Terry, whats the biggest financial challenge for self-employed people
who work home-based businesses?
Im an entrepreneur, too, and I think I know just what your readers experiences are like. You spend so many of your waking moments, thinking about your business and how to grow it. Its what you focus on, and thats only natural.
But with all the time you put into how you are going to make more money, its
so important that you set aside some of those moments to think about how to
make your money work for you.
We wouldnt be in business for ourselves if we werent willing to make a huge commitment. Its worth it, to make our dreams come true. So we pour our time, energy and money into our business. It can seem like were pouring everything we have into growing that business.
But the most important thing you can do, trite as it sounds, is to pay into your future.
We all know its critically important to make our federal tax deposits on time. Anyone who has ever missed that deposit by even two days and gotten hit with that penalty will never do that again. We need to give that same priority and sense of urgency to making our retirement deposits. Because if youre counting on Social Security from those tax deposits to fund your retirement, you better think again.
Why is it that so many of us dont do that?
This is the first generation who is completely responsible for its own retirement planning. In the past, you would have worked for a company that took money out of your paycheck before you had the chance to see it and spend it, and invested that money in a pension plan that promised you a monthly check for life.
My dad did that, and it worked for him.
Sure, it worked for a lot of people. But like everything else with the Baby Boom generation, we broke that mold.
But heres what happened: when we broke the mold on music and tuned in to the Beatles and the Rolling Stones, everybody noticed. When we broke the mold on colleges, everyone noticedthey all had to build more buildings to accommodate us. And everyone noticed when we tried to change the way power works in the sixties, because we were loud and very noticeable.
But what we didnt notice was this huge change in the way we would live, work and ultimately retire. It didnt occur to us that this was going to be a huge problem, because wed grown up watching our parents getting their monthly pension checks. We broke the mold here, too, but failed to realize it for years and years. This one crept up on us.
And its time we noticed it.
Actually, its way past time we noticed it. Time is money, and all those years that we didnt put our money to work for us are now coming back to haunt us.
Many of us got into our businesses because we wanted freedom over our time.
Is this the other side of the coin?
Exactly. The other side of the freedom coin is always responsibility. But nobody was forcing us to save, or even reminding us.
Because were entrepreneurs, were all busy building our businesses. And its easy to allow our businesses to soak up all the money were generating.
So where does that put us now?
This is the good part: its truly never too late to start. One great thing about being an entrepreneur is that nobodys going to arbitrarily retire your job at age sixty-five. You have complete freedom to continue building your businesswhich means you also have complete freedom to save more, either in your own IRA or in a simple 401(k) plan you can set up for yourself.
So if you missed the boat, dont worry: being an entrepreneur gives you a second chance.
Think of the people who worked for companies all their lives and never put any money into their 401(k)s, and now their company says, Sorry, its retirement age. And its over for them! Thats really rough. But you dont have to quit working. Youve bought and paid for your freedom.
What do you say to people who say, I dont know how to set this
up, it seems so intimidating.
Just call Fidelity or Vanguard. They have specialists to help you.
Just like youd hire a plumber.
Right. Youd never say, Oh, shoot, I guess this faucets going to have to drip forever, because I dont know how to fix it. Or, Oh, my gosh, my ankles going to hurt forever because I dont know how to call a doctor who specializes in ankles. You either find out how to do it yourself or go get an expert.
And they might start with a copy of The Savage Number.
Thats the purpose of the book, and I also offer lots of free information on my web site, www.terrysavage.com. Theres just no excuse for not funding your future. You dont make excuses for walking around on a broken ankle.
Were talking about taking care of your own future, not just your money, but your life. This is a really personal issue, one that everybody has to wake up to.
Youve made a statement that fascinates me: The most powerful
money emotions are fear and greed; noticing the symptoms and gaining the courage
to surmount them is the first task in managing money. How do we get over
those emotions around money?
You never get over those emotionsnever, ever. Because of that, you have to set up a plan thats disciplined and automatic, that isnt dependent on your emotional state to keep functioning.
You cant conquer those emotions; instead, have to understand them and respect them. Understand that youre going to get fearful or greedy at the worst possible time; therefore, you need to set up a regular, monthly diversified investment plan and then let it happen automatically.
Look in my book under targeted retirement funds [Retirement Investing Made Easy, pp. 131134 Ed.]. All you do is call Fidelity, Vanguard or T. Rowe Price and say, I hope to retire in the year 2025, or whatever year you decide; Id like to open an account and send money every month. Theyll do the discipline and the investing for you. You dont have to be a genius at investing. You just have to set up a plan, so the money comes out of your account every month before you have a chance to see it and spend it.
And thats the Savage number, the number you want to hit.
Exactly. And its different for everyone, so the book tells you how to figure out what your number is. It also provides some great web sites to help you do thatnot the sort of thing salespeople will show you. The ballpark estimator tool at ChooseToSave.org, hosted by the Employee Benefit Research Institute, is by far the best online calculator of how much money you need to save.
Its easy for self-employed people to think, If I can generate
enough of an income stream through this business, then that income stream will
just take care of me forever.
Say more about whats behind that laugh!
You are the business. If something happens to you, then what? You do not want to put all your eggs in one basket, even if you are the very best basket you can think of. You need to have your money working for you.
There are some frightening statistics about women and retirement.
We live longer, we need more. And typically, if theres an illness or a need, the male spouse gets ill first and uses up the familys money, leaving the woman with few resources. Im a very big proponent of long-term care insurance. In fact, I devote an entire section to it in the book. The number one thing a woman needs, that she typically doesnt have, is long-term care insurance. Your business will not change your bedpan or help you into the shower. So while youre in your early fifties is the time you should buy long-term care insurance.
When you retire, you may think youll have fewer expenses, but youll want to travel, and medical costs are going up, and so are your property taxes and the utility bills. Youve got to plan for these things. We all need more money than we expect.
Why are we slow to become alert to these points?
Because the reality has truly changed. We are the first generation to go through this.
The next generation will see it earlier. Twenty years from now, todays thirty-somethings will start seeing their parents needing help getting from bed to bath. When they see that their parents are living longer and the cost of their care is rising, then that generation will understand whats really happening, and theyll still be able to start saving in time.
But today, the generation that hasnt been saving is the largest generation in our history, and they are even now barely beginning to see this new reality. Thats going to put a huge burden on our country, which is why we need to be out there telling people.
Any closing thoughts, Terry?
In the nineteenth century, Americans were shocked when they found out that the West, the frontier, no longer existed. Wed pioneered and settled all the land. That era was over, and would never be back. It was a major cultural turning point for the nation.
Were in a similar place today: were waking up to the fact that our resources are not unlimited. Our country is deeply in debt and weve made promises to a lot of retirees that we simply cant keep. We are finally entering into the era where we cannot count on the government anymore. We need to create our own financial futures. Thats our challengeand our opportunity.