Typically, there are critical mistakes made by entrepreneurs. In essence, they’re so busy putting out fires, they leave their financial security in doubt.
Yes, they need to put out their fires.
However, they also need to budget time to focus on important functions of business: Marketing/sales, human resources, cash flow and making astute financial plans.
By focusing on these matters, entrepreneurs also are in a better position to prevent catastrophes, if they’ve planned well financially.
Points to consider:
Envision your financial future.
Automate savings and investment strategies. Minimize expenses and spending.
Do all necessary due-diligence, and get financial planning expertise — before you do anything.
Given the importance of financial planning for your security, here are 12 tips:
1. Grow your retirement savings
Set up automatic monthly withdrawals to pay off your mortgage.
Pick the best tax-advantage retirement strategy for you such as a 401 (k) or a Roth IRA and add to it every month (see tip No. 10). And very importantly, don’t tap into your retirement fund for any reason.
2. Plan for premature death
It might seem inconceivable, but your comprehensive financial planning must allow for emergencies including premature death.
To be sure, you need to set aside enough money for six months if you lose your revenue streams. But if you have a family, you need to have enough assets to take care of your death expenses and to provide funds for your loved ones.
The funds have to be liquid in personal savings and life insurance. Plus, remember the how and what you do are important for beneficiary designations and proceeds.
3. Invest for the long-term
Prepare for the future like a world-class marathon runner.
As legendary investor Warren Buffett is wont to do – only invest in what you know really well, hold it indefinitely, focus on quality and value, and only follow the advice of successful people you know and trust.
As you age near retirement, remember a conservative approach in investing is best.
4. Focus the right way on capital ownership
Remember it’s important to focus on how you’ll get paid, not how much.
If you’re the owner of capital, you’ll never be taxed on appreciation until you want to be taxed. Such appreciation is subject to preferred long-term capital gains tax rates.
You’ll also benefit in preferential taxation from the returns of long-term capital gains and capital-qualified dividends. You’ll benefit more long-term, if you can afford to be compensated in stock vis-à-vis ordinary income.
5. Stay out of debt
Invest in your business, but manage your money to stay out of debt. This means paying off your most-expensive debt first such as credit cards or loans, student loans and mortgage debt.
Avoid future debt and cut back your spending. That includes unnecessary small expenditures.
For instance, if you’re an espresso coffee aficionado, make your own coffee instead of patronizing Starbucks every day. You’ll save as much as $100 a month or more.
6. Discuss money issues with your partner and family
Whether it’s a business partner or personal partner, discuss financial goals. If you have children, teach them about money management.
7. Evaluate and update insurance policies
As you grow and evolve in your business, make certain your insurance policies provide the right types and amounts of coverage.
That goes for business insurance, car insurance, disability insurance, health insurance, homeowner insurance and life insurance. Don’t ignore your beneficiary designations and coverage amounts should you die.
8. Remember your children
Do something for your offspring. Whatever is applicable: Fund a 529 account for college, if they’re disabled fund 529 ABLE accounts, or establish a small investment account or a trust.
But do your homework about all plans. Not all are advantageous.
9. Re-finance loans
Whether you’ve got business loans, you’re still paying off your own student loans or are concerned about your children’s future, consider consolidating or refinancing your loans.
10. Invest in a Roth IRA
To begin paying a lower rate of taxes and not paying taxes on withdrawals, consider converting your traditional IRA or 401 (k) to a Roth IRA.
Just make certain to keep your marginal tax bracket in check before you make any switches. If you make a change before December 31, you make change back if you get second thoughts for any reason.
11. Consider the right retirement risk-management strategy
Study cost-effective options for your retirement income now. You’ll need to allow for market volatility and your long-term healthcare as a retiree.
12. Find a professional to advise you
You’re best advised to find a great financial-planning professional. Look for credentials such as the CFP®, ChFC®, CLU®, CFA® or RICP®.
From the Coach’s Corner, related sources of information:
6 Best Practices to Capitalize on a Business Loan — Whether it’s a business loan, a cash advance against your credit-card income, equipment lease or purchase or commercial mortgage loan, don’t have stars in your eyes. Be pragmatic.
11 Tips to Negotiate Your Commercial Real Estate Lease — Depending on your locale, commercial real estate is either readily available or hard to find. Either way, it requires due diligence and skills to negotiate the best commercial real-estate lease.
Business Insurance Tips to Keep Money from Walking Away — As an entrepreneur you’ve worked long hours, scrimping, saving and planning in your fight for survival. But do you regularly take time to financially protect yourself and business?
Best Practices to Protect Yourself in a Business Partnership — Business partnerships often end in catastrophes because they’re not based on solid legal foundations. Here are five best practices in due diligence for your protection.
Applying for Bank Loan? Here’s How to Shorten the Process — Business owners generally have two concerns when trying to get a bank loan or line of credit. Either they can’t qualify or they face scrutiny beyond belief. Wouldn’t it be great to save time and shorten the process?
“Planning is bringing the future into the present so that you can do something about it now.”