Calling All Women Business Owners (or the ones secretly plotting to start one)

This blog is personal. I am a woman. Who started a business. And had to figure out the best way to save. Then had to do it.

The four details described above combine to create a perfect storm for not being able to retire one day and to even threaten the existence of a business.

Let’s walk through them.

First, being a woman. When it comes to money, being a woman is tough. We don’t have a lot of people who look like us in the financial industry, and studies show that women who do save are tending to let that cash pile up rather than invest it. We are worried.

Who start a business. Let’s be honest. There just aren’t a ton of female entrepreneurs out there, or if there are, I can’t seem to find them. So, the informal network of women entrepreneurs going to lunch to talk shop and compare notes isn’t there (yet).

Figuring out how to save. This is a tough one, not just because I’m a woman. But figuring out when to take money off the table as an entrepreneur is certainly one of our greatest challenges. We have so much promise in ourselves and what we can control, why in the world would we infuse cash in someone else’s business, via the stock market?

Doing it. Gosh, it’s complicated to save when there is no company retirement plan.

Ok, so we have named what’s hard. Now let’s take action.

Tip #1: Keep two savings accounts for the business. One for emergency cash, and one for taxes.

That pile of cash is necessary for all businesses to make it. There is the emergency pile, for moments of cash flow crunches or when that contract is unexpectedly lost. I find this is the easiest sell for women entrepreneurs. We are cautious by nature. We can keep cash in the business.

But where we fall into trouble is comingling our emergency pile of cash with future obligations, like, say, taxes. I have seen companies live and die solely by the owner’s ability to scrape away tax liability money and put it safely into an account, unspent, ready for tax time.

Tip #2: If you want to start a business, build a large pile of cash for investment.

Cash for investment in your business is different from emergency cash, and unlike our male counterparts, I firmly believe women need this to succeed. Women’s access to capital is not equal, and the terms of our capital are not equal. Until that time, we might need to bootstrap our own capital needs.

Tip #3: Start saving for retirement as soon as you turn a profit.

Now for the biggest sell of all. Ladies, we have to save for retirement. The dudebro business owners aren’t doing it, so this is pretty equal opportunity here. But trust me, we do not want to be equally miserable in retirement years.

The reason we don’t want to save for retirement as business owners and entrepreneurs is that we simply can’t imagine ever retiring. We don’t view our businesses as “work.” It’s fun. We love what we do all day long. We don’t want to do anything different in our retirement years.

It is hard enough convincing someone who hates her job to save for retirement, but imagine trying to make that case to a women business owner who loves what she does!

Here is the TRUTH. Just do it.  There are some tax perks. We become acutely aware of just how much the government takes out in taxes when we open businesses, but there is also an incredible ability to dodge taxes and shelter money, which might be just enough inspiration to save!

There are a couple ways to save for retirement that I recommend, but they take a bit of work. You want to start by figuring out the right savings “bucket.” This is a fancy tax term for figuring out the way to maximize a tax shelter for your retirement dollar. If you have a business that isn’t turning a huge profit year after year—maybe it’s a side hustle or a lifestyle business, then you might be better off in something simple like an Individual Retirement Account or and IRA. Also, you don’t have employees yet, so this simplifies your life.

Start with your CPA. Work out how much you can benefit by saving. My awesome CPA runs me three analyses to inspire me to save. He shows me, “if you save this much, you will save this much in taxes.”

You want to save just like your counterparts working in corporate America, and here are some rules of thumb if you are just getting started saving for the first time.

20’s: 10% 

30’s: 15% 

40’s: 20% 

50’s: 25% - 30%

Once you know how much to save, it’s time to open your bucket. DO NOT BE AFRAID. This is much simpler than you think. Just so you know, the limits on an IRA are $6,000 per year (if under age 50), so basically if you are in your 20s making $60,000 per year, then 10% of that is $6,000. An IRA is easy and straightforward and a great way to get tax savings.

You can go to Vanguard, Fidelity, Schwab, and literally just open an IRA online with any of them.

Let’s say you have a lot more money, then you will need something a little more robust than an IRA. Did you know you can open your own 401(k)? There are some companies popping up that have figured out how to do this cheaply and easily! It allows you to save up to $19,000 PER YEAR and you can do more by “profit sharing” from your own company.

How funny—you, as the boss, get to say, “Mary, how much do you want to put into your plan?” She responds, “Well, I as the employee want to max out my $19,000 that the federal government says I can put in.” Then Mary, again the boss, says, “Mary, great, and I will then ‘match’ your savings.” She can then put up to 25% of all her income into the plan. What’s great about it is that there is a lot of room to easily put pre-tax money in and set up regular savings. Recommended solo 401(k) vehicles would be Vanguard, Fidelity, TD Ameritrade, and Ubiquity.

Sometimes a SEP can make sense. Let’s say you need more room than $6,000 but probably not much more and not for the forseeable future. Then a Self-Employment Plan, or a SEP, can make sense to start. Again, call up Vanguard (or the others) and say, “Hey, my CPA says I need to open a SEP. How do I do it? “ Then take it from there.

Now, let’s say you have employees. DO NOT BE AFRAID OF A RETIREMENT PLAN. Costs are coming down, and with a tight labor market, employees really want you to have this! We LOVE a few companies that are showing the market that small businesses don’t have to rely on insurance companies with high, hidden fees. Instead, check out Ubiquity, Employee Fiduciary and Guideline. Just call ‘em up. They work with thousands of small companies every year and know how to get these plans up and running. Also, hire them, even if you aren’t sure you want one, to run a full cost analysis. What would the fees be for opening one? How much would it cost to match all my employee contributions? They can get your payroll information and then run a cost analysis. Ubiquity and Employee Fiduciary just charge $200 for this and, if you end up going with them, they will credit the cost to your plan!

Finally, where to invest. I am telling you, it is so simple it’s crazy. We cannot recommend a target date investment with more enthusiasm. Please read my blogs on investing to be convinced, but simply tell all these companies, whether you are setting up an IRA or a solo 401(k), “invest me in a target date retirement fund.” All the companies have these, and they have figured out how to automate investing.

Basically, it is like having your own fund manager. They take your age 65 and then adjust your stocks and bonds mix to get more conservative over time. You literally do nothing except put the money into the fund. It invests it for you.

Ok, there you have it. My best advice for piling cash in three buckets—the bucket for known expenses (ahem—taxes) that ARE coming, the bucket for emergencies and future capital needs, and, finally, the bucket for retirement.

Truth be told, I am still not inspired to save for retirement, but it was my own story of building a pile of cash in my working years that led me to start my own business. Basically, the pile of cash allowed me to dream bigger and bigger, enough to literally walk away from my day job to change my future.

You can do this. Open that account today. Put your first $10 into your dream pile.