One of the most important parts of running a business is making money. If you're spending more money at home then you are making in your business, you definitely have a problem on your hands. The reality of it is it will be nearly impossible for you to create a financial future for yourself if you keep spending more than you make. This all starts with the home budget.
The Home Budget
The home budget is split into 4 expense categories: recurring and essential (mortgage), recurring and non-essential (DirecTV) , non-recurring and essential (medical expenses), and non-recurring and non-essential (vacations). The first two buckets, the recurring expenses, are somewhat easy to budget for. You know how much they will be every month and you know when you will be billed for them. On the other hand, the non-recurring expenses are where people get in trouble. There is no way to budget for a medical emergency, but you must be ready for it. This is why we have the survival account.
Take the above chart for example, building wealth can be so difficult because just as we start to make progress on our savings, we are hit with birthdays, vacations, vehicle expenses, medical emergencies. It's the number one reason why people fail at budgeting and fail at building wealth, most people will just put it on a credit card and look the other way, of course we don't want to do that.
If you want to be successful in real estate, you need to treat your business like a business and treat yourself like a business owner, in this case that means creating a survival account. This account is how you will pay for these larger non-recurring expenses, and will serve as a buffer between your large swings in income.
What is a survival account?
A survival account is a separate bank account that is typically a checking, savings, or a liquid money market account. The key point here is that it MUST be liquid so you can have instant access to it if there is an emergency expense. The survival account serves as your security buffer, your goal should be to maintain 3-6 months of living + business expenses at all times. You can choose any number between 3-6 months, whatever you feel comfortable with, I normally shoot for 3 months.
What to do when you have 3-6 months of money in your survival account
When you have a surplus of over 3-6 months of living and business expenses in your survival account, you can then start to pay down debt and make investments, primarily to your retirement account.
What to do if you have under 3-6 months of money in your survival account
When you have below 3-6 months of living and business expenses in your survival account, it is then time to look at your pipeline and find your low hanging fruit to try and get those numbers up. Filling your survival account as soon as possible will give you a sense of security.
Build your Survival Account Today!
Now that you know how important the survival account is to your business, it's time to start building it. Be conscious of your business and home expenses and go from there in working towards 3-6 months of that number.
If you are interested in more information, or want to truly learn how to run your real estate business like a business, you can sign up for my course called Run Your Business Like A Business where we talk about everything you need to know financially from home budgets, business budgets and expenses, taxes, survival accounts, and much more! Click this link below to learn more and sign up today!
If you have any questions about this post or anything about Real Estate training and accountability, you can contact us at [email protected], and we will be sure to get back to you!