Everyone makes mistakes, especially in the world of entrepreneurship.
They say it’s all part of the journey. Usually, the missteps you make as an entrepreneur are fixable and teachable lessons on how to make better decisions and run a more successful business. Other times, however, a mistake can be costly and have a lasting effect on your long-term goals.
The costliest oversights are the ones that impact your finances. While women entrepreneurs are known for putting their hearts and souls into their companies, they also tend to forget to take care of themselves and look after their personal finances. The same traits that make a good businesswoman — fearlessness, risk-taking — are not always what makes a good wealth planner.
When it comes to managing your personal finances, here are three risky mistakes to avoid ensure your personal success as you grow your business.
Don’t forget about retirement
Women entrepreneurs have a lot on their plate. So much so that it can be difficult to prioritize a financial goal that could be decades and decades away. It’s even harder to think about saving for retirement when you have a business that could use a few extra dollars right now.
According to a survey conducted by small business resource Manta, 34 percent of entrepreneurs do not currently have a retirement plan. Reasons for this include not making “enough profit to save for retirement” or using “retirement savings to invest in my business.”
Regardless of the reason, these figures demonstrate a huge missed opportunity, considering there are many retirement tools today for self-employed workers and small business owners. For example, the solo 401(k) and Simplified Employee Pension IRA are retirement accounts specifically designed for entrepreneurs that offer tax benefits and other exemptions compared to regular 401(k) plans.
Those who push retirement planning to the side risk having to struggle financially in their later years and giving up their lifestyles. The sooner you begin saving, the more time your money has to grow.
Avoid living beyond your means
Perhaps there is nothing more fulfilling than watching your dreams come true. Entrepreneurs who have beaten the odds and created successful businesses do and should reward themselves. However, it’s important not to get carried away. One of the biggest financial mistakes professional women make is drastically upgrading their lifestyles the minute they start to earn more money.
Overspending in the U.S. is a real problem. New research by Harvard University found that almost 40 million Americans live in housing they can’t afford, which means they pay 30 percent or more of their income on housing expenses. Surpassing this limit can put your finances at serious risk, as it doesn’t allow for adequate saving or protection in the event of an emergency.
“Pay your future self first,” advises Josh Womack, founder of Womack Financial, a financial advisory firm specializing in working with business owners to preserve and grow their wealth. “Compounding is the closest thing to a secret sauce when it comes to investing. The best way to allow compounding to work for you is to invest as early as possible. Even if you start small, consistent contributions can turn into impressive sums over time.
Business owners should feel OK about enjoying the fruits of their labor today, while at the same time balancing saving for tomorrow. Ideally, we can have buckets for near-term or emergency savings, long-term savings, and then spending money. The ratio of enjoying today versus saving for tomorrow is a very personal choice, and one that should be thought out. There is not a one-size-fits-all number,” adds Womack.
Diversify your investments
Growing a business requires all of our time and effort and for many involves sacrificing a secure income and much of our own savings. But there is a risk that entrepreneurs face when they invest their every dollar into their businesses, and that is having too little diversification. Concentrating in only one type of investment can lead to some hard times if the company ever comes to face a slow season.
The key to protecting your livelihood is diversification. Entrepreneurs who make an effort to establish more than one income stream can rest assured that they have a solid foundation.
And putting in this effort is not as difficult as it may seem. There are several ways entrepreneurs can earn an extra income without dedicating too much time and money. One of the most popular ways is by investing in income-generating real estate.
According to Morgan Stanley’s 2014 Millionaire Investor Survey, among investors with investable assets over $1 million, 35 percent of their portfolios were allocated to real estate.
While, millionaires heavily invest in real estate, you don’t have to have hundreds of thousands to get started. Innovative technologies and new regulation sites such as Upside Avenue are enabling investors to start investing with as little as $2,000.
Investing through vehicles like a SEP IRA only enhances the power of real estate for entrepreneurs.
As a fellow female entrepreneur who built and sold her business following these rules, I can tell you savings and building passive streams of income not only saved me from major regrets during many lean times but also allowed me to take annual month-long vacations to international hot spots to get some rest and relaxation when needed.
You can have your cake and eat it too, sometimes you just need to let it bake a little longer before you enjoy. By following these simple tips, you can gain tremendous financial success that can reward you today and for years to come.
Joy Schoffler, is Chief Strategy Officer of Upside Avenue and a thought leader within the global FinTech community. Joy serves a key role in developing and implementing the overall technology and investor relations strategy for Upside Avenue. Joy currently sits on the advisory board of the SXSW Accelerator, AARP’s FinTech Accelerator and the FinTech Professionals Association. Joy additionally spent four years on the board of CFIRA working with the SEC and FINRA on JOBS Act implementation, which enabled online investing as we know it today.