“The ability to delay gratification is intimately linked with success. You cannot succeed at anything unless you are willing and able to delay gratification.” This quote is from a book written by Matthew Kelly. Although the book does not pertain to growing a business, this quote is, in my opinion, crucial to business success.
Many small business owners want the latest tools for their businesses. Perhaps an old computer works for them, but it does not have all the bells and whistles that the latest model offers. As soon as a little extra money becomes available, the computer is purchased. Unless the new computer will increase the bottom line, the purchase should not have been made.
Where I have seen instant gratification selected over common sense is in the financial management of a small business, especially when it comes to retirement planning. Many small business owners hope that the sale of their business, at retirement, will provide a retirement nest egg. Unfortunately, statistics say that only 20% of those businesses will actually sell.
I ask small business owners to work with a budget. By asking them to create a budget it gives them a realistic look at their business and what they need to do. The one thing that is left out of most budgets is a retirement program for the owner. The answer I receive when asked about the missing component is “I will work on that after I establish my business.”
I use a simple system to start the retirement planning process:
- Itemize your home living expenses for the last three months.
- Next, take an average and that becomes your retirement income monthly income needs.
- Now multiply that figure by 60 (the number of months in the next 5 years). That is your savings goal for the next ten years. If your home expenses are $4,000 per month, you will need$240,000 to live for five years. That means in the next ten years you have to save $2,000 per month.
- Add the $2,000 per month to your projected expense budget and that becomes your target.
- At this point don’t worry about investment/retirement vehicles; save these as after tax dollars.
- After two years you will have saved approximately $50,000; now you can justify working with a Certified Financial Planner.
The first year is the most difficult as you will have to eliminate some personal “instant gratifications”. Creating that saving habit usually takes about a year. After the first year, the retirement savings becomes an accepted part of the planning process.
Create your own numbers and start the process today!
There are no shortcuts to anyplace worth going!
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