The one mistake people make when putting together a business plan is creating a “way out.” We figure our elaborate ways to generate income. We may generate hundreds of thousands a year in income and live a luxurious lifestyle. After 20 years or so, you start to realize that you cannot “do in like you used to.” Perhaps our can perform your job physically, but are mentally drained by the stress of running your business. You could dump thousands annually into a retirement account and get a 5% return at retirement. This would mean going without during your working years, just to retire just in time to cover the medical costs incurred during old age.
For entrepreneurs, there is an alternative. I call it the “way out.” I structure ay business I start in a way that eventually I can remove myself from the day to day operations without the business suffering. Most importantly, I I set up a business structure that provides me an income stream when it comes time to step away from the day to day operations. This strategy allows you to live abundantly during your working years and still have a great retirement income stream.
I would like to use one of my businesses as an example. I have a web design firm. On average I make $50 an hour building websites. This is a pretty good income. It takes me about 8 hours to build the average website. If I were to save my way to retirement I would have to build roughly 6 websites and work 48 hours just to gain $10 a month in retirement income. Of course this assumes that I contribute every cent that I earn. That would be ridiculous. Truth is that with the standard rules of 10% of your income going to savings, I would have to build 60 or so site with an average of 480 hours of work. This does not sound fun.
Using a “way out” strategy however, I can enjoy every penny I earn and still save for retirement. Unlike many freelance designers, I also host the sites for my clients. Just about every client I deal with ends up getting a hosting account. The hosting fee is roughly $10 a month. In 8 hours time, I make the same contribution to my retirement that I would if I worked 480 hours on the building of the website. If I build 2 websites a month, in just 10 years I have a residual income of $2400 a month. This is on top of design fees. This is money that I don’t have to work hard for. This allows me to scale down and eventually retire.
There are many strategies to build up a “way out” regardless of industry. If you have a restaurant you may train you children or hire employees to take over the day to day operations. If you are a realtor or real estate investor who flips homes or builds homes for sale, you might want to consider building or acquiring units solely as rental properties. There are many strategies that can bring you lasting income without the hardship incurred by loading some portfolio with hundreds of thousands of dollars.
Of course, everything you do in life and in business should be diversified. However, having the residual income there can help greatly. For example, if you don’t “need” the income generated residually, you could double down on your “way out” by saving money you had to do little or nothing to get. Not only would you get the income generated by your business, but you can also generate income from interest or dividends on stocks and bonds. You may also use the “unneeded” income stream to pay off debt used to expand your business. These strategies allow your money to grow itself far faster than if you simply socked it away.