It’s never too soon to begin thinking about retirement. As an entrepreneur, you have to be extra strategic with how you save money and build up your nest egg. Unique rules apply to your situation, and it’s smart to proactively develop a plan that will put you in a spot to be successful for decades to come.
5 Tips and Pointers to Consider
Millions of entrepreneurs fail to plan for retirement – and it eventually bites them in the rear. Research shows that 34 percent of entrepreneurs don’t currently have a retirement savings plan. And of those who do, a large percentage aren’t setting aside nearly enough money each month.
If you want to be an exception to the rule, you need to be setting aside at least 10 to 15 percent of your income each month and putting it in a well-diversified portfolio of growth stock mutual funds (and perhaps some bonds, if you’re nearing retirement age).
As you begin thinking about retirement, here are some tips and pointers you’d do well to consider:
- Change Your Mindset
So many people think they can do whatever they want now and retirement will have a way of figuring itself out. But unless you win the lottery or stumble into an inheritance between now and then, this is a pretty foolish statement to believe.
You need to focus on retirement like it’s coming up at the next exit. This will change your mindset and force you to begin saving and investing with purpose.
- Develop a Monthly Budget
Before you can invest, you have to figure out how much you’re able to contribute. If you haven’t already, it’s recommended that you come up with a documented monthly budget. This will help you get an idea of exactly what your financial situation looks like and how much money you can invest.
- Spend Less Than You Make
“If you want to save a large sum of money for the future, you are going to need to be prepared to make some sacrifices in order to reach your goals for a nest egg. In order to save more, you will either need to spend less money or earn more money or a combination of both,” shares CardGuru.
Basic common sense says, to build wealth, you have to spend less than you make. While debt can be used as an instrument for building wealth, you have to be careful not to become over-leveraged. Credit card debt, car debt, and excessive student loan debt aren’t worth the risk.
However, there are services for those who need to take on debt like student loans that without most American cannot attend college. These services compare the rates of lenders to offer you the best options quickly. Spend less, make more, and invest the difference – it’ll change your approach to retirement.
- Make Smart Investments
The majority of people who successfully build multi-million dollar nest eggs don’t make risky investments or throw money at unproven “opportunities.” Instead, they make smart investments. They also don’t invest in single stocks. Instead, they diversify their portfolio across many stocks and mutual funds – even in tough times.
“If you think you can sustain your nerves through a downturn and wait for the uptick in the market that is (almost) sure to come, take advantage of your higher risk tolerance to load up your portfolio with a higher allocation to stocks,” financial journalist Elizabeth MacBride writes. “A purely rational person would allocate an entire portfolio to stocks because that is historically the highest performing asset class.”
- Create Streams of Revenue
In addition to stockpiling money in mutual funds and savings accounts, it’s smart to think about ways you can generate passive income during retirement. Whether it’s from royalties on a product you sell, income-producing real estate, or occasional consulting, it’s smart to have some money coming in during your retirement years.
Don’t Ignore Retirement
It doesn’t matter if you’re 25 or 65 – you can’t ignore the topic of retirement. It has to be a focus and a priority throughout your career. Banking on the sale of your business as your retirement isn’t smart. You need to develop a plan with actionable steps that accounts for each worst-case scenario. In doing so, you’ll be well-prepared for retirement without banking your entire future on a handful of dominos falling in the correct place.