Entrepreneurs are persistent people and innovative thinkers, but if there’s one thing that they’re not very good at as a group, it’s saving for retirement. What’s the problem? Starting a business leaves entrepreneurs in a financially precarious situation with little money left to save or invest for their own future.
What can you save when you’re running up debt and living on loans? As they work their way out of such financial issues, most of them end up completely forgetting about their retirement planning. In fact, a lot of entrepreneurs remember and start working on their retirement plans at the later stages of their careers when they should’ve done so in their 20s or 30s.
Young entrepreneurs who make a lot of money don’t always make the best financial choices. Some put every cent they make back into their business to encourage growth; others hope selling the business will fund their retirement. Both sets of people are willing to risk it all on their businesses and let their future depend on the outcome. Although some have reaped the fruits out of this strategy, none of this is guaranteed. Therefore, it’s time for young entrepreneurs to get their financial planning back on track.
Retirement Tips for Young Entrepreneurs
No one knows more about how to ensure financial stability in retirement than today’s retirees. Learn a few tips from them below.
Start With Savings
It may seem obvious, but the most important retirement tip for young entrepreneur to follow is to secure their financial security by developing a savings strategy. You’d be surprised by how many business owners have a very poor saving habit. In the current economic conditions, tomorrow is never guaranteed. Therefore, putting aside a given percentage of your income for future use is the best way to go.
It doesn’t have to be much, just ensure that you save a small amount from everything that comes in. When Patricia Lyons Harrington, now 105 years old, began saving at age 13, she 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 entrepreneurs 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. There’s no doubt that these automated systems have encouraged saving since it has become a part of monthly expenses for most people. Of course, it’s quite difficult, at least for the first few months, for one to deduct a given amount and put it in a savings account by themselves. However, with the current banking system, all it takes is a few clicks to take the deliberation out of saving.
Another retirement tip 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. Are you new to financial modeling? 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. A good measure of your development is to ensure that you learn something new financial-wise every day. This way, you’ll become financially smarter with time and might end up making even better investment choices at your older age. It’s easy to take a moderate risk when you have a steady source of income, but it takes the willingness to take a 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. Most of them have made mistakes and learned from them, but you don’t have to go that route. You can learn from their mistakes and make well-informed choices at a younger age and see your future blossom.
Updated: April 19, 2021