If you're past the age of 50 and looking for a challenge either in your retirement years or after an unexpected layoff, a business of your own could be the dream job you've been seeking. It allows you to do something you love on the schedule that suits you best.
But can you really afford such entrepreneurial freedom? With the right financial strategy, the answer can be a resounding yes.
Finances can make or break any business, but managing finances wisely is especially critical for baby boomers, who are notorious for not saving. To illustrate: The median net worth among boomers is just $107,000 (not counting home equity), according to AARP, and less than 44% of boomers have any investments at all.
To join the self-employment ranks, you should first figure out how much money you'll need to launch and operate your business for six months to a year. Operating out of your home will keep startup costs low, but you'll still have expenses like equipment and supplies, insurance and business licenses, initial product inventory and shipping costs, and one-time expenses like incorporation costs. Make a few calls or search the internet to determine average prices for your estimate.Next, decide where you'll obtain seed money. Because it's often difficult to get bank loans for a startup, other options include your personal savings or credit cards. But one thing you don't want to do is tap into your retirement savings or pension, according to Doug Flynn, a certified financial planner and partner with Flynn Zito Capital Management in Garden City, N.Y.
"Retirement money should be for retirement, so don't use it if you can help it," he says.
Once you have determined expenses and funding sources, develop a plan for covering your living expenses. Remember that in the early days of the business, you may not be able to take a salary. A retirement calculator like the one found at www.aarp.org/bulletin can help you estimate your financial needs. Set aside enough funds to cover living expenses for at least two years.