How to Balance Retirement Savings With Other Financial Goals as an Entrepreneur
Balancing retirement savings with other financial goals is a common challenge for entrepreneurs. To provide guidance, we’ve gathered eight insightful tips from co-founders and financial market strategists. From the importance of paying yourself first and diversifying investments, to considering your business type in your retirement strategy, these experts share their best advice.
- Pay Yourself First and Diversify Investments
- Balance Goals According to Life Stages
- Use Retirement Fund as Financial Buffer
- Set Clear Goals and Automate Savings
- Create Emergency Fund and Invest in Bonds
- Prioritize Personal Finances Over Business
- Diversify Retirement Plans with Tax-Advantaged Accounts
- Consider Business Type in Retirement Strategy
Pay Yourself First and Diversify Investments
Investing like anyone else and always remembering to pay yourself first is the best tip I can give after being an entrepreneur for the last 17 years. It may seem harsh, but your project may not work out. It’s easy to just keep pumping money into a project and neglect everything else, including your own financial well-being. I’ve had multiple projects I’ve put years into and thought they would pan out and ultimately didn’t. My biggest regret was the money I used trying to bring life into a project I knew wasn’t going to work that I could have invested.
Diversify all your investments, including your investments into your projects, and break it up into different buckets. Real Estate, Stocks, and Crypto are what have worked for me. Everyone is different and has different understandings and comfort levels with different asset classes, so do what works best for you. Just don’t forget to pay yourself and invest across the different buckets of assets.
Balance Goals According to Life Stages
For balancing retirement savings and growing your business, especially for female entrepreneurs, consider this tip: Think about your life stages!
If you’re welcoming a new little one into your life and find yourself holding off on major business investments, consider focusing on saving for retirement. It’s a smart move to secure your future during this time.
Then, when life grants you a bit more breathing space and the freedom to chase your entrepreneurial dreams, shift your focus to building your business. This way, you won’t feel like you’re juggling too much, and you can make progress in both areas. Remember, it’s all about finding the right balance!
Use Retirement Fund as Financial Buffer
Business owners face various uncertainties, like economic downturns or unexpected crises, which can be financially challenging. By having a retirement fund, you’re creating a financial buffer.
This safety cushion ensures that you can navigate with confidence even in tough times, knowing your finances are secure. Setting up a retirement fund doesn’t just protect you from financial insecurities; it also empowers you. It brings stability to your life, freeing you from constant worry. This newfound peace of mind allows you to concentrate on driving your business forward and making strategic decisions confidently.
Ultimately, your retirement savings secure your future and foster your business’s growth, promising a prosperous journey ahead.
Set Clear Goals and Automate Savings
Saving for retirement is important, just as building a healthy business is. While it’s difficult to prioritize one or the other, here are a few tips:
- Set clear financial goals and create a budget to track your progress. This will help you prioritize your spending and ensure that you are saving enough for retirement without neglecting other important financial goals.
- Take advantage of tax-advantaged retirement accounts, such as 401(k)s. These accounts offer tax deductions on your contributions and tax-deferred growth of your investments.
- Automate your retirement savings. This way, you’ll save money without even having to think about it.
- If needed, speak to a financial advisor to develop a comprehensive financial plan.
The most important takeaway is that saving for retirement is a lifelong journey, and every dollar counts. Start early and be consistent so that you can save for a long, happy retirement.
Create Emergency Fund and Invest in Bonds
It is important for entrepreneurs to plan for their future retirement while also building their business. My best tip for balancing saving for retirement with other financial goals is to create an emergency fund.
This emergency fund can be utilized if the entrepreneur encounters financial difficulties in the growth of their business, or any unexpected expenses that may arise. The most common way to increase savings toward retirement would be to look into high-yielding investments such as bonds. Bonds tend to offer slower but more consistent returns over time, and can provide a valuable cushion against potential losses due to market fluctuations.
With these strategies, entrepreneurs can both build up a secure nest egg and have the necessary resources to help grow their businesses.
Prioritize Personal Finances Over Business
You come first; the business comes second. A very, very close second. But your finances are all you have. To be frank, having a business fail is devastating, but having your own finances fail is so much worse. You can start a new business; starting your life over is a Herculean task. (Ask me how I know.)
Every decision you make with your business has to have your own personal bottom line in mind. I’ve always enforced a “profitable-from-day-one” strategy. This doesn’t work everywhere (if you’re looking for VC funding, etc., which I’ve stayed away from). But no matter what, be profitable from day one, and take some of those profits for yourself from day one.
Diversify Retirement Plans with Tax-Advantaged Accounts
A diversified retirement plan can be a beneficial strategy for business owners looking to save for retirement while managing other cost requirements. Different retirement accounts, such as a SIMPLE IRA, SEP-IRA, Solo 401(k), and even a SIMPLE 401(k), can reduce taxable income. Contributions to these accounts remain tax-deferred until withdrawal. This allows for the maturation of these accounts while focusing on other financial goals.
Diversifying these investments can spread a wider safety net, reducing risk potential in the event of a crisis. For instance, if funds are saved in a SEP-IRA for business and a personal Roth IRA account, each with different investment types like stocks and bonds, the safety of the other investments is ensured even if the stock market crashes.
Consider Business Type in Retirement Strategy
The type of business you are building matters a lot with this. Does your business have the potential for passive revenue one day, or will it crumble when you step back?
Does your business operate within an industry where there’s usually a nice exit, like selling your tax and accounting clientele or your entire HVAC business? If your industry type fits a strong exit or ongoing passive revenue opportunity, investing in your business should be part of your retirement plan.