The Difference Between Saving and Investing in Your Business

You’re listening to the Mastering Money in Midlife podcast with Debbie Sassen, episode 9.

Welcome to Mastering Money in Midlife, a podcast for midlife women in business to overcome financial anxiety and make more money without burning out or sacrificing their families. Join certified life and money coach Debbie Sassen, as she shares practical business strategies and mindset shifts, that help you dissolve the money blocks that keep you stuck in a cycle of underearning and under-saving, sabotage the growth of your business, and prevent you from building the wealth that you desire.

Hello, my friends, and welcome to episode nine of the podcast. Today I had a visitor in my office. My 3-year-old grandson was here for an hour, hour, and a half this morning, and we were watching YouTube videos of trucks and airplanes. I was thinking about what a pleasure it is to be working from home to be able to babysit my grandchildren in the middle of the day or the middle of the morning. It’s such a benefit of being an online entrepreneur. I don’t always take off time to babysit my kids, my grandkids in fact, if you look at our family’s what’s up chat, you might notice that my husband, way more frequently than I do, volunteers to babysit our grandchildren when someone needs help.

Today he had to go to a funeral. I felt like it was my time to do it, also because I enjoy it and also because tomorrow night I’m going to be flying to the United States. God willing, by the time you’re listening to this podcast, I should already be in the United States. If you’ve been following me since the beginning of the podcast, you know that I’ve been waiting to see my parents for so, so, long, and please God in another two days, that is going to happen. Yay! Okay, so, I hope by the next time you and I speak with each other, hear from each other, I will be in the United States.

Okay, for today’s podcast, I want to speak about the difference between saving and investing and why as a business owner, you need both. First of all, so many people confuse saving and investing, or they use the terms interchangeably. Like, we think about oh, I want to save for the future. I want to invest for the future, and these terms are sort of like mumbled in our head as if they’re the same thing. I like to create a very big difference between saving and investing. Saving I call safe savings. Savings is something you want in your bank account where it’s accessible.

So, if there’s an emergency or some future expense near term expense that you know is going to happen or is very likely to happen, the money is there. You don’t have to go scrambling. I speak with business owners, and all of a sudden, they get a tax bill that was unexpected, or they didn’t know how much it was, and all of a sudden, they need to go scramble. They need to find the money. They need to quickly sell something. They need to take less out of their business to bring into their personal account, and that means they’re not going to be able to buy clothes for the winter, or they’re not going to be able to do something that they were hoping to do for their family, or they’ll have to delay therapy for their children.

Whatever it is when we have expenses in our business and business expenses as well as personal expenses, they fluctuate. They are not the same every single month. My podcast, for example, that you’re listening to, I do have monthly expenses. Still, there are other expenses in my business like zoom that I pay for once a year. I pay for my accountant monthly to do my accounting, but then once a year, I might also have to do a declaration of income and expenses for the tax authorities or once every four to five years.

That’s the way it works in Israel, where I live. Or, let’s say, a computer. I bought my computer, my laptop two and a half years ago and I know that at some point in the future I will have to replace it. There will be new technology. It won’t be fast anymore. I remember the last laptop I replaced after like 8 or 9 years. It was as slow as a 100-year-old tortoise because of all the new technology was just moving so much faster, and it couldn’t handle it.

So, we have expenses that don’t happen every single month. It’s not like the electricity or my podcast expenses or, you know, my Canva, sometimes I pay for Canva monthly, sometimes yearly, but you know what I’m talking about, right? We don’t have the exact same fixed expenses every single month. So, you need to have safe savings on the side. There’s a lot of alliteration there, safe savings on the side for the expenses that you know that are going to happen, you know, and they happen once or twice a year in your business.

It’s very important to have them set aside in a separate account. Now, if you know that you’re not going to touch the money, if you see it in the balance of your account, you can leave it there. But if you want to be extra special, safeguarded, right? You want to be really sure that the money is going to be there when you need it. Just put it aside in a separate account that is your savings for expenses that you know are going to be coming up during the coming calendar year. So, if you’re listening to this podcast in April, make sure that you have expense money set aside in an account from April to April the following year.

