While the biggest investment small business owners typically make for retirement is their business, it’s never too early to begin planning and investing for retirement outside of one’s business plan.
GOBankingRates spoke with Nilay Gandhi, senior financial advisor with Vanguard Personal Advisor Services, to learn more about the three-step process that can make sense for small business owners and allow them to experience a comfortable retirement.
1. Have a Budget
“The first step is to have a budget that includes saving for retirement plan contributions, especially if there is uneven cash flow,” Gandhi said.
A budget is the cornerstone of effective money management. A budget allows you to keep track of how much money you have coming in and the source of the income, how much is going out and exactly where it’s going.
Using a budget allows you to track fixed, variable and periodic expenses and better understand your spending habits. Once you have this understanding, you can set relevant financial goals, such as saving for retirement, and create a spending plan to be used once you retire.
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2. Discuss Your Options With a Financial Professional
There are several retirement plan options available to small business owners. Some of these include contributing to an IRA, whether traditional or Roth, or a 401(k). As the business grows over time, business owners may consider a SEP or Simple IRA.
The best way to determine which plan is right for you, Gandhi said, is to consult a financial professional. Discussing options with a professional allows business owners to learn more about bigger plan offerings, such as defined benefit or defined contribution, which may be better suited to help maximize savings, reduce taxation and reward owners and employees.
3. Save as Much as You Can
Put as much savings as you can toward retirement each year.
“Even if it means in some years there are minimal contributions or you aren’t able to max out,” Gandhi said, “the power of time and compounding can’t be overstated.”
Many business owners want to focus on their business and its needs right now. They may perhaps think retirement planning can be left for tomorrow, but it’s important not to develop an “I’ll do it another day” mindset when it comes to retirement.
“The earlier you can plan for your retirement, the better,” Gandhi said. “It’s important to recognize the different strategies available — based on whether you are self-employed or not — and contribute savings early and often.”
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This article originally appeared on GOBankingRates.com: Retirement Planning: 3 Steps for Small Business Owners