5 steps entrepreneurs should take to secure their personal and business finances

checking credit scores finances
Entrepreneurs should closely track spending and saving to understand where their money is going and how it affects their financial goals.

  • Responsible entrepreneurs should take steps to achieve both business and personal financial security.
  • There should be a clear separation of personal and business finances.
  • Track your spending and saving, create passive income streams, and plan for emergencies.
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Entrepreneurship inherently involves financial risk. That doesn’t mean, however, that entrepreneurs can’t become financially secure. Remember, your personal finances and business finances are not the same. Responsible entrepreneurs aren’t just focused on making their business succeed. They also take steps to achieve financial security in their personal life.

1. Create true separation between personal and business finances

Failing to separate business and personal accounts can create serious financial trouble in the long run. If the business were to fail, you would lose all the money that is also being used to pay your rent or any other expenses. Even more troublesome, liability issues could leave you on the hook for company debts or legal troubles.

Maintaining separate personal and business accounts ensures that even if your company runs into financial difficulty, your “nest egg” won’t be compromised. Paying yourself a salary from your business account can help increase this sense of separation.

Never use a business account (including credit cards) for personal expenses.

2. Clearly define personal finance goals

While you may have established clear growth goals for your business, you can’t afford to let personal finance goals be an afterthought.

In a recent phone conversation, Tobi Roberts, cofounder and CEO of City Creek Mortgage explained, “As a business owner, you need to plan out what you’ll do with the salary you pay yourself from your company. After all, a big part of the reason why many people go into business is to support their desired lifestyle.”

Roberts continued, “Setting clear and meaningful goals will act as a series of guideposts to help you stay on track for reaching that lifestyle. Whether you want to move into a bigger house or buy a boat, setting a savings goal will help you better control what happens after you pay yourself.”

Your personal finance goals (such as retirement or even building an emergency fund) can also affect how you structure your business’ cash flow. You need to find a balance between paying yourself enough to live your desired lifestyle without creating a cash crunch for your company.

3. Create passive income through investments

“Making your money work for you” may sound like a bit of a cliché, but it’s an important to-do for entrepreneurs trying to achieve financial security. Continued investments in the stock market allow your money to grow at a much greater rate than it would if you left it in a checking or savings account.

As Investopedia reports, the more passive, long-term buy and hold strategy averages 12.1% returns on small stocks and 9.9% returns on large stocks, even when accounting for market crashes.

By simply putting money aside into an investment account each month, your money will compound, giving you an additional revenue stream beyond your salary. You don’t need to chase the latest meme stock to increase your financial standing.

4. Religiously track spending and saving

Managing cash flow is vital for any startup – and it is just as important for your personal finances. If you don’t understand where your money is going, you might find yourself running out of money as you try to attain a lifestyle you can’t quite afford.

Tracking monthly expenses is vital for identifying ways you can better use your money. This can help you identify things you should cut out of your life – like that gym membership you never use. Or, it can put the amount of money you spend on meals at restaurants into perspective.

Writing down how much you spend each month – and what you spent it on – makes it easier to compare your current habits with your long-term financial goals so you can make necessary changes. Quite often, small sacrifices now (like investing $50 toward an investment account instead of daily Starbucks runs) will pay big dividends later.

5. Plan for the unexpected

You never know what life will throw your way. This is just as true in your personal life as it is in the business world. And of course, unexpected negative outcomes for your business can have a tremendous impact on your personal finances.

While times are good, you should prepare for the future by building an emergency savings fund. Financial experts generally recommend that most people have emergency savings that would cover three to six months of living expenses.

Notably, those with a variable income or less stable employment – a category that many entrepreneurs fall in – are advised to have an emergency fund that covers six months or more. Contribute a bit of money to your emergency fund each month. This way, if disaster strikes and you are no longer making any money from your business, you won’t need to liquidate investments or retirement funds to stay afloat.

No matter what your business goals may be, you cannot make finances an afterthought. By taking steps to account for both your business and personal financial standing, you will have much needed security.

Ultimately, financial security allows you to support the lifestyle you want to live while giving you one less thing to worry about in your hectic entrepreneurial life. Prioritize your finances early on so you can establish good habits that last a lifetime.

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Gen Z is going to have a hard time getting rich

gen z
Gen Z is set to make less money on stocks and bonds.

