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Retirement Ready

While it's fun to splurge on a new car, if you're not safeguarding your financial future, eventually you'll be struggling instead of enjoying the freedom that small business ownership is all about.

Michele Chiappetta
August 28, 2019

Are you saving for retirement?

That’s a question every person needs to think about. And if you’re a freelancer, small-business owner, or gig worker, it’s even more critical. But planning for financial needs such as retirement, sickness, or a loss of business should be high on your list of to-dos. After all, if you don’t do it, who will?

And while it’s fun to splurge on a shiny new car or a vacation to Tahiti, if you’re not safeguarding your financial future, eventually you’ll be struggling instead of enjoying the freedom that small business ownership is all about.

Unfortunately, many entrepreneurs don’t take steps to care for themselves until a crisis occurs, says Camille Diaz, owner of Serenity Financial, a financial educator and provider in Broken Arrow. Diaz has been in business for herself for 10 years, and her husband owns his own business as well. They’ve seen the ups and downs of business ownership, including a time when her husband got injured, and it looked like his business might be in jeopardy.

“There was a time [my husband] had a terrible crash on his bicycle,” says Diaz. “He was having headaches and couldn’t function. At that point, it hit us: What happens if one of us is really hurt? How are we going to pay bills? How are we going to handle the clients?” Fortunately, Diaz’s husband recovered within a few weeks and was able to get back to work, but the close call made her realize they needed to have money put aside for situations like this.

For business owners, the idea of putting money aside can be a challenge for several reasons. First and foremost, there’s the issue of cash flow. “The first couple of years are always really hard,” says Diaz. “You’re putting your own money into your business most of the time, and you’re just trying to make it work. And that has to be the focus at the very beginning.”

But once a business has become more stable and less day-to-day, Diaz says, people often forget to take the opportunity to put some of their profits into savings. That’s dangerous, because if something goes wrong or if you’re ready to switch gears, you may not be financially prepared to do so.

So, how do you get your financial planning into shape as a small-business owner or solopreneur? Here are some tips to get you started.

Change your mindset
It’s pretty standard for people to enter into business ownership after having worked for someone else, maybe for years. But the “employee” mindset and the “business owner” mindset are two different things. As an employee, you can usually rely on your employer to figure out things like the 401(k) and taxes. As a business owner, all that decision-making is on you.

But don’t let that make you feel pressured. Instead, own it. See it as a benefit of entrepreneurship and be proactive in planning your finances. This gives you more freedom and power to plan your life the way you want to.

Get financial advice early on
Being a business owner means taking charge of your finances. But it doesn’t mean you need to be a financial expert. Look for a financial planner and an accountant who are well-versed in working with small businesses, and who don’t make you feel pressured to do something you’re uncomfortable with.

“Come in and see somebody early,” Diaz says. “You don’t have to start something right away. To talk to me doesn’t cost anything. We have classes. You can come to class, learn what’s out there, and decide, ‘Oh, I want to do that thing.’ Even if you’re not starting it today.”

Create an emergency fund
Studies show that many Americans don’t have anything at all set aside for retirement. Others have less than $5,000 in liquid savings. And as a business owner, a loss of income, even temporary, can ruin the business. If you don’t have an emergency fund, it’s time to start one. The rule you’ve probably heard is to save six months of expenses, but that’s best for people who work for someone else. Business owners should double that, says Diaz, and save a year or more in expenses.

Set up a retirement fund
Owning a business doesn’t change the basic rules of saving for retirement. “Still pay yourself, and still save,” says Diaz. “Choose a system [for saving] and do it regularly. You probably can’t put too much away from your future.”

There are several options to consider, such as a traditional IRA, Roth IRA, SEP-IRA, and Solo 401(k). A financial adviser can help you pinpoint which of these options is most appropriate for your particular needs. But the bottom line is to start saving. “Just having something saved is very motivating to people to be able to start saving for,” says Diaz.

Invest in living benefits
Living benefits are forms of insurance policies that provide you with payments if you find yourself unable to work due to severe illness, terminal disease, or other catastrophic events. No one likes to think these things can happen to them. But if they do, they may make it impossible for you to work, so insurance is vital for a small-business owner. Of course, the specific terms of a living benefit rider may differ, so you’ll want to consult an insurance expert to determine what will work best for you.