the month is over and you don’t know exactly where all the money is going, it could be a sign that you’re living above your means.
Over time, living a lifestyle beyond what you can actually afford can lead to mounting debt and also keep you from reaching your financial goals.
Related: Budgeting for basic living expenses
NazariyKarkhut / istockphoto
Simply put, ”living above your means” means that you are spending more money than you are earning. People are able to do this by relying on credit cards, loans, and pior savings to cover their expenses. However, the process is not sustainable, and eventually overspending is likely to catch up to you.
Living beyond your means can also mean that you’re spending everything you bring in, and, as a result, don’t have anything left over for saving or investing, such as building an emergency fund, saving for a short-term goal like buying a car or a home, or putting money away for retirement.
Here are 10 red flags that you’re living a lifestyle you simply can’t afford — and tips for how to get back on track.
DepositPhotos.com
If most or all of your paycheck is spent immediately on bills and you don’t have anything left over at the end of the month to put into savings, you are likely living over your means and may need to make some adjustments. If your current lifestyle has become a habit, you may feel there is no place to cut back. However, if you get out your monthly statements for the past three months and take a close look at where all your money is going each month, you will likely find places where you can cut back on spending.
This might be ditching cable, cooking (instead of ordering take-out) a few more times per week or quitting the gym and working out at home.
AndreyPopov/istockphoto
If you’ve been putting a lot of your expenses on your credit card and/or don’t always pay your bills on time, you may see your credit score take a hit. This number is important because it can be accessed by anyone considering giving you new credit and may be used to determine the interest rate you’ll pay on a home or car loan, and also new credit cards.
If you aren’t sure what your credit score is, you can get a free copy of your reports from all three credit bureaus. Looking it over can help you understand why your credit score has dropped, and help you take the necessary steps to repair it.
For example, you might set up automatic payments for the minimum amount due on credit card bills and loans so you never miss a payment. You may also want to pay down your balances on your credit cards and lines of credit. This can lower your “credit utilization rate” (how much of your credit limit you are using), which is factored into your score.
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If money is feeling a little tight, you may feel that now is not the time to worry about retirement. But you likely won’t be able to work forever, so it can be wise to make saving for retirement a priority and to get started early.
Thanks to compounding interest (which is when the interest you earn also starts earning interest), the earlier you start investing in a retirement fund, the easier it will be to save enough money to retire well. You don’t have to contribute a lot; even just putting aside a small amount of each paycheck into a 401(k) or IRA each month can help you build wealth over time.
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Keeping your rent or mortgage below 30 percent of your monthly pre-tax income is sometimes recommended because it can leave you with enough income left over to save, invest, and build wealth in general.
Staying below 30 percent can be difficult, however, if you live in a region of the country where the cost of housing is high. Nevertheless, spending a lot more than a third of your income on housing can leave you “house poor” and put your other financial obligations at risk.
If you find that your housing costs are taking too large a chunk of your monthly paycheck, you might consider downsizing, taking on a roommate or finding a way to increase your income with a side hustle.
Depositphotos
Another sign you may be living beyond your means is that your savings have stagnated. Making regular deposits into your savings account in addition to your 401(k) or IRA allows you to work towards your short- and medium-term financial goals, such as putting a downpayment on a home or a car or going on vacation.
Suwanmanee99 / istockphoto
An overdraft fee, or “non-sufficient funds fee,” is charged when there’s not enough money in your account to cover a check or debit card payment. Mistakes happen, and a one-off overdraft isn’t necessarily an indicator of overspending. But repeat offenses can be a sign that you are living too close to the edge and don’t have a clear picture of how much money is going into your account and how much is going out.
You may want to start tracking your spending and keeping a closer eye on your spending account to make sure you always have enough to cover your electronic payments.
istockphoto
Many people think making and following a budget will be too complicated. But having a budget can actually simplify your spending decisions by letting you know exactly what you can and can’t afford.
Having a budget also helps to ensure you have enough money to cover essentials, fun, and also sock some away in savings. If you’ve never set financial parameters for yourself, you may want to consider taking an honest inventory of how much you are bringing in each month and how much is going out each month.
Once you get a sense of your own patterns and habits, you can work toward building a realistic budget that allows you to spend and save more wisely.
DepositPhotos.com
Leasing a vehicle you would not be able to purchase outright or finance can be a major financial red flag. Leasing lets you rent a high-end lifestyle, but many people end up with leases they really can’t afford.
You might be covering your monthly payments, but if you can’t do that while meeting your other expenses and also putting money into savings, then your car is likely too expensive.
You may want to consider downgrading your vehicle or saving up enough money to buy a car — either outright or by making a solid downpayment so your monthly payments are low.
DepositPhotos.com
It’s fine to use your credit card to pay for everyday expenses and the occasional big purchase. But if you can’t pay off most of the balance each month, you’re likely living beyond your means.
Rather than give over part of your paycheck just to interest each month, you may want to cut back on nonessential spending and divert that money toward paying off your balances.
Rawpixel / istockphoto
Not having a stash of cash you can turn to in a pinch can be a sign that you’re overspending. You may be gambling on the fact that nothing will go wrong. But life is unpredictable, and getting hit with an unexpected expense you can’t pay for can lead to a financial crisis.
Instead, you may want to build an emergency fund that can cover three to six months worth of living expenses. That way, you’ll be covered should something happen, such as an illness or injury, job loss, housing issue or any other expensive personal matter should come up.
AleksandarGeorgiev
Unfortunately, living beyond your means is all too easy to do. And while a few weeks or months of spending more than you earn may not be a major problem, overspending on a regular basis will likely catch up to you in the form of high debt and neglected savings.
Creating (and sticking to) a spending budget can help ensure that you can afford your bills and basic expenses, and still have money left over to save for the things you want in the future.
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This article originally appeared on SoFi.com and was syndicated by MediaFeed.org.
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