Women are leading an entrepreneurial boom. About half of the startups founded in 2021 were launched by women. At the beginning of an entrepreneurial journey, entrepreneurs often focus on building a sustainable business. And once that happens, it’s time to start thinking about building a sustainable personal financial situation for yourself and your family.
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If you’ve started a business, you know all the ins-and-outs of your company’s finances. But have you been putting as much attention on your personal finances? Ideally, one will never overshadow the other, so you can be successful at both!
Here’s a look at some money management tips female entrepreneurs can use at any stage of their business:
Pay Yourself Enough
Many entrepreneurs understandably feel pressure to reinvest all or most of their earnings back into the business – particularly women.
It’s totally normal to want to put your business first, but you shouldn’t do so at the peril of your personal finances. Make sure the salary that you determine for yourself is sufficient to maintain your lifestyle, but also to fund your retirement. (I’ve been in wealth management for more than three decades, and every year, I make sure to max out my 401(k). Thirty-four years later, my 401(k) is ten times greater than my husband’s retirement account. When my Millennial daughter recently entered the workforce, I advised her to do the same.)
Compounding interest over time is powerful for everyone – including business owners. You need to both pay yourself and reinvest in the business to advance its growth. Just how much should you set aside? The answer depends on your lifestyle, and planning how much to save requires an honest conversation with yourself and your family about “needs” vs. “wants.” In other words, you may have to sacrifice some of today’s immediate “wants” in order to sufficiently plan your financial future. (But it’s totally worth it!)
Start with Retirement, Then Think Bigger
While 401(k) and Roth IRAs are terrific vehicles to save for retirement, both have annual contribution limits and therefore are only one piece of a bigger retirement strategy. If you find yourself with extra money after contributing to your retirement accounts, you can consider investing in income-producing assets, such as stocks or real estate.
Here’s the advice I gave my daughter: Pay yourself $100 per month first. Invest this money in a passive index fund that tracks the S&P 500, for example, which provides broad-based exposure to the stock market. This allows you to set it and forget it, and the long-term average gains of the stock market will create a nest egg over time.
If you’re comfortable taking on additional risk, then you may want to consider investing in individual stocks or even in private businesses. You may also want to put money into a money market account, which can yield as much as 4% annually in interest. It may be time to engage a financial advisor to help you with your investment strategy.
You Want To Sell Your Business. Now What?
Regardless of how the economy is performing, strong businesses are always desirable. Especially if your company is in a popular vertical like tech, construction, artificial intelligence or healthcare, your firm may even get approached by prospective buyers.
When getting ready to sell, one of the most important things you can do is find people who can help. You’ll learn best from other female entrepreneurs on what they did and the mistakes they made. Most importantly, you’ll need to determine what to do with your new pile of cash after your sale. Ask yourself: What’s the mission and vision of this newfound wealth? A financial planner can help you decide on your best money moves, but saving and investing for your future are paramount. Also, because so much of your life was focused on building the business, you’ll need to reorient your mission and vision.
Building A Life With Purpose
Purpose is key. Ask yourself: What can my money do for me, my family, and my community? When I joined the workforce in 1988, women were competitive with each other. Today, women find ways to lift others as we climb together. With dozens of organizations dedicated to women helping women, now the best time to be an entrepreneur and increase your wealth with the support of those that came before you.
My best advice is always the same: Pay yourself first. Invest your money. Think about purpose. Now, go climb!
READ MORE:
- 4 Female Entrepreneurs On What Made Them Finally Start Investing
- 5 Women In Fintech Making History Now
- What Is It About ‘Female Only’ Spaces That Make Us Feel Empowered?
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