Entrepreneurs are persistent people and innovative thinkers, but if there’s one thing that they’re not very good at as a group, it would be saving for retirement. What’s the problem? Simply put, starting a business can leave entrepreneurs in a financially precarious situation with little money left to save or invest for their retirement years. What can you save when you’re running up debt and living on loans?
Meanwhile, even those who are making money don’t always make the best financial choices; some put every cent they make back into the business to encourage growth, while others hope selling the business will fund their retirement. None of this, of course, is guaranteed, which is why it’s time for young entrepreneurs to get their financial planning back on track. And no one knows more about how to ensure financial stability in retirement than today’s retirees.
Start With Savings
It may seem obvious, but the most important thing any entrepreneur – any young professional, really – can do to secure their financial security is to develop a savings strategy. It doesn’t have to be much, just a concerted effort to set aside money for a later date. When Patricia Lyons Harrington, now 105 years old, began saving at age 13, for example, she simply set aside every quarter she found, the equivalent of saving every five dollar bill today. And even as their value declined, Harrington kept saving those quarters. Young entrepreneurs need a similar strategy.
With fewer individuals carrying cash these days, the simplest way for young people to ensure they’re actively saving is by automating the process. Have IRA or 401(k) contributions automatically deducted from your bank account. Automate transfers into your savings account. All it takes is a few clicks to take the deliberation out of saving.
Also, a good idea for young entrepreneurs would be to build a financial model of their business. This allows them to track their expenses more accurately, and make sure that the revenue they make amounts for more than the expenses. If you find the term financial modeling unknown you should check out this Wall Street Prep guide that talks about all of its functions.
Invest In You
One significant advantage young entrepreneurs have over their traditionally employed peers is the ability to invest deeply in personal development and learn new skills, and it’s worth considering how you can invest in yourself. As financial advisor Robert Pagliarini puts it, young people should take the time to invest in themselves – it’s what he wishes he had done as a young person. Investing in the self includes a range of different activities, from going back to school to pursuing your hobbies. And it also means learning financial skills that will serve you down the line.
If you take the time to invest in your financial skills during your early adulthood, you’ll be better equipped to make smart investment choices throughout your life. For example, entrepreneurs who hone their financial skills young are more likely to grow into retirees who mix risky and reliable investment strategies for continuing financial growth. It’s easy to take a moderate risk when you have a steady source of income, but it takes the willingness to take risk – a common trait among entrepreneurs – to make such a leap on a fixed income.
Finally, young entrepreneurs should push themselves toward retirement security by getting excited about the future, and not just the achievements of the near future, but the distant unknowns. Identify people who inspire you to succeed in retirement and determine what traits you want to emulate. For example, health expenses can be one of the greatest threats to financial stability in retirement, so you might want to look at the lives of individuals who have found ways to invest in their health to save money. Charles and Eileen Haugh exercise together and are vigilant about preventative care, helping them to enjoy their 70s and 80s in good health and with lighter expenses. They’re a living testament to the fact that sometimes matching income with expenses starts with the simplest acts.
Not all retirement savings is based on investing in an IRA or 401(k), and if anyone knows how to rethink traditional approaches to financial management, it’s entrepreneurs – but that doesn’t mean you can do without guidance. Retirees know what works, and they want to share their wisdom. Let their experiences act as your foundation.