From the moment you enter the workforce, you’ll see tons of information about retirement financial planning. And even once you transfer to being a business owner, you’ll probably see retirement planning information instead of wealth creation.
So what’s the big difference between Planning for Retirement and Wealth Creation?
Your frame of mind and the tools available for business owners like you.
The goal of Planning for Retirement is to save enough money to live during your non-working years. You’re basically looking to accumulate enough money so that you don’t run out of it before you die. It’s commonly used by employees because it’s passive.
The goal of Wealth Creation focuses on maximizing today’s business ventures to make money today—the sooner the better. It bridges today and tomorrow, providing an active path for business owners to create income generating initiatives through their business.
The typical challenge for most business owners is that they don’t have the funds to create wealth. These often see the business as a way to pay for bills and employee salaries. Their focus is on operating and growing their business, often at the expense of creating personal wealth. But there are creative and perfectly legal ways to get more out of their business financially.
To gain a better understanding of the big difference between Wealth Creating and Planning for Retirement, let’s take a deeper look into what each of these terms means.
What is Retirement Financial Planning?
Financial advisors guide individuals in creating an income goal for retirement and working toward saving for that goal.
This process focuses on the end game—which is a great thing. You set a target in conjunction with your financial planner and together you work to achieve the future of your dreams. You’ll put pre-taxed money away and over 20 or 25 years of working you’ll hopefully have enough saved to retire.
For business owners, the flaw in this way of thinking is that it doesn’t focus on maximizing your current income. Instead of concentrating on the here and now, your sights are only focused on saving enough money for the future.
In retirement planning, you focus on life after paid work and not on a lifetime of wealth creation. The number in your 401(k) or IRA will dictate how long you work as you await the days when you can begin to pull money from your retirement plans.
This type of financial planning tends to give business owners tunnel vision and they forget the many other ways of creating wealth.
Additionally, financial advisors also tend to look only at a specific aspect of your finances; money that you can defer today to fund tomorrow. Even in-house accountants often only see the areas of your business you’ve tasked them with. They lack a holistic view of both company financials and a business owner’s long-term wealth.
What is Wealth Creation?
CPAs in the wealth creation space view financial planning differently. Instead of focusing solely on a retirement account, they start at your source of wealth: your business.
Viewing your wealth holistically helps you go from savings for end game planning to front loading the game where you optimize your business budgets to prepare for a lifetime of financial success.
The road to wealth creation encompasses many ways of optimizing income, while planning for both the short-term and long-term for you personally and for your business financials.
Saving for retirement is passive. In fact, your financial advisor will tell you not to attempt to time the market. Think long-term, they say. Wealth creation on the other hand, is ACTIVE. It makes use of long-term investments, but it also keeps an eye on the business landscape. While both focus on the end in mind, the end is very different for those focusing on wealth creation.
These are a few of the wealth creation strategies you should be looking into as a business owner:
- Invest in real estate and shelter tax liability
- Change corporate structure based on tax advantages
- Hold cash in the company to wait for an opportunity to invest
- Legally allocate personal expenses as corporate costs
- Take advantages of more generous ways to invest in the market. With a SEP IRA a small business owner can put away up to $56,000 annually compared to $19,500 on a 401K
- Leverage employee skills in ways that make more money beyond the “job” duties you originally assigned to them
- Define your the best financial moves based on your income, age, preferences, money management skills, etc. Maybe you should invest less in retirement and instead consider buying a property or other similar venture
- Make better use of cashflow to find ways to perhaps increase inventory
- Be your own bank
- Borrow when interest is low
- See financial crisis as an opportunity
How to Move from Retirement Planning to Wealth Creation
At Yeager Sherburne CPA, we help business owners create wealth through maximizing profits in these ways.
- Reducing useless costs and expenses. Once we accomplish this, we can either reallocate those funds toward improving your business performance or directly increasing your bottom line.
- Operational company performance enhancements and how you drive revenue. We help you spot inefficient overlap of duties, lost time or unproductive assets. We are looking to increase performance at operational and financial levels to create opportunity for more sales and profitability.
- Growing your business’s revenue and profit margins by identifying what really drives sales. We eliminate the bottom revenue lines. And we constantly assess all revenue lines to drive sales without an increase in cost of goods to provide those services.
Once we walk you through these steps, you’ll have excess funds from optimized profits to invest in wealth creation.
And because all this work isn’t focused only on retirement – which feels far in the future for many – wealth creation enables business owners to maximize their financials today while planning for the future. Helping business owners focus on the present can help them refocus their financial efforts to increase profits while making meaningful strategic moves for retirement.
The great benefit of focusing on wealth creation is that a wealth creation program includes focusing on stocks/bonds/REIT markets, real estate and other outside investments to optimize your income today and in the future.
Yeager Sherburne CPA’s owners are so passionate about guiding business owners to true wealth creation, that they offer their time freely to explain the process and help business owners get started. Schedule a free brainstorming session with John Yeager CPA or Rick Sherburne CPA now to get started.