What does ‘saving for the future’ really mean for small business owners balancing personal and business goals? Once immediate needs are met month to month, the next question naturally turns to savings. What should you save for, and where should you save it? The answer depends on your specific situation but could profoundly impact your quality of life in the future.
Saving For Retirement
Most people generally grasp the concept of retirement savings. They think they need to save in a 401k to build a nest egg for retirement. But many times, people don’t truly understand whether they are saving enough, or in the right accounts. I spend a large part of my time in client meetings going over retirement projections. Especially when meeting with someone in their 20s or 30s, thinking about retirement 30-40 years away often feels pointless. Instead, we try to focus on what they are saving. As a planner, I cannot predict what retirement looks like multiple decades away, but I can help make an educated guess as to whether saving the minimal amount in your 401k is better or worse than maxing it out. Those conversations make retirement savings more real than the typical “I will think about retirement when I get closer to it”. Many times, waiting until then can be too late.
The IRS highly incentivizes people to contribute to retirement accounts, primarily through tax deductions. One of the best parts about starting an IRA or 401k through your company is the tax benefits. In 2025, the maximum total contribution for a 401k is $70,000 (combining the $23,500 employee maximum with the remaining $46,500 as employer contributions). While the maximum is usually only accessible to some small business owners, that could be a $70,000 drop in taxable income. For someone with an average tax rate of 30%, that could mean $21,000 saved in taxes this year. This is why a lot of business owners and employees like to put money into their retirement accounts. Not only do they get to save for retirement but it helps reduce their taxes too.
Sometimes, owners and employees prefer to do the exact opposite. This is where Roth 401k or Roth IRAs come in. Instead of taking massive deductions now, these people gladly pay the taxes up front so they can put the money into an account that will never pay taxes again (barring any tax law changes). Roth accounts provide the flexibility to “pay your taxes now” and, if used according to IRS rules, create a bucket of money that is not taxable in the future. Remember, the traditional 401k and IRAs feel good with the deduction, but at some point in retirement, the IRS will tax the distributions from those accounts. Therefore, the question is not which account is better, the question is more about whether you want to pay more taxes today or in retirement.
Saving For Before Retirement
One of the main challenges with retirement accounts like the IRA or Roth IRA, is that you need older than 59 and a half to use the funds without penalty. There are some exceptions of course, but the premise is the same. The government promotes that retirement should start in someone’s late 50s or 60s. This creates a challenge for people in their 20s to 40s. What if you want to save for future years or decades but not all the way out to retirement? That is where non-retirement accounts like brokerage accounts come in.
A brokerage account goes by many names: individual account, investment account, savings account, or (my favorite, the) taxable account. These accounts provide the flexibility to access funds at any age but do not provide the tax-free growth found in retirement accounts each year. For example, for tax purposes, any gains you make each year in an IRA do not need to be taxed. In a brokerage account, they do. If you buy a stock for $1,000 and sell it for $10,000 within a brokerage account, then you are likely to owe capital gains tax on the $9,000 you gained.
Saving before retirement doesn’t necessarily have to be through brokerage accounts either. Most people understand that retirement accounts replace your income in retirement, but what can replace your income before retirement? I’d argue the brokerage account would be the best solution, but many people also prefer real estate to fit their needs. Building a sizable monthly rental income can help supplement your future income needs and allow you to build your wealth in the process. Check out my post last week on the different sources of income, those would apply perfectly here.
Saving For Specific Goals
Perhaps the more advanced level of financial savings focuses slightly less on when the funds are needed and more on who or what they are needed for. The whole point of being financially secure is that when different costs come up in life, prepared people have money set aside. An emergency fund is a perfect example. Having 3-6 months of expenses sitting in cash always feels like a waste, until the day it’s not. Especially in the last 4-5 years, we have watched business owners hold more and more cash in the business and not pay it out or reinvest. What are they doing? They are increasing an emergency fund so if another COVID-19-style interruption occurs, the business can still operate.
One of my favorite savings goals that people desire is for the education of their children. The costs of private school and/or college continue to rise, making it increasingly harder for kids to bootstrap their way through school. As a result, there are accounts that new parents can create to help support their kids in future years. When we had our first child back in 2023, we opened both a 529 account (for college) and a UTMA (more of a general savings account for her). Since we decided to contribute monthly, I know amongst everything else going on, I have money set aside for her college when the time comes. Your situation may be different than mine but creating a financial goal to save for your children’s education can be highly rewarding.
The list of specific goals could be endless. Maybe you want to start a business in the next few years or build up your HSA (health savings account). Many people love to develop consistent savings for a travel fund. The point is to focus on what is intrinsically desirable and then build a savings plan to get there. Some may need to simply open a new brokerage account and save monthly just to build the muscles to save. Whatever the goal, work with someone who can help hold you accountable to reach where you want to go.
Now or Later
Ultimately, the tradeoff between spending and savings comes down to your quality of life. If you want to live a little better today, then spend more. If you want to live a little better in the future, save more. Saving can sound like a daunting task that only the “pros” can do, but once you attach your savings to specific goals (retirement, a new business, education) you will begin to see the benefits. There are no magic secrets to building a strong financial foundation. It starts with picking what is important and devoting your time and money to it.
TC Falkner 