Now, I also highly recommend that you have a separate saving account for fluctuating expenses that you know are going to happen. So, as I said, my laptop is going to need to be replaced every two, four, or five years. So, I want to have money set aside for a laptop in the future or my cell phone. And I am going to be replacing my cell phone when I am in the United States. I have had it for three years. I notice that it’s also slowing down a lot, and I think it is time to replace it. I mean, I don’t need all the fancy new camera and other app facilities of a new cell phone, but I do believe that a newer piece of electronic equipment, a new electronic device, would serve me well.

So, you want to keep money in a separate account for expenses that you’re not quite sure when the timing is going to happen, but you know that they will happen. In that same account, you can have money for emergencies. So, that if, God forbid, let’s say you drop your laptop, and it breaks. You need to replace it, you have money set aside there, or all of a sudden you have a client, and the client requests a refund, and that wasn’t something you were expecting, right? You thought that you’d work for the client for the next three or six months or whatever your contract is. Then all of a sudden, something happens. They have to stop working because of something going on with them, or the relationship doesn’t work out the way you thought it was going to. For whatever reason, you need to issue a refund to that client, and you have the money sitting there.

Again, you don’t have to go into debt. You don’t have to take a bank loan, or a loan from your personal savings account, or something like that in order to cover your business. You want to make sure that you always have money set aside for the unknown and for the unexpected. So, let me just recap that savings is safe money. You don’t want to have it invested. You know that there are going to be expenses in the future; some of them you know, some of them you don’t know, but you want to make that a non-negotiable practice in your business that you always have money set aside in savings.

Oh, and one last thing that I didn’t think of earlier is that you could also have like unexpected dry spells, right? And now, certainly, in the last couple of years, we’ve been living with COVID. There have been a lot of unexpected events, a lot of unexpected things happening, especially if you’ve been in the tourism industry or in the airline industry, which is also connected with tourism. Like, there have been huge drops in business and income for people in those industries, and that just highlights the fact that none of us really know.

Even if you’re the person in your business, you’re the main breadwinner in your business, because you know, one-stop-shop, you are the main woman or man behind the business, if you get sick and there’s a couple of weeks when you can’t show up for business, you can’t serve your clients that can also result in a drop of income. So, you want to have money saved on the side just in case. You could call that your emergency fund. You can call it your rainy-day fund. I actually like to call it a financial freedom fund because it gives me a lot of freedom and ease, and just like I feel so relaxed, I feel free. When I know that I have money set aside just in case I need it. So, that’s savings.

Investing is money that we want to grow for the future. When I think of investing, I mean the classic example is investing in the stock market, and since I come from an investing and financial planning background, it’s pretty easy for me to connect with that. If we look over the very long-term history of the stock market, more than 100 years in the United States, and that’s where we have statistics from, right?

The stock market returns about 10% on average every year over long periods of time. There are some years where you have more than 10%. Some years when you have less than 10% some years when the return and the financial markets and the stock markets can’t be negative, but again, if you stretch your timeline out over 25, 50, 100 years, the average annual return that you can expect in the stock market is 10%. But because, as I said on a year-to-year basis, it can fluctuate sometimes it’s more, sometimes it’s less, sometimes it’s way more, sometimes it’s way less. You have to have a long-term timeline and perspective—a long-term investing horizon when it comes to investments.

You don’t invest for 2 years, right? When you want money in 2 years from now, let’s go back to the laptop example because you want to replace your laptop, you need to have money readily available. You don’t want your money in a volatile investment that could be down just at the time that you need it. If you want to invest in a coaching program to help you grow your business, if you want to invest in a new laptop, if you want to invest in launching a podcast, or taking time away from your business working one on one with your clients so that you can do a training, right, you have to have the money available.

You can’t all of a sudden need to pull money out so that you can invest it for the future because the markets could be down, right? So, make sure that if you’re investing, you’re investing for the long term. And you know that over the long term, you’re going to make your money back. You’ve done your research. You understand what the trends are. You understand what the risks are, right? It could go up, it could go down, but you know that over the long-term, you’re going to have a positive return on investing.

Now, let’s talk about how we invest in our businesses and money that we want to invest in our businesses. This is where people maybe get it wrong because they look at it as an expense rather than an investment. And I’m going to specifically talk about coaching because I work with a business coach, and I love my business coach, Stacy Bateman, and I invest with her $25,000 every six months. And I don’t look at it as an investment that I need to see an immediate return on. Like, if I invest $25,000, I expect to get that $25,000 back within six months, right?

