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Feb 23, 2012

Invest in Your Business or Retirement?

Whether To Invest in Your Business or Retirement. It's Not an Either-Or.
I get this question all the time from business owners about where to invest.
Should you invest in your business or should you invest in an IRA for retirement?
My simple shpiel? You have to do both.
Then I hear this from other clients: Justin, I feel like I have no control over what happens to the stock market! I'd rather just put my money back into my business.
I get it. I feel your sense of having more control in your business but...
You still need to diversify. You can't put all of your eggs in one basket and only invest in your business — even if you think your biz will be worth tons down the road.
Here's why. Let's say you regularly invest in your business for many years. So the value of your business is the only thing you have set aside for retirement. But what happens if you can't sell your biz for the amount you want? Or even worse, what if it is worth zero by the time you try to sell it? You will be kaput. We don't want that.
But what if you could develop an investment plan that wasn't just tied to the stock market! Woohoo! Now we are talking. Wondering how to do that? Email me.
So how do you do both? Try reinvesting 5-10% of your revenue back into your business. Try saving 5-10% of your revenue for retirement.
To save, you need to set up a system and it needs to be automated. Not the willy nilly stuff where you do manual transfers from your business account to your savings account every month or two. We need to take things to DefCon 4. (Who saw War Games?) Take more control and automate your savings.
One of the first types of accounts you may want to set up for retirement is a Roth IRA. You fund it with after tax dollars. It grows tax deferred and as long as you keep it in till you are 59 1/2 the money you take out is tax free. Saweeet!
If you are single and your earned income is under $110,000, you should be able to contribute to a Roth. If you are married and your earned income is under $173,000, you should be able to contribute to a Roth. Please double check with your accountant.