How to Plan Long-Term Financially as an Entrepreneur
Owning your own company has many benefits, such as flexible hours and increased personal growth. One benefit that does not come with entrepreneurship, however, is a built-in pension or set salary. An entrepreneur, more than anyone, must cover their bases and plan for emergencies. Here are three ways to develop long-term financial security.
Make Smart Choices With Business Loans
If you are using a lender to fund your start-up, you should get a business loan that specifically caters to small businesses. Before you select your lender, determine what your needs are. Only borrow as much money as you critically need. Maybe you require funds to purchase a small inventory, which will put you in a different bracket than if you have costlier needs. Once you know exactly what you require, there are several factors to analyze when comparing lenders.
Some will only fund businesses that have been around for a certain amount of time. Some loans are more like short-term cash advances, while others have lengthy terms, such as with mega business-term loans. You should also compare interest rates, speed of application, reliability, and quality of customer service.
Open a Retirement Account
One critical step in establishing financial security as an entrepreneur is to set up a retirement account. A popular option is the 401(k). With a 401(k), contributions made to the account are completed pre-tax, which means that every dollar you save is a tax-free earning, assuming you don’t borrow from your plan until after the latter half of your 59th year. Furthermore, your company can match your contribution with tax-deductible business funds. If you already have a 401(k), some of that money can go toward your start-up. According to Franchise Gator, up to $50,000 in your 401(k) can be tapped to fund a new business.
Build an Emergency Fund
This one should go without saying, but it’s extremely important to create an emergency fund that you can fall back on in case of unexpected expenses or job loss. Sue B Zimmerman, the founder of Women For One, said it best, “To me, an emergency fund is like fire insurance or flood insurance on your home. You hope you never need to use it but if you do, you are so glad that you have one.” Plan for the worst while hoping for the best.
No matter how carefully you plan, some things are out of your control. That’s why it is best to work with an insurance professional to create a policy that fits your needs and budget. You can also look into buying life insurance for yourself, in case you leave behind people who depend on your income.
Pay Yourself What You Deserve
Many entrepreneurs put themselves last on the totem pole when it comes to salary. While you don’t want to jeopardize your business by paying yourself too much, you also don’t want to develop a habit of sacrificing your fair cut. It might be best to pay yourself the bare minimum when you start out, says Xero. But as your company grows, reassess that amount each year and determine if a raise is viable. With time, you should be earning as much as someone with your position would receive at a similar institution.
If you are careful and plan wisely, you can be financially secure as an entrepreneur. If you are building your business strategically, there is no reason why you shouldn’t thrive. Even as a business owner, with sound financial decisions you can develop a diverse and secure investment portfolio.
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