Retiring Rich: 8 Personal Finance Tips for Entrepreneurs

Retiring Rich

Become Financially Independent

The most crucial aspect of building a successful business is staying on top of your finances and having them in order at all times. After all, business success is measured in terms of revenue. First-time entrepreneurs wanting to boost their profits and bootstrap their expenses can follow these steps to succeed in a competitive business world and create a rich retirement reserve.

  1. Diversify Your Financial Portfolio

Any entrepreneurial venture is more likely to fail than succeed and so, it is very important that business owners diversify their funds and minimize the risk. Consider keeping some cash in a side business, create an emergency fund and consider alternative investment options. As a first time entrepreneur, it is also very important to start a retirement savings plan that safeguards your future financially.  The most favorable retirement savings options that entrepreneurs have include a simple IRA, SEP IRA and 401(k) plans. These plans are easy to set up and affordable to maintain.

  1. Explore Different Types of Retirement Savings Accounts

When it comes to retirement savings, entrepreneurs have several lucrative options. If you want to explore beyond traditional IRA plans and 401(k) plans, you can consider SEP IRAs which allow you to save relatively more in a tax-sheltered account. For instance, an SEP IRA allows business owners to stack as much as $52,000 in a tax-favored account and with a defined plan this amount can actually go up to $100,000!

  1. Have Separate Accounts for Personal and Business Funds

Volatility is inherent in any business and finances can be tight initially so it is very important to maintain separate personal and business accounts. This will keep your business expenses in check and you won’t have to dip in to your personal savings for your side hustle.

  1. Don’t let Debt Delay Your Retirement

Paying off debt should be your top priority as a business owner because if you don’t, eventually you may have to tap into to your valuable possessions when repayments become unmanageable. So don’t let debt delay your retirement and reduce all your repayments. Plan your personal finances early on and avoid becoming the victim of compounding interest where you end up paying much more that what you borrowed originally.

  1. Set Goals to Keep Your Business Expenses Under Control

When you are running a business, setting personal finance goals that are specific and realistic will serve to motivate you, keep you on the right track and give you a framework that can be used to measure your performance and optimize your efforts. However, if you are making profits, it is likely that you may go a little overboard with your expenses. But, it is a myth that expenses are tax-favored. So even if you have cash flowing in consistently, do not indulge. You should remember that the small expenses can gradually eat away big chucks of your profits. Try to run a lean business where you only spend on what is absolutely necessary.

  1. Consider a Target-Date Fund

Target-date funds are mutual funds that automatically re-balance stock and bond investments over time. The ‘target date’ refers to the year when the account holder plans to retire. The fund manager will help you decide how to re-balance your assets. This is a good option if you don’t want to constantly monitor your investments. On the other hand, the mix of stocks and bonds means these funds are not flexible to shift assets into promising trends or pull out of weaker stocks.

  1. Transfer Funds Automatically

Determine how much money you can contribute to your savings plan. After that, set up an automatic transfer between the accounts. This allows the bank to automatically transfer the specified amount of cash from the checking to savings account at regular intervals. You can even choose to contribute some part of your paycheck directly to the retirement fund. You can adjust the amount any time you want. Automating your money means you won’t have to worry about manually handling it.

  1. Have a Flexible Budget

If you have a volatile income, you need to know exactly where your money is going. Create a budget that can cover the essentials and one that is flexible. This means that you may have to cut a few expenses here and there. You can avoid debt and maintain the savings plans. Any change in income may allow you to live comfortably one month but limit you the next. That’s why you need to be aware of your cash flow.

Conclusion

When you are running a business, you should always be thinking long-term. While your personal finance goals may be monthly or quarterly, all of them should be planned keeping the bigger picture in mind – Your retirement. So aim for financial stability and keep adjusting your personal finances as your business grows and your retirement savings will continue to grow along!

About Rick Pendykoski 1 Article
Rick Pendykoski is the founder of Self Directed Retirement Plans LLC, a retirement planning firm based in Goodyear, AZ. He has over three decades of experience working with investments and retirement planning, and over the last 10 years has turned his focus to self-directed accounts and alternative investments.

1 Comment

  1. I found your article very informative and I totally love how the concepts are explained in this blog post. Thanks for sharing your insights. It helps a lot.

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