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b"With Eric Schurenberg, Editor-in-Chief of Inc. Magazine
When Do Entrepreneurs Cross The Line From Passion To Self-Neglect?
Eric Schurenberg, Editor-in-Chief of Inc. Magazine, joins The Steve Pomeranz Show to talk with Steve about an article Inc. published on the financial habits of highly effective entrepreneurs and wealthy CEOs. The overriding principle, that in the long run separates successful executives from the rest of the pack, is \\u201cdiversification,\\u201d which, in this case, refers to a diversified personal wealth portfolio.\\xa0 A common scenario with entrepreneurs and CEOs is that they're so focused on growing their companies that they neglect their personal finances. Passion can become a kind of myopia equating the success of their company's future with personal financial sacrifices made in the present.\\xa0 They convince themselves that any type of personal enrichment\\u2014from taking a larger salary to saving money in personal accounts to selling company stock\\u2014is at cross purposes with growing their business. Needless to say, not only can this outlook be personally damaging in the here-and-now, the negative impact it could have on the entrepreneur's estate can also affect their families and other beneficiaries.
Extreme Lack Of Diversification
The attitude we're describing is informed by a philosophy that goes something like: \\u201cTake care of the business today, and it will take care of you down the line.\\u201d While total commitment to their company's growth and success is in many ways par for the course for entrepreneurs and is generally lauded by peers and outside investors, when it comes to managing their personal financial goals and risks, company founders and executives would do well not to sink every last dime into their companies. Instead, they should diversify their wealth, just like everyone else. Too many company founders believe so fervently in their company's story that they see their own path to riches as running through their company's eventual success, to the exclusion of every other kind of investment they might make while building their business. From a risk standpoint, this is borderline crazy. No financial planner would ever advise a client to put all of their eggs in a single basket, and the fact that the basket, in this case, is one's own company makes no difference. There is also a widely-held belief that publicly investing all of your money in your company is a show of faith and confidence that will inspire investors and employees. This might be true to an extent, at certain junctures anyway, but that doesn't make it a wise strategy overall.
1. Getting Started: Dedicated Retirement Account
Instead of betting everything on a huge payout down the road, entrepreneurs and CEOs should spend time and money diversifying their assets today. A good place to start is setting up a dedicated retirement account. A surprisingly large percentage of entrepreneurs skimp on this (up to 75% according to Inc.com), thinking that they will enjoy generous benefits when their company reaches a certain maturity. Eric describes a \\u201csolo 401k\\u201d program for people running solo businesses with only outside contractors. This has a big advantage over other 401ks because the maximum contributions are much higher, up to $50K a year, or $100K if a spouse works for the company as well. Entrepreneurs may never need this money if their dreams for their company come to fruition, but think of this as an insurance policy against the possibility that plans to become wildly wealthy come up short. There are, of course, a number of other types of retirement accounts that can be set up, each with different advantages, tax features, and so on.
2. Buy Stocks Outside Your Sector
On a closely related note, entrepreneurs and executives should not load up their retirement accounts with company stock."