Suze Orman in New York City.
With the kind permission of Dominik Bindl | Getty Images Entertainment | Getty Images
As small business owners recover from the pandemic, it is important to make sure they are getting their personal and business finances back in order, said personal finance expert and bestselling author Suze Orman.
This includes saving, investing, and managing credit card debt.
“You need to put yourself in a position where you can pay your bills no matter what,” said Orman, host of the podcast Women & Money (And Everyone Smart Enough To Listen).
Orman shared her advice and more with LGBTQ + small business owners and allies during CNBC + Acorn’s Invest in Pride: Ready. To adjust. To grow. Thursday on LinkedIn.
For example, Orman suggests that small business owners tackle their money as they move forward after the pandemic.
There are several ways small business owners can save for retirement.
You can open a SIMPLE IRA where employees can contribute money to the plan or a SEP IRA where only the owners can contribute. You can also fund a Solo 401 (k) that covers a business owner with no employees.
More from Invest in You:
Suze Orman likes Bitcoin. So she says you should invest
How these small businesses struggled to survive during Covid
This is how you decide which debts to tackle first
Sole owner James Kingman, an Atlanta-based psychotherapist and owner of Unlimited Spectrum Counseling, wanted to know how to get started.
Orman’s advice: Since he has no staff, he should contribute to a Roth IRA until it’s depleted (that’s $ 6,000, or $ 7,000 if you’re over 50 in 2021). Then open a Solo Roth 401 (k).
Once Kingman has employees, Orman said they should look for other alternatives.
The sooner you start saving for retirement, the better the compound interest, i.e. the interest income.
“It’s like a little snowball rolling down a mountain in beautiful snow, and it just keeps getting bigger and the longer it rolls, the bigger it gets,” said Orman, who recently co-founded Secure, an employer-customized emergency fund for workers.
For example, if an 18-year-old opened a Roth IRA and contributed $ 100 a month for the next 40 years, he or she would end up with $ 1 million with an average annual return of 12%. If he or she waited 10 years to start starting, the end result would be only $ 300,000 by the age of 58, she said.
An emergency savings of 12 months in expenses is a must these days, Orman said.
If you’re looking to save more after that, a Series I savings bond is a fabulous investment if you’ve got up to $ 10,000 or more, she said. It’s related to inflation, which has gone up.
The interest rate is a combination of a fixed interest rate of currently 0% and a semi-annual inflation rate of currently 3.54%.
It has a minimum tenure of one year, and if you redeem it five years ago, the last three months of interest will be forfeited. There is no penalty after five years.
Pay with credit cards with savings?
Kristy Ramsey, owner of Content Maven Media based in Woodlawn, Chicago, wanted to know if she should use her savings to pay off credit card debt.
The answer depends on how much savings are left after paying off that debt. Orman recommends saving a year of working capital for your business as well as a 12 month emergency fund.
After that, when you have the extra cash, pay off your credit cards, she said.
“When you pay it off, your debt-to-credit ratio and your FICO go down [credit] The score goes up, so if you need a loan you can get it on better terms, ”Orman explained.
Investing should be made after you set up your emergency fund, and should do so over the long term – at least five years and preferably 10 to 20 years, Orman said.
Denise Merritt, founder and CEO of Merritt Business Solutions, based in Apopka, Florida, is concerned about protecting these investments from economic collapse.
Orman’s advice: When investing, don’t freak out when markets start to fall.
“In all the years I’ve been doing this, I’ve never seen a market that hasn’t peaked again,” she said.
When to quit your job to start a business
Photo event | E + | Getty Images
Therapist Catherine Swanson currently has a 9-to-5 job paying the bills. Her part-time job, alternatives: music therapy and counseling, she definitely wants to make her full-time job. Your concern is to find the best time for it.
Based in Ankeny, Iowa, the company is currently not making enough money to support Swanson and is missing about $ 2,000 to $ 3,000 a month. However, Swanson believes that if she goes full-time, she will make enough.
Before she can take the plunge, she must have a one-year emergency fund and about three to four months of working capital on the business, Orman said.
She also suggests getting business credit cards in case Swanson needs a little help – ones that don’t report to the credit rating companies. There are some who will not do this unless you have committed a criminal offense.
“Then take it easy and say goodbye to this job,” Orman said.
SIGN IN: Money 101 is an 8-week financial freedom learning course delivered to your inbox weekly.
CHECK OUT: 3 side-hustle apps you can use to make money – including one that is “surprisingly lucrative” over Growing with acorns + CNBC
Disclosure: NBCUniversal and Comcast Ventures are investors in Acorns.