My first startup taught me how to deal with finance in my personal life. [a practical guide]
I admit that my first startup has failed because I had no idea how to deal with money.
Like many first-time founders, I have spent all of childhood and high school times behind monitors writing codes. I thought having an online business is all about the product, and how well it can serve customers. That was completely wrong and that was a lesson I paid 5 years of my life and almost $120k to learn.
In online businesses, except those cutting-edge ones, the quality of the product isn’t everything. Honestly, if I want to set a weight for the importance of the product, I never give more than 20%. Like other businesses, what matters most is that how we acquire customers, provide our value, and most importantly, circulate money through our business.
But this article is not about how to make a successful startup. Honestly, after launching 3 startups, I still don’t know the secret. Here, I want to talk about what I learned from my failed startups and how I applied the lessons into my personal life, in terms of managing finances.
After I put my first startup in the grave with my own hands, I decided to move to Canada to study the best practices of launching and managing a startup on a global scale. However, before being able to take a step into another venture, I had to manage my finances as a newcomer to a country in which, my whole life savings in Iran was just enough for paying 1 year of expenses. I was worried if can I manage the cash flow of my life, if I can survive in my new home, Toronto, utill I become financially stable.
Although they are completely separate worlds, business and personal life, the financial basics are almost the same. In both, you have incoming money and outgoing money. In a business, funds that you raise and sales are the main sources of income, and marketing, human resources, overhead costs, etc. are the outgoing expenses. Likewise, you have a salary, investment interests, and family support as sources of income in your personal life, and you have to pay for rent, bills, and food.
I opened the FinancialForecast.xslx file of my startup. Used the same structure and formulas to make a financial forecast for my life in the next 3 years. Although I wasn’t sure about many expenses at the beginning, I just put numbers in it. All were estimates, and after a couple of months, I found that most of them were inaccurate. But there were still some benefits in having such a file.
How does a financial forecast file look?
Before getting into the benefits of having a financial forecast for your personal life, let’s take a look at how this file looks:
As you can see, this file now has 5 different sections, although it was 4 at the beginning. Savings is a place that you should input the amount of money you saved prior to having your own financial forecast. Income has 3 rows, my salary, my wife’s salary, and other incomes (like a tax return, my school scholarships, etc.). The most important part is the expenses that I divided into different categories, based on our needs: rent, grocery, transportation, etc. And the final section, calculations, to always have an overview of our financial situations in front of my eyes.
Definitely, if you’re an Excel geek, your forecast file can be much more automated and well-formatted, but you don’t need it. The only essential formula to make your own forecast file is =SUM().
Now, after drafting your financial forecast file, you should always keep updating it. I usually update my file every week, however, the minimum frequency is once a month, and preferably at the end of the month. As you go further, your estimates would be more accurate, thus, you can update your file with new numbers. After 3–4 months, your financial plan would be ~80% accurate, which is a good number. You can(should) also add/remove rows if you need them.
For example at the beginning of our settlement in Canada, we didn’t have a car and we used to take buses wherever we wanted to go, This is why the transportation row is still there. When we decided to buy a car, I first added 2 rows for leasing a car and buying a car and I used them to compare the effect of each method on our financial status both in the short and long term. Using this file, we found out that bearing the burden of a car lease can be financially harmful to us, so we decided to buy a used Kia. I put the price of the car in the “Car (Buy)” row as a one-time payment and added another row for its ongoing associated costs. Afterward, we decreased the transportation cost from $250 to just $30 (just for the places we cannot go by our car).
Or as you can see, we decided to put a small amount of money into our TFSA every month, starting from April, so I added the relevant rows, filled them up, and updated my formulas accordingly.
But how this file is beneficial?
This file helped us in many ways, including but not limited to:
We knew/know our limits
When we want to buy something relatively expensive (the meaning of expensive is constantly changing for us, based on our financial perspective and savings), we simply use this file to estimate what’s the effect of this cost not only in short term but also in long term. We can easily decide whether if we should go for it or it’s too soon yet.
We could/can plan for our future
Like any other family, we do have plans for our future; We may want to bring a baby into life, or we definitely want to buy a home. This file is helping us to see when we can do what. Better to say, when is the best time to take action. For example, I knew that we have to wait until my university finishes then we can consider going on a joyful vacation which would cost $4,000.
It helped/helping us to avoid stress
Stress is always caused by complexity and uncertainty. When you know and you forecast, there is no room for stress. Since we landed in Canada, even though we were dealing with financial hardships caused by the pandemic, I was (and still) studying and cannot work full-time, and finally, we were not eligible for any kind of support from the government, we didn’t pay even 1cent for interest on our credit cards. All because we knew when we can spend and when we cannot.
It raised/raising our credit score
For newcomers, one of the difficulties is to make credit. It’s an essential part of a healthy financial life and becomes more important when the time of buying a home, or any expensive commodity arrives. Building credit takes time and it’s always a good idea to start building it as soon as possible. Having a constant eye on our financial situations, helped us to avoid silly moves that could ruin our credits. After almost 15 months of living in Toronto, both of us now have a good credit score.
Conclusion
Although I failed my first startup, I took something valuable out of it, and that was how to manage my finances. I wish this article light a spark in you to start building your own financial forecast and eventually have a better financial life. Should you have a question or concern about the way I’m managing my numbers, please put it in the comments section below.
Finally, clapping for this article can increase the income numbers on my financial forecast :)