I look at a $50,000 investment during a calendar year, and I believe that over 10 years, right? Because I have a long-term investment horizon, I’m going to have multiple percentages of return on my investment. It’s not going to be 50,000 in, 50,000 out, it’s going to be 50,000 in, $500,000 out. It’s going to be $100,000 in, $1,000,000 out. I’m investing in my coach by paying her money, and when I look at it really through the right lens, I’m investing in myself.

I am, and you are, as a business owner, the most important asset in your business. It’s not the platform that I have for my online courses, whether it’s like, Think Effect, or Teachable, or Kajabi, right, and it’s not my website which is my beautiful home on the internet with lovely pictures and lovely things that I have written. The most important investment in my business is me. It’s the way that I think about myself. It’s the way that I planned. It’s the way that I think about my clients. It’s the way that I grow my business and provide more goods and services and products and intellectual property to the world and to my clients and the people out there who are like in my tribe, and if you’re listening to the podcast, you are one of the people in my tribe.

So, I want you to also appreciate that when you’re investing in yourself, you’re also growing in yourself for the long term for your tribe, and the more you grow yourself in the ways you’re thinking, the ways you’re showing up, the way you’re managing your time, the way you’re managing your money, the way you’re managing the intellectual property that you put out into the world, the bigger the return on investment you will see in your business over the long term.

That’s a really important mindset shift I think that we all need as business owners to look at any investment that you make in yourself, and it is an expense because you’re sending money out in the world today, and you’re putting it in somebody else’s pocket, right, but it’s really an investment in you, and in your business for the long term and over 5 and 10, 15, and 20 years, and for however long you decide to run your business and show up in the world, whatever you invest in yourself now, is going to have humongous returns on investment.

There’s going to be the compound interest which is like the interest on the interest on the interest so that it’s going to grow and thrive over the long term. And what’s fascinating is that if you look at investments like for example, investments in the stock market, and you invest money every month or every year in the stock market, and you can see that over time let’s say you invest and you have a 10% return on average, so your $1,000 turns into be $1,100 after a year. Then, you put in another $1,000, and it’s $2,200, and you know, it’s more than 2,200 because now you have interest on your interest.

And you see that in a graphic way, the return on investment is pretty flat, only slightly upwardly sloping to about the 10-year mark, and then it takes off and the compound interest on all of the investment just shoots up exponentially, and that’s really how I want you to view your business. Any money that you invest in your business, in you, at the 5, 7, or 10-year mark, it’s just going to take off, and you’re going to see huge returns if you stay the course. That’s a really important thing that you have to keep in mind when you’re investing in stocks, real estate and when you’re investing in yourself as a business owner.

Here’s something else that’s important to understand is that when you’re investing in stocks, you’re investing in somebody else’s business, right? The stock market and when you invest in the stock market, you’re investing like you own little shares, little bits of somebody else’s business, and you can expect to get about a 10% return on average every year. When you’re investing in yourself, right, you can use as a measuring stick 10% per year on average in the stock market and if you can get a 20% return on average, if you can get a 30% return on average in your investment on yourself and in your business, then you’re beating the stock market. And that’s an amazing, amazing, long-term investment because you’re never going to be able to do that well consistently in the outside world.

Alright, so, I want you to take that with you when you’re thinking about the money that you bring into your business and how you allocate it for different expenses. Number one is you want to have money put aside for savings just in case, right, and also money put aside in savings for the short term and near term expenses that you know are going to happen, that’s your safe savings, and you want to have money that you invest and reinvest back into your business, and you’re not going to be impatient for quick returns on your investments in your business because that does not reflect reality.

Out there in the big world, in the world of stocks, the long-term average return on investments and businesses is 10%, and it takes time to see that return on investment compound and grow and grow exponentially. So, be patient and know that if you stay the course, of course, it’s going to happen to you and just keep showing up every day in your business in service of your people. Alright, my friends, that is what I have for you today, and I hope that next time we chat with each other, I’ll be speaking from the US. Have a great day, bye.

Thanks for listening to Mastering Money in Midlife. If you want more information on Debbie Sassen or the resources from the podcast, visit masteringmoneyinmidlife.com.

Thank you, and bye for now.