How to Plan Your Retirement and Achieve Financial Independence with Sarah Young
Early retirement and financial independence are the dream for almost anyone, but how do we plan for and achieve them? How much money is needed to retire and be financially independent? Is the income from your law firm enough? If not, how can you get cash flow outside your business?
In this episode, Sarah Young of Young + Co joins us to discuss the value of CFOs in making financial decisions and planning your firm's growth trajectory. She builds on her years of CFO experience and shares tactical ways to increase your cash flow, prepare for retirement, and achieve financial independence!
If you want to know how to create cash flow outside your law firm, this episode is for you!
Here are three reasons why you should listen to this episode
- Learn how to build the financial plan for your law firm.
- Know the importance of diversification and knowing where to put your profits.
- Find tactical ways to grow your money and achieve retirement and financial independence!
Sarah’s Business Journey
- Sarah graduated with a business major and worked as a teacher for Teach For America for two years.
- Her teaching background allowed Sarah to explain complicated money topics in a way that was understandable to her clients.
- She got her CPA license in 2012 and has been an accountant for 12 years.
- Sarah started her business after seeing her in-laws struggle with finding good help on the financial front of their $10-million business. She saw this as an opportunity to help people make more money.
- She went full-time into her business, Young + Co, in 2020.
What People Need To Know About CFOs
- Companies often have tax accountants or bookkeepers but still need support — this is where CFOs often come in.
- Most businesses have an intuition about whether the business is going well or not. CFOs help connect the dot from this intuition to the actual finance data.
- CFOs help report and plan so business owners understand what is happening and what could happen in the future.
Sarah: “I really think [there are] two areas I see a lot of people not doing even if you have a bookkeeper or if you have somebody who's doing tax prep for you: [not] leveraging the data they have to make decisions, and [not] really sitting down and creating a plan.”
Creating A Financial Plan For Law Firms
- Begin with the end in mind.
- Sarah starts by asking, "How much money do you need for your business?" and "How much do you need to retire?"
- Think of it as a GPS: You need to have a starting point and a destination. Then, you can determine the fastest way to get around things.
- Your plan is not a ‘set it and forget it.’ It is like a living document that gets altered as you go.
Diversification And Planning Your Retirement
- Diversification is having other assets outside your business so that if one goes down, your plan can continue.
- It is essential to have a diversified portfolio in your plan. Do not put all your eggs in one basket.
Moshe: [The] purpose of business is to create cash so that you can invest in other places that are going to create income without the effort that business takes. The more assets that you have that generate income, the better off you are."
- For instance, you can sell your law firm.
- However, Sarah advises against naming the firm after the owner because it makes the firm automatically harder to sell.
Knowing Where To Put Your Money
- Everyone has a different journey depending on who they are, their goals, and the current investment situation.
- Consider your cash flow before and after you hit retirement age. Have a complete picture of your cash flow — including tax.
- It is not advisable to put all your money into a retirement fund. Remember that withdrawing from a retirement fund incurs penalties.
- Before putting all your money into a 401K or a SEP IRA, ask yourself: Am I going to be in a lower tax bracket after I retire?
Why You Shouldn’t Reinvest All Your Profit
- Do not fall into the trap of reinvesting all your profits and wanting to keep your business growing. It sounds good and seems logical, but it deprives you of an exit plan.
Moshe: “Not every dollar I reinvest in the business is going to have the same return on investment and that's really something that [you] need to pay attention to.”
- Instead, aim for a specific profit margin and take home the excess.
- There are other options besides reinvesting in your business. You can instead open a franchise, enter the stock market, start an Airbnb, or invest in a real estate fund, for example.
- The key is to educate yourself. Figure out what you want to do.
Investing In Your Law Firm’s Space
- There are a lot of options once you start being creative.
- You can also buy a building for your law firm. If you buy the right real estate, it can be worth more than your business when you sell it.
- Once you sell the firm, you get the money from the business and the person who buys the firm continues to pay you rent.
- The purpose is not just retirement but to create massive amounts of cash.
- Learn more in Profit with Law’s episode on Creating Wealth Through Smart Decisions with Chris Melcher
Moshe: “There's so many options that open for you by having all this extra income from these other places but that all takes time. It's something that grows, as you develop it, it gets bigger and bigger. It's almost like it snowballs [until] all of a sudden you wake up one day and you're like, ‘Whoa, I'm a multimillionaire.’”
The Deal With Financial Independence
- The definition of financial freedom or financial independence depends on the person.
- Sarah defines it as having enough assets to your name that produce enough cash flow to afford your life and not have to earn another dollar.
- It begins with stability — being able to pay your business and personal bills.
- Financial independence is a better insight than retirement. You do not want to be old when you're financially independent.
Sarah’s Major Takeaway: Plan
- One of the biggest mistakes a business owner makes is creating an overwhelming plan.
- You need to step back and think: What is the purpose of your business?
Sarah: “Take some time and sit with that. Really think about what it would take for you to get from where you are now to there, and start taking steps. Start plugging that ‘address’ into your GPS and start driving down the road.”
Sarah Young, CPA, is the founder of Young + Co, a virtual CFO agency that helps business owners find financial peace and generate freedom and wealth without burnout. She also hosts, Profit + Prosper, a finance podcast where she shares tactical tips to increase profit and prosper in business and life.
Her mission is to help driven entrepreneurs with their finances and make money a rocket fuel (not a roadblock) that helps them achieve their goals to create peace and stability, build wealth, and leave a legacy.
Learn more about Sarah through Young + Co, or you can connect with her on LinkedIn or Instagram.
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