In a perfect world your business and personal finances are completely independent. This ain’t a perfect world.

Gone are the days where most businesses start with a lump sum of money and full-time effort on the part of the owner(s).

Most online businesses start smaller, run leaner, and are active much longer than the previous generation of businesses.

A common scenario is that you’ve turned a passion or deep expertise (likely both) into a project that morphed into a full-time business. In the same way that your business happened organically, the methods you use to manage your business will evolve organically as well.

Managing your business finances starts with managing your personal finances

When you’re just starting a business, or running a business without employees, your largest business expense will be you. If you roll up all of your personal expenses that’s really just one big expense line item for your business. Since that’s probably one pretty big line item, we recommend starting with a personal budget.

Our goal is to make that line item as predictable as possible.

There are a ton of tools out there that can help with personal budgeting. Many of you will have tried tools like Mint or something provided by a traditional bank. Here’s the thing — they’re more work than they’re worth. Sometimes the best solution is the simplest one and for personal (and business) budgeting that often means a spreadsheet.

Here is a sample personal budget in Google Docs. Go ahead and make a copy. Here is how I recommend you get started.

  1. Fixed Expenses: Start by making a list of all of your fixed expenses. These are commitments that you’ve already made like rent, insurance, utility bills, loan payments, vacation savings, and subscriptions (I’m assuming you will all have a Netflix line item on here 🙂 ). If the amount varies from month to month use a conservative estimate.
  2. Mostly Fixed Expenses: Now add in the things that you MUST spend money on each month, but are more variable than the fixed expenses above. Some examples are groceries, gas, and pet food. This list will probably be pretty short but it’s important to have it separated from fixed expenses; we’ll explain why later.
  3. Spending Money: This is exactly what it sounds like. The problem with most budgeting tools is that they track separate budgets for coffee, dinner with friends, clothing, birthday gifts, etc. In practice this isn’t helpful. You’re better off determining how much “discretionary spending” you require (and can afford) each month and then treating it as a lump sum of spending money. Once it’s gone it’s gone — but you can spend it on whatever you like.

If you’ve been editing your new personal budget along the way you should now have a simple (but accurate!) picture of how money is moving through your personal life.

Play around with your income sources to model a scenario where you earn more from your business and less from other sources of income.

Leave feedback/questions using the comments feature in the doc and we will use them to make the template more useful.