Tears Orman in New York.
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As small business owners recover from the pandemic, it is important to ensure they get their personal and business finances back on track, said personal finance expert and best-selling author Suze Orman.
This includes saving, investing and managing credit card debt.
“You have to put yourself in a situation where, no matter what happens, you can pay the bills,” Orman, the podcast host, said.Women and money (and everyone smart to listen to). “
Orman shared her tips and more with LGBTQ + small business owners and allies during CNBC + Acorns Invest in Pride: Ready. Set. Grow. on LinkedIn on Thursday.
Here’s how Orman suggests small business owners tackle their money as they go post-pandemic.
There are several options that small business owners can save for retirement.
They can open a SIMPLE IRA, which allows employees to invest money in a plan, or a SEP IRA, in which only the owners can contribute. They can also fund a Only 401 (k), which covers the owner of the company without employees.
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Independent owner James Kingman, a psychotherapist and owner of the Atlanta-based Unlimited Spectrum Counseling organization, wanted to know how to get started. On the same subject : Which one is better for you?.
Orman’s advice: Since there are no employees, you should contribute to the Roth IRA until it is maximized (which is $ 6,000, or $ 7,000 if you are over 50 in 2021). Then open the solo Roth 401 (k).
Once Kingman is hired, look for other opportunities, Orman said.
The sooner you start saving for retirement, the better because of the compound interest, and that is the interest earned on interest. To see also : Earn Up to $2,000 Just for Saving Money in a Roth IRA | Personal Finance.
“It’s like a little snowball rolling down a mountain in beautiful snow and getting bigger and bigger and the longer it rolls, the bigger it is,” explained Orman, who was a co-founder recently. Sure, an emergency fund for employers that suits the employer.
For example, if an 18-year-old opens a Roth to the IRA and contributes $ 100 a month for the next 40 years, assuming an average annual rate of return of 12%, he will eventually receive $ 1 million. If he or she waited 10 years to start, the end result would be only $ 300,000 by the age of 58, she said.
Urgent 12-month cost savings are necessary these days, Orman said. To see also : 2020 RMD: Meet IRS Form 8606.
The interest rate is a combination of a fixed rate, currently 0%, and a semi-annual inflation rate, currently 3.54%.
It has a minimum ownership period of one year, and if you buy it back five years ago, you will lose interest from the previous three months. After five years there is no punishment.
Kristy Ramsey, owner of Content Maven Media based in Woodlawn, Chicago, wanted to know if the savings should be used for payment credit card debt.
The answer depends on how much savings would be left after paying that debt. Orman recommends that you save annual working capital for your business, as well as a 12-month emergency fund.
After that, if you have excess cash, pay off credit cards, she said.
“When you repay it, your debt-to-credit ratio drops, and your FICO [credit] the result is growing, so when you need a loan, you will get it at better prices, ”Orman explained.
The investment should follow once you establish your emergency fund and it should be long-term – at least five years, and preferably 10 to 20 years, Orman said.
Protecting those investments from economic collapse is what worries Denise Merritt, founder and CEO of Apopka, a Florida-based Merritt Business Solutions company.
Orman’s tip: When you have investments, don’t go crazy when markets start to fail.
“I don’t know one market all these years how much I’ve been doing this that hasn’t returned to its peak anymore,” she said.
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Therapist Catherine Swanson is currently doing a 9 to 5 job to pay the bills. However, she really wants to do her part-time job, Alternatives: Music Therapy and Counseling, full-time. Her concern is to find the best time for it.
The Iowa-based Ankeny-based business is not currently earning enough money to support Swanson, missing out on about $ 2,000 to $ 3,000 a month. However, Swanson believes that if he goes full-time, he will earn enough.
Before the jump, it should have a one-year emergency fund and approximately three to four months of working capital set aside for the business, Orman said.
She also suggests taking business credit cards in case Swanson needs a little help – the ones that don’t apply to credit scoring companies. There are some who don’t, unless you’re a delinquent.
“Then go have a good time and kiss that job,” Orman said.
Data Disclosure: NBCUniversal and Comcast Ventures are investors Acorn.