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While trying to move into Phase 2: The Accumulating Wealth Phase, you may find it difficult to accumulate wealth with your current income alone. If this is the case, you may find that using a side business to fund your retirement – or even to pay off debt – improves your chances of success in reaching your goals.
A side business offers you an opportunity not only to increase your income, but also to create other options in your life. And in order to accumulate wealth, options are something you will most definitely need.
Using a Side Business to Fund Retirement
Even if you participate in your employer’s 401(k) or 403B plan, you can build retirement wealth much more quickly with a side business, and with the retirement savings advantages that it offers.
Funding an IRA
Most taxpayers can qualify for an IRA – traditional or Roth – even if they are covered through an employer-sponsored plan. Even if your contributions to the IRA are not tax-deductible, investment earnings on those contributions will be tax-deferred. By adding an IRA to your existing plan, you can build up retirement wealth much more quickly.
For example, you can contribute up to $5,500 ($6,500 if you’re 50 or older) to an IRA, over and above the contributions you make to your 401(k) plan. If you don’t have the money available to do this out of your regular paycheck, a side business can provide the source.
Creating a Solo 401(k) for Your Business
If you have a side business, you can create a retirement plan specifically for the business, even if you are already covered by an employer plan. Probably the best way to do this is through a solo 401(k) plan that is tied to your side business. This plan will offer you a big advantage, even over an IRA.
Under current IRS regulations, 100% of the first $17,500 ($23,000 if you’re 50 or older) can be contributed to the plan.
Having an Extra Income Source When You Retire
Many people don’t have quite enough income to fully retire by the time they reach age 65. They are often forced to consider either keeping their current job well past retirement age, or even taking a new job.
But if you have a side business – one that you have been maintaining for many years to help fund your retirement – you will already have that post-retirement career in place. And just as important, it may be a business that you can sell when you reach retirement age, to raise additional retirement investment capital.
A side business is one of the best strategies that you can have to plan for a comfortable retirement.
Using a Side Business to Pay Off Debt
If you’re stuck in Phase 1: The Foundation Phase, using a side business can help you pay off your debt.
The benefits of having a side business are not limited to preparing for your retirement. You can use it for any other purpose, including building up short- or intermediate-term savings, or especially to pay off debt.
A Cash Flow to Pay Off Debt Without Disturbing Your Regular Budget
One of the reasons why it’s so difficult to get out of debt is because people develop certain budgetary habits that they find almost impossible to overcome. But if you have a side business, you can devote the extra income entirely to paying off your debt, without disturbing your regular budget. That may radically improve your ability to get out of debt, and in much less time than it would take otherwise.
Make the Purpose of the Side Business to Pay Off Debt
Another issue that makes paying off debt difficult is the amount of time that it takes to make it happen. It is very difficult to permanently reduce your regular spending in order to pay off debt. But if you create a side business, and tie its existence to the payoff of debt, both the operation of the side business and the debt payoff process may be easier to deal with.
After all, the business will have a specific purpose – a happy one – to finally and permanently get you out of debt. You can think of it as a business with a mission. And that’s exactly what it will be.
Paying Off Debt Faster With Your Regular Paycheck Plus Your Side Business
If you are trying to pay off your debts out of your regular income, and having some success with it, adding the income from a side business will make the entire process much faster. Speed is a major advantage in paying off debt, particularly if you have a lot of debt.
Most of us need to see progress in order to keep ourselves motivated to stay the course. If as a result of having a side business, you’re able to pay off, say $1,000 per month, rather than just $200 out of your regular paycheck, the drop in your debt balances will be significant. Each month you’ll be motivated to press forward until the very end.
And if the side business does the job in helping you to pay off your debts, and to do it quickly, you’ll almost certainly be primed to refocus the side business to help you fast-forward your retirement savings.
Give the idea of starting a side business some serious consideration. The extra income can open a lot of doors.
Are you thinking of starting a side business? How would one help your financial situation? Leave a comment!