Sure, we all dream that our enterprises will prosper and flourish, but the reality is that there are sure to be plenty of rainy days in the future.
Smart entrepreneurs set money aside to weather those storms.
Take me, for instance. For the past five years, I’ve earned six figures from my business. This year I’ll be lucky to earn five. I gave up a high-paying gig, and now my monthly income doesn’t come close to covering my expenses.
But I’m not panicked. In time I’ll earn more money; meanwhile, I can live off my nest egg. You see, over the years, while I was making much more than I needed, I socked away money in savings.
As a result of my forward thinking, I’m able to focus on the big picture ahead instead of freaking out over day-to-day expenses. It’s a sweet feeling and one you can enjoy yourself – if you take action now.
How Much to Save
The standard recommendation from financial advisors is to save 10% of your income. That’s a nice guideline, but the truth is that each person’s situation is different. I have three recommendations.
- Always save something, even if it’s just $20 a month. Starting small will turn saving into a habit.
- Aim to sock away 20% of your after-tax income. This will be easier once you realise that paying off debt and contributing to your retirement plan counts toward that goal.
- If you’re in a position to sock away even more, go ahead and save as much as possible. I encourage people to save until it hurts, a sort of financial version of “No pain, no gain.”
Americans and Retirement Savings
Where to Save
Don’t just put the money into an account that pays 0.01% interest. There are ways to earn a return on your nest egg.
- Open an online high-yield savings account. ING Direct, Ally Bank, EverBank and other institutions offer interest rates far above the national average. And by moving your savings online, you’ll keep that money separate from your checking account and therefore make it harder to use for impulse buys.
- Explore reward checking accounts from a small, local bank or credit union. These accounts usually offer higher rates than online savings accounts – if you meet certain requirements, such as making a minimum number of debit-card purchases each month and agreeing to receive statements electronically.
Building a buffer of savings in the bank is like buying business insurance. Thanks to the cash cushion I built up over the years, I now know that I can cope with whatever the economy throws my way.