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32-year-old Amber would like to stay home with her two young daughters, but her income accounts for over half of the family bring-home pay and her company also provides health insurance for the family, including a special-needs child. Amber continues to work at her sales job because it doesn’t seem feasible to make a change.
Amber’s husband is 46. He works for a company that has struggled in the past couple of years and doesn’t feel secure in his position. If the company were to close its doors now he would be twenty years short of retirement age, but facing a difficult transition to another company.
Their story is by no means unique. Daily the broadcast and print media are full of the bad news for older workers and retirees: job security is a thing of the past, and retirement benefits are being cut even after a worker’s retirement has begun.
No wonder so many Americans are starting or considering starting their own businesses, whether traditional small business, home-based or internet-based. But let’s face it: money is an issue.
Of all the statistics quoted, the one about how many small businesses fail is among the scariest for entrepreneurs who have reached a ‘certain’ age. It’s bad enough that their retirement funds have been hit hard, by reverses in the stock market over the years, early retirement and the rising cost of health care. They certainly don’t want to risk diminishing their reserves even further by making a mistake in starting their businesses.
Like my friend Amber and her husband, they don’t know where or how to start, don’t want to borrow to do it, and don’t want to risk their retirement savings if they can help it. Other than not starting at all, which may be just as risky, what is the best action to take now?
Before you quit your day job, you should start by accumulating an emergency fund. Financial experts have long advocated setting aside three to six months’ living expenses in a savings vehicle that is both liquid and relatively inaccessible. Articles on how to accomplish that abound. However, let’s look at it from the perspective of the older entrepreneur.
First, our living expenses may be higher than those of a young person just starting her career. We have attained a lifestyle we enjoy, and cutting back is difficult. Having done it myself, several times, I know that the older I get, the more reluctant I am to give up certain luxuries. For example, I like to patronize the same hairdresser every time. I’ve found one that knows my hair and can achieve a look I like. Her services are about twice the cost of the local discount salon, but I figure I’m worth it. :-) If I had to, though, I could save about $15 a month on haircuts.
Can you think of small savings in everyday spending that you would be willing to make? If so, you can begin immediately to build an emergency fund. Take a few moments, with your partner if applicable, and examine your spending habits. Try to find as much as 10% of your spending that you can cut without pain. If that’s too much, start where you can. Target one spending category each month and find a way to trim it. Once you have practiced that habit for a month, target a different category and watch the savings add up!
If you don’t know what you are spending, it’s time to find out! Start tracking your expenditures carefully, and keep track for a whole month. Include cash expenditures like your morning Starbucks habit. After a month, you will more clearly see where you’re wasting money.
The final key is to track your savings and make sure they are allocated to your emergency fund. The most effective advice I’ve seen to help you with the discipline of actually putting away your savings, is to treat the amount as a bill, like any other. If you can, have the funds deducted from your paycheck and deposited to your savings account before you ever see it. If that isn’t feasible, write a check to yourself while paying your other bills, or use your money-management software to pay yourself. Start with an amount you know you can keep up, even if that’s only $5. Once you have established the habit of saving, you’ll naturally want to increase the amount, and you’ll find ways to do it.
Cheri
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