How to Prepare for Financial Success as an Entrepreneur

It can be hard to navigate the world of finance, much less the highly competitive startup ecosystem. No matter what age you are, everyone should think about retirement planning, mutual funds, life insurance, savings and tax planning, all of which can be even more difficult if you’re already working to grow a new business (or keep an older one alive) at the same time. What’s most important is that you plan to make your money work for you and establish financial goals, even if you’re running a company.

Financial Planning

No matter your current situation, this step should be on your list. Your financial situation is key to all other aspects of your life, and your goals should be based on your needs and obligations. Getting started is easy: “Start with your budget,” advises Carolyn Carter, communications director for the Financial Planning Association. If you’re new to managing your finances, she recommends creating a budget that allows you to make decisions based on your income and expenses. Take a look at your income and your costs in each category and make sure you’re not spending too much. The “allowance” portion of your budget is what’s left over, and should not be spent on anything other than essentials. You should also keep an eye on your bills, such as utilities and insurance.

 

Personal Finance

With personal finance, the key is determining what your ideal net worth is. This way, you can allocate your investments according to your goal and be aware of how much of your money is in the market. You can use a budgeting tool or a calculator to create a budget and see where you are wasting money. You can also have a plan of action to meet your goal. For example, you can start saving as soon as you can, and commit to a retirement fund to help you achieve your goals. Entrepreneurship Planning If you have even a cursory understanding of economics, entrepreneurship, finance and risk management, you should consider pursuing a master’s or an MBA. These programs teach you how to manage your finances and make smart business decisions, all of which will make you a better entrepreneur.

 

Retirement Planning

Retirement planning can seem intimidating, especially when you’re in your early 20s. What’s the most important factor to consider in your savings? Will you need enough for the future, or do you have other investments that can help supplement your income? What are some risk-management strategies to consider? Make sure to sit down with your employer’s 401(k) plan provider to review the strategy for you, whether it’s a traditional or Roth 401(k), or see if there is an IRA option. There is a large and increasing number of options to choose from, but do your homework so that you make an informed choice. Once you decide on a strategy, invest your savings accordingly. For example, do you plan on retiring in the next 10 years, or 20 years? Adjust your retirement savings accordingly.

 

Insurance

One of the easiest ways to do this is to sign up for the right life and business insurance policies. I’m not an expert in the insurance world, so for a rundown on this, visit Betterment. Retirement I’ve been writing about this for many years, so it’s safe to say I’ve seen a lot of different retirement plan options. The best option for you may be to create a retirement fund using the “Roth IRA” method. You’ll have to be very conservative with your investment decisions, but the freedom you’ll get in retirement will be well worth it. Life Insurance If you don’t have life insurance and you think it’s a good idea to do so, you’ll probably be happy with what you get in terms of coverage. You can use these sites to compare different plans.

 

Taxes

You must deal with taxes when running your business, especially if you plan to sell shares to your employees in the future. You should also think about how to structure your taxes going forward. Start by learning what your different tax rate options are. With the 2018 tax year coming up, your rate can change from last year, especially for the larger corporations with multinationals. If you are selling shares to employees, you will need to take into account the actual tax rate that will apply to your employees. Social Security Also keep in mind that Social Security is not completely “entirely safe.” You should start planning to make sure that your personal financial situation is in order for when you need it.

 

Conclusion

Becoming successful as an entrepreneur has its risks, but it’s better to take those risks than to allow yourself to be held back by old fears. Don’t let money be the thing that keeps you from following your dreams and building the life you’ve always wanted. What else do you wish you knew about entrepreneurship?

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