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There are two groups of people in the professional world. You have the entrepreneurs, who create, organize, operate and grow businesses; and the employees, who keep those businesses chugging along doing whatever it is they do best. Now there are a whole host of differences between these key players in the American workforce. Today we’re going to focus on one of the biggest differentiators: how these professional paths impact your finances.

Here are three main personal finance buckets, and our tips on setting yourself up for success, depending on which group you belong to:

1.     What your income looks like:

If you’re an employee:

Your income is directly dependent on the company you work for. When you were hired on, you agreed to some type of compensation package. Perhaps you are on a set salary, salary plus commissions arrangement, or maybe an hourly rate. Whatever the case, you have an idea of what your income will be based on how you are compensated, and how much money will flow into your bank account each month.

Our two-cents: Use your paycheck as the starting point for your monthly budgeting. Remember, you want to have a positive net cash flow every month (Net cash flow = The difference between the money you bring in and the total amount of money you spend).

If you’re an entrepreneur:

Your income is directly dependent on yourself and the success of your business venture. Many entrepreneurs take as little income as possible, and funnel as much money as they can back into the growth of their business. Others set a salary for themselves, and have a consistent flow of income to use for personal living expenses.

Our two-cents: It’s a balancing act for sure. If you’re taking as little out of your business as possible, you need to make sure you’re still thinking into the future on your personal finance needs (like retirement saving, healthcare costs, college saving). If you’ve set a salary for yourself, be confident your business can continue to pay you that amount. The last thing you want is to hamstring your business potential with a salary that’s not sustainable.

2.     How you build wealth:

If you’re an employee:

You’re an accumulator! Your goal is to gather as much wealth as you possibly can as quickly as possible. Your investment timeline is straightforward. You need your investments to grow for as long as it takes for you to be able to comfortably retire. That all depends on how long you stay in the workforce as well as your steadily increasing income over time.

Our two-cents: Make sure you don’t get in the habit of spending all the money you bring in. And definitely don’t get in the habit of adding unmanageable debt. You need to steadily save money over time. One of the easiest mechanisms for making this happen is by socking away unexpected income (like end of year bonuses) into your retirement accounts. If your salary increases by a percentage each year, increase your saving by a percentage or two annually as well.

If you’re an entrepreneur:

You have “snowballing wealth”! That means your wealth will likely be growing and increasing slowly, but exponentially, like a snowball rolling down a hill. And the growth of your wealth is directly tied to the success of your business.

Our two-cents: It’s very important to keep your financial plan up to date, as your wealth continues to increase over the years. It’s likely that adjustments to your goals, investment timelines and risk tolerance will need to be made on a regular basis. Make sure you keep your financial advisor in the loop on what’s going on with your business.

3.     How you plan for retirement:

If you’re an employee:

Your retirement planning is usually well defined. You can save a certain percentage of your income into a tax-deferred account like an IRA or 401(k). Hopefully your employer matches a certain percentage as well. That money can then be pulled out after you reach retirement age to fund your life outside of the workforce.

Our two-cents: You can’t spend in retirement what you don’t save while working.  Start small, and increase over time. Why is this so important? Once you stop working, you no longer have a paycheck to use for daily living expenses. From that point on, you’ll be relying on other sources of income (mainly social security and investments). The goal is to live happily and comfortably in retirement, without financial worry. It takes a long time to save up enough for that to happen, so start as soon as you’re able.

If you’re an entrepreneur:

Retirement is often complicated. Many entrepreneurs’ passion is running their business. Retirement may look like decreasing the amount of time spent on the business rather than stopping altogether.  Others may look to transfer ownership of their business to their family, employees, or another entrepreneur altogether as a means for accessing the wealth that has accumulated in their company.

Our two-cents: These choices mean having a detailed plan of action to work from.  You are going to need a good CPA, attorney, and financial advisor to weigh the pros and cons of various options.  Better yet, get them all in the same room to discuss the ideal path forward to retirement. Then keep open lines of communication with them as you move forward.


Regardless of whether you’re an entrepreneur or an employee, take the time to consider these things now, and you’ll be well on your way to setting yourself up for financial success down the road. If you would like us to dive into your own personal situation and offer additional suggestions on how to move forward, just reach out!

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