6 Financial Freedom Strategies for Entrepreneurs

May 14, 2023

Entrepreneurs are some of the hardest workers in the country. We often work long hours and put our personal needs last. Unfortunately, this can be detrimental to your financial future: A business owner must have a plan for retirement, too.

Most of us are so focused on our day-to-day business activities that we don't think much about the future. Nevertheless, financial freedom is a goal you can’t afford to ignore if you're an entrepreneur. The same skills that make you successful at work won’t necessarily help you prepare financially for living work-optional. So, what follows are tips that I've learned from my own experience.

This article answers the following questions:

  • How could a Roth IRA conversion reduce your taxes owed?
  • Why is it never too soon to prepare, financially, for retirement?
  • Should entrepreneurs in their 20’s be concerned about healthcare?
  • How much should you start setting aside for financial independence?
  • Can Social Security meet your needs if your savings fall short?
  • What makes investing a long-term endeavor?

1. Start Saving Early

You might be able to get away with not saving for the long-term if your business is doing well for a while, but not overall. In fact, you could wind up kicking yourself later in life for doing that. Even if your company’s thriving and you’re still young, think of every dollar you put into savings as an investment in your future self.

In other words, start by contributing as much money as possible each month until your business is profitable enough to support your lifestyle without the need for extra income from outside sources. From there, continue contributing what's needed each month while increasing the amount each year until retirement age arrives.

The sooner you reach that point today, the better off you'll be later in terms of wealth accumulation over time. That’s because investing early means that there are more years in which your investments can grow; can compound interest and dividends from your assets over time. In the long term, these can mean a larger nest egg.

Too often, I hear, “My business is my nest egg.” However, it’s not accompanied by a plan, valuation, or buyer. While the business may be your largest asset, it’s often easier said than done when it’s selling time. Building multiple income streams is key to your financial freedom.

2. Consider a Roth IRA Conversion

A Roth IRA is an account that gives you tax-free growth and withdrawals. The IRS considers the money going in to be after-tax dollars, but all the growth and withdrawals are income tax-free. So, using a Roth IRA is a no-brainer if you're in a higher tax bracket by retirement age. However, there are also ways to get the benefits of the Roth IRA by utilizing Roth Conversions.

Benefits of doing a Roth IRA conversion include:

  • Tax savings: You’re probably taxed at a higher rate now than you will be when you plan on taking money out of a pension or 401(k), especially if you sell your business. When you plan for Conversions, you must first contribute to a traditional 401(k) or IRA, which will save you taxes today.
  • The Conversion: Once you sell your business and are getting ready to retire, you may be in a much, much lower tax bracket (think of the difference when you’re making $50,000 and not $500,000). Roth Conversions let you convert your pre-tax money into Roth money—where the earnings are tax-free. If you do this at your lower income, you may have deducted the earnings at the highest tax rate while you worked and then paid taxes on the conversion when you are at lower rates: basically, you’ve chosen when to pay taxes on that money.
  • The Caveat: Now, there are always caveats. First, we don’t know what your taxes will exactly be when you leave the workforce, but we can probably make an educated guess. Second, you have to keep the money in Roths for five years to “season” the money for it to be tax-free. Third, once you execute the conversion, you DO have to pay the taxes!

Every situation is different, but I love doing this.

Let The Ironclad Professionals Show You How To Convert Your Personal Freedom Into Financial Freedom.

3. Limit Your Spending

Another simple financial strategy is not spending all of the money that comes in from your customers or clients. For example, sometimes someone pays for their product or service online using PayPal or Venmo (instead of paying in person).

Keep track of how much money comes through these payment methods each month. As a result, there won’t shouldn’t any surprises for the next tax season. This is an important part of retirement planning entrepreneurs should never overlook.

4. Plan for Healthcare Costs (Which Can Get Expensive)

Healthcare costs are often a much bigger burden on financially-free former entrepreneurs than they are on working people. This is because healthcare costs continue to rise at a rate well above inflation (and the average Social Security benefit does not cover them sufficiently).

It's important to plan as far ahead for these expenses as you can. None of us knows what kind of shape we will be in when we hang it up. Regardless, the best way to stay financially healthy in your golden years is by making sure that your healthcare coverage remains stable in the years leading up to it.

5. Invest in Stocks, Bonds, and Other Securities

Investing is a way of setting money aside for future use by turning it into equity. Since the best rewards tend to come from assets that have been allowed to mature, this tends to be a long-term process. At the same time, it should also be an important aspect of managing your finances day-to-day.

Investments can include stocks (shares of ownership in a company) and bonds (loans to companies or governments), as well as mutual funds (groupings of individual investments), real estate, commodities like agricultural crops, and more.

There are many different types of securities available today. Choosing specific types will depend on what kind of investment strategy makes sense for your unique needs. Professional investment advising is only one of the multiple financial planning services Ironclad Wealth Management offers you and your business.

6. Streamline Your Savings

Generally speaking, people in their twenties should start thinking about how they want their savings accounts to look in the long run—and then begin developing their plans accordingly. This can be as simple as signing up for a 401(k) at work or opening an IRA account at a bank or brokerage firm.

People with the nicest idle incomes often get where they are by getting on the ball, savings, and investment-wise, as early as possible. Keep consistent in your own efforts, and you may be pleasantly surprised where they lead you as your workforce days end.

The Sum Total

Financial freedom is the primary goal of most entrepreneurs. Many of us have built our businesses from scratch, so we know that they will fall apart if we don't keep working hard. Many of us are used to living in a high tax bracket and paying taxes on our income.

However, your tax bracket will drop significantly when you decide to retire. This means that if you weren’t careful with your finances today, you might miss out on significant opportunities tomorrow. Contact us today to start safeguarding your future.

MGO One Seven LLC ("MGO One Seven") is a registered investment adviser with the U.S. Securities and Exchange Commission (SEC). Registration with the SEC does not imply a certain level of skill or training. All titles listed for individuals associated with Ironclad Wealth Management represent the individual's role with Ironclad Wealth Management, and not their role with MGO One Seven. Services are provided under the name Ironclad Wealth Management, a DBA of MGO One Seven. Investment products are not FDIC insured, offer no bank guarantee, and may lose value. Please visit our website www.WeAreOneSeven.com for important disclosures.

Please note, the information provided in this presentation is for informational purposes only and investors should determine for themselves whether a particular service or product is suitable for their investment needs. Please refer to the disclosure and offering documents for further information concerning specific products or services.

Nothing provided in this presentation constitutes tax advice. Individuals should seek the advice of their own tax advisor for specific information regarding tax consequences of investments. Investments in securities entail risk and are not suitable for all investors. This site is not a recommendation nor an offer to sell (or solicitation of an offer to buy) securities in the United States or in any other jurisdiction.

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