Years Of Roller Coaster Cash Flow…
Thinking about money gives me heart palpitations. As a small business owner in a creative field, my focus has always been squarely on my work and my clients. I send invoices off at lightening speed so I can get back to the real work.
Small business owners, freelancers, gig economy worker bees: we have all purchased tickets to ride a financial roller coaster. Money comes and goes in unpredictable waves. It’s easy to think things will always be sunny when you’re riding high on cash flow. But I’ve had enough down cycles over the past 15 years to know I can’t get comfortable.
The elephant in the room for me is retirement. For years I reinvested profits into the business, figuring I could save for retirement at some future date. When my industry, along with every other, took a nosedive in 2008, I was forced to dip into my savings. Fast forward 9 years and I’ve managed to make the business profitable again, purchase a nice apartment and maintain a comfortable standard of living.
But I have saved little for retirement.
Looking back, I wish I’d set up an automatic withdrawal and investment account, even if the contributions would’ve been small. Compound interest would have been nice.
“Compound interest is the eight wonder of the world. He who understands it, earns it…..he who doesn’t….pays it. Compound interest is the most powerful force in the universe.” -Albert Einstein
… Means Playing Catch-up For Retirement
I am now having to play catch up and it doesn’t look pretty. A peek at a retirement calculator confirmed my fears. The good news is, I’m putting my retirement decisions on a fast track. A few years ago I opened an IRA account and because I cannot contribute more than $5,500 per year, I decided to invest aggressively by purchasing mostly technology stocks. So far that account is up a whopping 30%. It isn’t a lot of money and that’s the only reason I feel safe taking such a risk.
Next, I opened a SEP account through my business (something I should have done ages ago) and opted for a more balanced portfolio made up of low cost ETFs. I am contributing the maximum allowable each year, which in my case is about $20,000. These are pre-tax dollars and I am counting on that compounding interest to help reach my retirement goals. This plan has certainly curtailed my bottom line, which means I’ve had to cut back on my expensive sushi and sake habit. But I feel safer knowing the money is working for me.
When You’re Building A Business, It’s Hard To Save
When you’re busy building a business from the grown up retirement is the last thing on your mind. As free agents it is hard enough to keep track of all the tax liabilities, let alone a retirement account. It seems almost trivial. But time flies when you’re having fun and before you know it, your friend who’s been doing the corporate grind for 15 years suddenly has a nice nest egg and you have…..nothing. I’ve had to re-calibrate the way I think about spending.
I used to pay my business expenses, taxes and living expenses, in that order. Whatever was left over was reinvested into the business. Now, after paying business expenses and taxes, I pay my retirement accounts. There is less money to reinvest in the business and less money for living expenses.
Predictably, this has made me a more careful and mindful consumer. If there is a piece of equipment that needs upgrading, I will purchase used instead of new. I have lowered my overhead by consolidating staff while taking on more work myself. I cook more meals at home and Trader Joe’s is my new Whole Foods. Living a bit more frugally has proven to be less stressful than I anticipated.
What Finally Helped
The anxiety of planning for retirement largely came from the worry that I might not be able to keep up with monthly or yearly contributions in a consistent manner. So I simply didn’t deal with it. What finally worked for me was automating my retirement contributions. I made them realistic. I made them a fixed line item, like my monthly mortgage. Once I did that, I had no choice but to pay into the accounts.
Practically everyone is familiar with Warren Buffet’s ‘pay yourself first’ principle. When you are running a business, simply keeping it afloat seems like a tremendous accomplishment. Moreover, many of us believe our small businesses will in fact be part of our retirement plan. Unfortunately there seem to be fewer guarantees about the long term viability of any given small business these days. Industries, especially creative ones, are changing so rapidly, it is impossible to predict the value of an asset 20 years from now.
Although I’m more than a little late to the party, saving for retirement using traditional investment vehicles has paradoxically forced me to streamline my business and perhaps better prepare it for that uncertain future.
Darla Roost is a pen name for a gig economy creative professional thriving in New York City. Her dream is to share her stories and create a place where people can share theirs, too. Photo by Bonnie Kittle