Handling personal finances as a founder is hard, here are some tips

Hey there! I decided to write on a topic that doesn't have lots of information tailored for founders: personal finances. I'm the cofounder of Allswealth, a financial planning software for Canadians, I'm managing my own investments and I've taken my personal finances seriously for over 4 years.

My cofounder Will went full-time in this venture for a couple of years ago. I chatted with him to learn more about his journey and the impact of personal finances on his founder life. This article should (hopefully) teach you some basic personal finances tips and help you balance it out with your startup.

Entrepreneurship is blooming. Tons of talented individuals are building projects that they had in the back of their mind for years and while it’s rarely a success, it’s empowering to see people dedicating themselves to one idea that almost becomes part of them.

An interesting aspect of entrepreneurship is that when you talk about your project to your inner circle, almost everyone is caressing the idea of doing their own thing. However, the #1 reason why businesses are not started is money-related.

People are scared of losing money, being out of a job, going into debt, selling their house, and their cat, being back to eating ramen like in college, etc. You get what I mean. That’s why it’s important to tackle personal finances for founders.

Whether it’s ramen profitability (yes, the ramen is back again 🍜!) or money management tips for entrepreneurs, the goal is to make you understand the correlation between your personal and your startup finances. Hopefully, this article will convince you to do that final jump into the world of startups.

Since there’s a lot of elements related to personal finances and that the founder journey is quite complex, I’m going to concentrate on the seed or pre-seed startups. Let’s tackle the different aspects of personal finances you’ll have to face as an early-stage entrepreneur.

Disclaimer: This article is not financial advice. It’s merely opinions that you can take with a grain of salt. You’re responsible for your own financial decisions and investments.

Balancing your startup and your personal finances

Moving head first into a startup is the beginning of the journey, but whether you choose to take the VC road or stay bootstrapped, you still need to get your business off the ground.

It depends on your financial situation, but you should put money aside to cover future expenses of your startup, such as website, servers and other fixed costs. Building your MVP will also cost money but there’s a handful of tools that are affordable.

Usually, the highest cost is going to be sweat-equity — you’re spending a lot of your personal time building your startup while working your day job. My advice would be to follow the following steps, but instead of putting money towards a large purchase or a personal investment, allocate funds on your startup.

When you start generating revenue, you can reinvest it into your company. You can even get outside investments from friends/family or bank loans, but that’s totally up to you. As long as you develop the habit to save money early. However, I believe that it’s not a good idea to go into debt to launch your business.

The best way to balance your startup and your personal finances is to start a budget. It doesn’t need to be super precise, but the goal should be to understand your income and expenses relationship and how much money is left once the necessary stuff is paid.

Get a mortgage as a founder

Getting a mortgage is probably the biggest investment of your life. However, as a startup founder, your average income will be on the lower side. Even if your company ARR is at 4M, it doesn’t reflect your income forms like W-2 in the US or T4 in Canada.

However, it’s still possible to qualify for a mortgage with bank statements based on your deposits/withdrawals in the last two years and tax returns based on your income. Those two statements can help you, but tend to require more paperwork.

Then, if you decide to put a down payment on a house, it’s important to do a budget to understand what is your threshold to make sure you don’t have any problems with the bank. The important aspect here is to develop great saving habits. Afterward, you can do what you want with it and invest it.

Recently, some initiatives are coming up to help people that don’t necessarily have an income to qualify for a mortgage. For bitcoin owners, the startup Ledn can help you get a mortgage if you have a bitcoin portfolio, so more and more solutions are getting built to solve this problem.

This post is part of an article I published on Medium. Check it out to read more about investing on the stock market as a founder, planning your retirement and learning about other founders opinion on the subject.