12 Mistakes I Made My First Year as an Entrepreneur
Women Entrepreneurs – Common Entrepreneurial Mistakes
Between 1997 and 2014, the number of women-owned businesses in the U.S. rose by 68 percent (twice the growth rate for men), according to an American Express analysis of U.S. Census Bureau figures. This is quite an accomplishment for women, but there is also a dark side to this trend. From what I've observed, few women have their personal financial houses in order before they launch their businesses and are contributing to the pending . Here are the top three mistakes I see female entrepreneurs make:
- Cashes out her 401(k)to pay for her business’ start-up costs
- Fails to open up and contribute to an individual retirement account (IRA)while she is self-employed
- Puts off her family’s investment and retirement planning or abdicates control to her husbandbecause she is consumed with her new business
According to Bloomberg, eight out of ten companies fail within 18 months of opening. If that happens, an entrepreneur will be back to square one, but without any retirement savings if she cashed out her 401(k). Therefore, it is imperative that we female entrepreneurs don’t raid our existing retirement accounts, no matter how small they might be. Who wants to be an old woman with no income or money set aside, having to rely on just social security?
In one of my recent , I profiled a 62-year-old woman who 25 years ago left a job with ,000 in her 401(k). Had she cashed it out she would have paid a 10% penalty plus federal and state income taxes leaving her with around ,000. Instead, she rolled that 401(k) into an IRA and without ever adding new money to it, and finds herself with a 0,000 balance today.
Here's a piece of tough love for you budding entrepreneurs: if you are tempted to cash out your 401(k), don’t do it. Find another way to get the cash you need. And if you can’t find the cash, you may not be ready to start your own business. If you can stick it out for a few years working for someone else, here are my tips to help you build a nest egg before you go off on your own:
- Educate yourself by reading about investing, the economy and personal finance
- Spend less than you earn by living below your means
- Rent a small apartment you can afford rather than mortgage a home you cannot
- Max out on tax-deferred retirement vehicles such as a 401K and/or IRA
- Invest a portion of every paycheck or income source in a diversified portfolio of stocks or low-fee exchange-traded funds
- Hire a financial advisor or coach to teach you how to invest your money so it grows without incurring huge risk
If you follow these tips and take action, you'll build some wealth and be well-prepared to leave the corporate grind and start a business based on your passion.
Laurie Itkin is a member of the DailyWorth Connect program.
Video: Top 10 Mistakes Made by Entrepreneurs
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