This week’s blog post comes from Jaren Nichols. Jaren is Chief Operating Officer at ZipBooks. He was previously a Product Manager at Google and holds an MBA from Harvard Business School.
Becoming an entrepreneur is an exciting step in your career, but it also comes with a lot of risks. Not only are you putting your ideas and your business on the line, but you’re also putting your time and money into this venture as well.
While it can be scary, entrepreneurs can prepare for the future and their retirement, even when their business isn’t making any money. Join us as we look at some key strategies for how you can start planning out your financial future today.
How to Plan For Your Future Retirement as An Entrepreneur
Where you’re tapping into your current retirement fund, or your delaying the start of one, you shouldn’t be afraid of success. As long as you have a plan in place, the rest of the pieces will come together.
Here are some of the ways entrepreneurs plan for their futures:
- Automate Your Plan
If you are determined to save money, don’t depend on your brute force to make it happen. Instead, create an automatic deduction that pulls out the amount each month and places it into a secure account. Apps like Acorns can invest your spare change or automatically send set amounts each month.
Even if you can’t afford to save a lot, set this up for as little money as you can afford. It will add up in the long run!
When you’re putting aside money, make sure you’re considering all aspects of your business and your future. It’s wise to have separate accounts or fallback funds in the case of an emergency. If you establish something like this early on, you won’t need to pull from your retirement when there’s a setback.
When you’re trying to figure out exactly how much you can afford to save, consider using a program that will give let you budget everything, like YNAB or Simple. That way you can be up to date on the health of your business and confident in how you are handling your savings.
- Get Tax Smart
Many entrepreneurs are sole proprietors and make most of their money through 1099s. While this is a simple setup, you can get hurt by the need to pay self-employment tax on all of your income.
If you register an LLC (vs. a sole proprietorship) and then file an S-corp election, you can take some of that income as W-2 (wages), and some of it as a “distributive share” which is not subject to self-employment tax of 15.3%. So if you’re dividing your income that way, and only half of it is now subject to the 15% self-employment tax, you’re saving roughly 7% of your total income on taxes! 7% saved and compounded every year can add up to a very substantial savings over time.
- Do More During Good Years
Entrepreneurs have to consider that their income won’t always be steady. They’ll need to account for changes in the economy or the business. To do this, make sure you’re contributing the maximum amount during the months or years when business is booming.
It may not even be your fault when you face these types of ups and downs; economic cyclicality is normal, and in the US we’ve seen a recession roughly once every ten years for the past several decades.
Giving a little more to savings during these times will keep you safe during the times when things are down.
Keep Your Eye on The Prize
Planning for your retirement doesn’t have to be as difficult as some people believe. When you’re looking for ways to secure your future, consider all of your retirement account options. Put plans in place and follow them, even if it means automating it so you don’t forget.
Remember that your business is going to have ups and downs. This is normal, so plan for that as well. Stay strong and rely on your skills as an entrepreneur to get you through. How do you save for your future as someone who also owns a small business? Let us know your savings strategies, and how you cope with downturns in the comments!