By: Elle Kaplan
Entrepreneurs master a wide variety of skills — and ignore this one, crucial thing.
When it comes to financial literacy, how do entrepreneurs rank?
The answer might surprise you: Most true entrepreneurs are complete financial illiterates, for the most beautiful of reasons. A successful entrepreneur has trained his or her imagination to see possibilities where none currently exist. Entrepreneurs deal in ideas, not in the nitty-gritty realities of compounding, interest, the time value of money, and how that translates to investing.
Entrepreneurs are dreamers. We are visionaries. For us, money isn’t the goal. Instead, we’re after impact, history, making things better and more efficient, changing an industry, and changing the world. Those ideas inspire me every day at Lexion Capital, and the same lofty missions motivate my entrepreneurial colleagues.
However, I sit in both camps. I have to. I’m a dreamer, but my goal with my asset management firm, is to empower people and get them to see that fun and finance both begin with F.
When it comes to the nuts and bolts of running a business and managing cash flow, entrepreneurs learn to make it happen. They don’t often bring the same savvy to their own financial lives. Financial planning, and saving for retirement can easily seem practical, limiting, and conservative. For an idealist, the concrete basics of personal finance are not part of a language that is either fun or comfortable to think in.
As a consequence, entrepreneurs play the retirement lotto, betting big on an idea. They whole-heartedly believe that their product, technology, or innovation will be the disruptive golden ticket. Then, they assume, financial trappings like a 401(k) will naturally follow. As a result, entrepreneurs fall far short when it comes to preparing responsibly for retirement. They are often unfamiliar with, or don’t prioritize, the fundamental financial strategies that could protect their futures. They don’t invest and grow wealth rather than letting it stagnate in a savings account. They don’t appreciate the power of compounding over time. For all the risk involved in being an entrepreneur, they need to understand how to avoid concentrated risk. These are the key concepts for building a hedge in case things don’t go quite as planned.
Being financially smart for your business is not enough. You only retire once, and you must get it right. You can’t afford not to. In retirement, your savings become your paycheck, and they have to last the rest of your life. In your list of priorities, setting the stage for a secure retirement should rank as highly as managing your business.
The same strengths that make you adept at running a company can translate very well into crafting a sound retirement strategy. It takes long-term, big-picture thinking, the ability to anticipate and plan for contingencies, and an understanding of how to set a future goal and work backwards to identify the steps needed to make it happen. Successful entrepreneurs have these skills in spades. The gap to be bridged is financial literacy, and a little self-education goes a long way.