Strategies financial advisers use to build wealth and a healthy retirement

The demands of running a business often cause leaders to overlook their own financial needs, with potentially devastating effects. Many tend to miss one life-changing question: How solid are your financial foundations?

Business leaders shoulder a huge number of responsibilities: working long hours, juggling conflicting demands, navigating the red tape minefield and constantly trying to balance the books and ensure everyone – including the taxman – gets paid on time.

But it’s all for nothing if you, the business owner or leader, haven’t got your own finances in shape.

In my book, On Your Own Two Feet, I outline the five most crucial financial foundations needed to build wealth and fund a comfortable retirement. While most businesses are built on good foundations, many business leaders I see are missing one or more of these crucial pillars in their own lives.

Take a few minutes to consider your own position and whether you have these foundations supporting your (and your family’s) financial future.

An emergency fund

COVID-19 is the perfect example of why it’s essential to have money set aside for a ‘rainy day’. No-one saw it coming, its impacts were far-reaching and for many people, it hit their incomes hard.

In a cash flow crisis, businesses can call in debts, sell assets, negotiate deferred payment terms and, in the extreme, cut their workforce.

For individuals, there is no laying off staff or chasing overdue invoices. Hence the importance of having cash set aside for when life throws you an unexpected curve ball.

Spending and investment plan

Well-managed businesses have a clear plan as well as visibility over where their money goes and where they are investing for future growth. The same goes for our personal finances.

This plan goes deeper than a simple household budget: it should include guidance over why that money has been allocated, how long for, the expected returns and contingency plans. These details help keep you focused on your goals and your outgoings in check.

It should also be updated regularly to reflect major life changes, such as getting married or divorced, having kids or receiving any inheritances.

Personal insurances

Chances are you have numerous business insurances in place: property damage or loss, business interruption, professional indemnity, and public liability. But what cover do you personally have?

For example, many workers have life and disability insurance policies attached to their superannuation, yet many business owners don’t pay themselves super. So what happens should you suddenly be unable to earn a living?

Sadly, it’s often only when a claim is needed that people realise they don’t have adequate insurance cover.

Shore up your superannuation

For many leaders, the business itself is their retirement plan: to sell up or divest their stake within it. Superannuation takes a back seat.

But if you’re self-employed, paying yourself super diversifies your risk should the business not deliver the expected returns.

If you already do collect super, check in regularly to see how it is growing and whether you can boost its performance.

Plus, you could be eligible for government co-contributions and tax breaks – essentially free money – that allow you to build that nest egg faster and benefit from the compounding effect throughout your working years.

Never undermine estate planning

Estate planning is even more critical for business leaders than it is for others. Not only do you have your personal interests to disperse, but your business interests too.

Consider factors such as:

• Who will take a controlling interest in the business?
• What benefit will your partner or children (if you have them) receive?
• Where do any fellow directors/owners stand?
• How will the business be financed once you are gone?
• Who assumes responsibility for your debts (such as personal credit cards and mortgage withdrawals used for business purposes)?

Having your affairs in order will protect your family and stakeholders should the worst happen to you, as well as ensure your business legacy continues to live on.

Helen Baker is a licensed Australian financial adviser and author of On Your Own Two Feet: Steady Steps to Women’s Financial Independence and On Your Own Two Feet Divorce: Your Survive and Thrive Financial Guide.

Note this is general advice only and you should seek advice specific to your circumstances.