Your business may be thriving, and you may be genuinely enjoying your position as a leader within it. But whether you eventually retire, burn out, or simply decide to pursue other things. Eventually, your tenure will come to an end. If you want to protect your financial future, you must build a nest egg.
But how should you go about it?
What Is a Nest Egg, Anyway?
Put simply, a nest egg is just money that you’ve saved for the future. Ostensibly, that future will come, and you’ll need that money for emergencies, retirement, or other needs. A nest egg can protect you if your primary income source begins to decline, you endure unexpected financial hardship, or you’re gearing up for a full retirement.
In any case, a nest egg can be incredibly beneficial, especially for entrepreneurs.
Building a Financial Strategy
There are many financial strategies that can help you build up a nest egg, but it is the combination of these strategies that will make you successful. The easiest way to think about financial strategies is to categorize them into four major buckets:
- Optimizing your budget. First, you need to find a way to optimize your budget. Your budget represents your main collection of strategies for managing your finances on a daily basis. If you can control your expenses, increase your income, and wind up with a surplus at the end of each month, you can build up the momentum you need to accumulate wealth.
- Eliminating debt. Second, you need to focus on eliminating debt. Not all debt is bad debt; taking out a loan for your business, using a mortgage to buy a house, or taking out student loans to advance your education are all good moves. But if you’re saddled with other forms of debt, you’ll need to work proactively to eliminate them so they don’t compromise your ability to save.
- Saving money. Hopefully, you’ll eventually eliminate your debt and optimize your budget such that you have extra money at the end of each month. From there, you will be responsible for saving that money, resisting the temptation to spend it on unnecessary things you want.
- Investing for growth. What do you do with that extra money? You invest it to achieve material growth. If you invest your money wisely, you should be able to multiply it many times over, especially if you have decades to let it grow.
Getting Started
If you’re not already familiar with the principles of personal finances, you might feel overwhelmed at this point. But there are several easy financial strategies you can integrate to get started.
- Reduce your expenses. You can start by reducing your expenses. There is no shortage of ways you can do this, though some require more of a sacrifice than others. For example, you can move to a smaller house in a cheaper area of town to save a ton of money on your mortgage or monthly rent. You can also cut a few entertainment subscriptions to save $100 or more every month.
- Increase your income. As a busy entrepreneur, you might not be in a position to do this, but if you have some spare time, find ways to increase your income. Making money on the side can help you tip your monthly budget in your favor.
- Pay down your bad debts. When you start saving extra money each month, focus on paying down all your bad debts. The less interest you pay, the better.
- Build up an emergency fund. After that, you can use the extra proceeds to build up an emergency fund. Only tap into this cushion if you truly need to; its primary purpose is to prevent you from adding more debt to your balance sheet.
- Start investing. As long as you have a solid emergency fund in place, you can use your extra monthly proceeds to start investing and accumulating wealth.
What to Invest In?
Arguably, the hardest part of this process is figuring out how to invest your money since so many options are available. That’s why many entrepreneurs turn to the help of professional financial advisors to make better decisions about their financial futures.
Diversification is ostensibly the most important factor in your investing strategy. Essentially, that means investing in many different things so you can balance out the advantages and disadvantages of each.
Some of the major types of assets worth considering are:
- Real estate
- Stocks
- Bonds
- ETFs and mutual funds
- Commodities
Building a nest egg may or may not be at the top of your priority list, especially if running your business has taken over your life. However, it’s important to think about and plan for your financial future, and the sooner you start taking action, the better.
Image Credit: Photo by Andre Taissin; Unsplash
