Self Finance Your Way to Entrepreneurship with Smart Investments

Your long-term plan is to start your own business. It could be one of the smartest financial moves you ever make. As they say, you can’t get rich working for someone else; finding an industry you’re passionate about and starting a business that you own yourself will not only motivate you to work harder and achieve better results, you also enjoy the spoils of your triumphs.

The only obstacle between you and your dream is capital. You need money to start a business. There are options such as bank loans and investors. Bank loans may even be an indicator of business survival rates, as banks tend to put start-ups to a rigorous analysis to measure the odds of repayment before issuing a loan. However, you still need to put up your own money. Self-financing instead of looking for other investors (family, friends, or institutional investors) allows you to recoup more of your profits earlier on.

Now how do you get there? You can set aside money from every paycheck, but investing could be a way to get there faster.

How to Invest to Start a Business

When you invest, you’re letting the money you’ve saved work for you and grow through compound interest. Investing to start a business is similar to investing to buy a house (without the ability to draw on tax-advantaged retirement savings). You should be looking at short-term investments (i.e., 5-year terms). There are a few factors that make short-term investments different:

• Risk: The shorter your investment term, the lower your risk tolerance. Shares are one of the riskier ways to invest because of the way markets go through corrections. It can take time to recover, so if you invest everything in shares because you love seeing high growth, but the market crashes 6 months before you were going to cash out and start your business, your plans are going to be on hold. You need to preserve your starting capital.
• Liquidity: You also need your investment to be reasonably liquid, i.e. easy to sell. If you sink your investment into real estate, for example, a tough market could leave you waiting to cash out, again putting your plans on hold.

Effective Short-Term Investments

#1 Gold

Gold is great short-term investment because it protects your money from inflation. It’s better than a savings account. Gold can also help you offset the risks of other investments like shares. Just make sure you know the latest live price of gold and its history. If the headlines are talking about gold prices peaking, consider a different investment, as gold prices are cyclical in nature.

#2 Money Market Accounts

A money market account is like a savings account that offers much higher interest. There are restrictions on how you can withdraw money that affect the liquidity of a money market account, but it’s one of the few safe investments that have a chance of beating inflation.

#3 P2P Lending

Become the lender with a P2P lending platform, issuing microloans (or rather, parts of loans) at reasonable returns. You do risk losses and these investments are not FDIC-insured, but you can easily diversify your loans and limit how much you lend to protect yourself from defaulting.

Smart short-term investments can make your dreams come true sooner. Stick to low risk investments, grow your savings by cutting personal expenses, don’t forget about liquidity, and be sure to diversify your portfolio.