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Starting a Business – Credit or Savings?

Unless you are prepared to pay your entire credit card balance each month then you are playing a losing game if you are using credit. Particularly for necessities like living expenses, while you may feel you have no choice, it can become excessive. The maze begins because when you have cash you need to spend it to pay your credit card bills. So then you are short on cash again and back to the plastic facade or ‘funny money’.

The same can be said for business expenses, although it just seems natural to do that, particularly online where you have to have a credit card in order to make a purchase in many cases. It makes more sense to start preparing or planning to start a business by creating a savings account that will be for operating expenses. When you have sufficient funds in your savings account to make a purchase, then use the credit card, but prepare to pay the entire balance from your savings.

You have to be honest with yourself and if you have any gambling addictions or compulsive spending habits, you have to be very disciplined. You really need to pay attention to this before you go bankrupt. Things can and will get out of hand if you do not have enough income to cover your expenses. Do not speculate which even with a fancy name like that is still gambling.

It’s simple math. Actually sit down and do some examples of how interest due on the money you borrow from credit adds up and compounds. You will see that it is costing you a lot of money to use credit. Do not spend more than you have no matter what the excuse might be including investing in your business. Save your credit line for emergencies only, other than what you can pay each month to erase any balance.

No matter how you look at it, preparing for the unexpected should be done before it happens. How do you know when the unexpected will happen? You don’t. The idea to be prepared for all eventualities is a good solid one. If nothing ever happens, then you have a windfall. So many things can happen that may require extra funds on an emergency level. If you want to look at your credit cards as this type of resource then just leave the card in your drawer and pull it out should the need arise.

In fact if you are planning to start a business then this is not an unexpected or emergency situation. If necessary part of your business plan should start with how much money you have to invest each month. If you have a job, then you should start putting away into a savings account as much as you can comfortably spare yourself for operating costs. Even $5 will add up believe it or not if you are consistent.

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