By Rick Pendykoski
Most entrepreneurs are an enthusiastic lot. They enthusiastically launch their companies and excitedly begin their entrepreneurship journey. While doing so, they put a lot at stake, including their time and their money. If you are an entrepreneur living your life without saving for retirement, wake up! It’s high time you get yourself to think about your life after retirement. Think about putting away some funds towards a 401(k) plan. Go through these 5 ways of saving for retirement:
1. Keep your personal and business accounts separate
Making business and personal transactions from their respective accounts help you with tax planning. Also, it helps you identify the best ways to put away money for retirement.
2. Create a budget
Having your own business makes your income volatile. That’s a good enough reason to keep a track of where your money is going. It is essential to create a budget that comprises of essential expenses and flexible expenses with a defined room for savings. If in a particular month the income is low, cut down on the flexible expenses. This will ensure that you don’t take on debt and are successful in saving what you had planned for.
3. Prepare for emergencies
Build emergency funds to cover 3-6 months of household expenses. Once you have the savings cushion in place, you can begin saving for retirement.
4. Set up an automatic transfer to your retirement savings account
An entrepreneur doesn’t have a fixed stream of income. It fluctuates, but that should not be the reason not to save. Go through your past earning data, analyze it and calculate your average earnings and come up with an amount you can safely put away as a contribution towards your retirement fund every month. If you find this difficult to stick to, set up an automatic transfer to your retirement account. Don’t forget to review your finances time and again. Accordingly, make changes in the expenditure and your retirement savings.
5. Choose the right retirement plan
You have 3 great options. You can also use Roth IRA if you are comfortable with paying your taxes now for a tax break later in your retirement.
The three retirement plans for you:
- Solo 401(k) – covers only you and your spouse, not your employees. Through this plan, you can save 100% of your earned income to a maximum of $53,000.
- SEP IRA – allows annual contribution of 25% of compensation not to exceed $53,000.
- Simple IRAs – designed for a business with 100 or fewer employees. The employer has to make a matching contribution of 3% of compensation or a 2 percent nonelective contribution (for each employee).
6. Build a robust investment portfolio
As an entrepreneur, you have the nerves of steel and you are in business because you are strong enough to take calculated risks. If you have invested in stocks, most people would advise you to sell them if there is a slight downturn in the way your stocks are performing. Don’t panic and make the mistake of selling them at the wrong time. Hold on to them and see them grow. An investment portfolio laden with stocks makes good sense because stocks are known to be the highest performing assets.
As a business owner, your priority probably lies in taking care of your business and your employees. The thought of saving for retirement may have not even crossed your mind. It’s time for you to be proactive and start thinking of taking care of yourself because one day you will slow down and when that day comes you need to have your retirement funds ready to keep you going.
Rick Pendykoski is the owner 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. Rick regularly posts helpful tips and articles on his blog at SD Retirement as well as Business.com, SAP, MoneyForLunch, Biggerpocket, SocialMediaToday and NuWireInvestor. If you need help and guidance with traditional or alternative investments, email him at firstname.lastname@example.org.