  • Gen Z will earn a third less on stock and bond investments than past generations, Credit Suisse found.
  • They can expect average annualized returns of just 2%, according to the bank’s investment returns yearbook.
  • Another obstacle for Gen Z: they’ve been the most unemployed during the pandemic.
  • See more stories on Insider’s business page.

Gen Z is walking a rocky road to getting rich.

They’re set to earn less than previous generations on stocks and bonds, according to Credit Suisse’s global investment returns yearbook.

In fact, the generation can expect average annual real returns of just 2% on their investment portfolios – a third less than the 5%-plus real returns that millennials, Gen X, and baby boomers have seen. Credit Suisse’s analysis took in average investment returns since 1900 and forecasted them going forward for Gen Z.

The yearbook acknowledges that marked deflation could increase bond returns, The Economist reported, but it said inflation is more of a concern. What the report calls a “low-return world” is yet another another financial obstacle for the generation, who may be on track to repeat millennials’ money problems.

A December Bank of America Research report called “OK Zoomer” found that the pandemic will impact Gen Z’s financial and professional future in the same way that the Great Recession did for millennials.

“Like the financial crisis in 2008 to 2009 for millennials, Covid will challenge and impede Gen Z’s career and earning potential,” the report reads, adding that a significant portion of Gen Z is entering adulthood in the midst of a recession, just as a cohort of millennials did. “Like a decade ago, the economic cost of this recession is likely to hit the youngest and least experienced generation the most.”

Gen Z was hit hardest in the workforce

Gen Z been been impacted the most in the workforce, facing the highest unemployment rates.

They entered a job market crippled by a 14.7% unemployment rate in May – greater than the 10% unemployment rate the Great Recession saw at its 2009 peak. Those ages 20 to 24 had an unemployment rate of nearly 27% when the unemployment peaked last April according to data from the St. Louis Fed, more than any other generation.

Recessions typically hit younger workers hardest in the short-term, but can reap long-term consequences.

“The way a recession can really hurt people just starting out can have lasting effects,” Heidi Shierholz, a senior economist and the director of policy at the Economic Policy Institute, previously told Insider. “There’s a lot of evidence that the first postgrad job you get sets the stage in some important way for later.”

Recession graduates typically see stagnated wages that can last up to 15 years, Stanford research shows. That was the case for the oldest millennials graduating into the Great Recession, who in 2016 saw wealth levels 34% lower than that of previous generations at the same age, per the St. Louis Fed.

A follow-up study showed that by 2019, this cohort had narrowed that wealth deficit down to 11%. Such financial catch-up could be an optimistic sign for Gen Z in terms of regaining any ground lost building wealth during the pandemic.

However, millennials have had a 5%-plus annualized investment return on their side. With a projected 2% annual return for Gen Z, building wealth may be even harder to do.

There’s more to building wealth

Of course, stocks and bonds are just two asset classes. There are other ways Gen Z can build wealth, such as investing in real estate or by becoming successful entrepreneurs. Many Gen Zers have already embarked on an entrepreneurial path as early as their teen years, which could go a long way in wealth creation.

But the pandemic has caused a housing frenzy that led to depleted inventory and inflated housing prices, making it more difficult to buy real estate – and build wealth through it. And while more prospective new businesses were formed in 2020 than ever before, almost a third of existing small businesses were wiped out by the pandemic. Altogether, the pandemic could ultimately cause Gen Z to potentially lose $10 trillion in earnings.

Within the next decade, Gen Z’s income will rise to such a point that they’ll effectively take over the economy, but their wealth could well be far behind previous generations by the time they get there.

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How to invest in healthcare, a massive market sector that offers unparalleled diversification for portfolios

The highly diversified healthcare sector ranges from biotech and drug companies to insurers and pharmacies.

  • The size and variety of the healthcare sector make it suitable for almost any investor building a diversified portfolio.
  • Healthcare stocks fall into six categories: pharmaceuticals, biotechnology, medical equipment, sales, insurance, and facilities.
  • While the healthcare industry has good growth prospects and is often economy-proof, it also carries some unique investment risks.
  • Visit Business Insider’s Investing Reference library for more stories.

Investing in healthcare is enticing.  After all, everyone needs medical care at some point in their lives; everyone uses health services of some kind.  If you go by the adage “invest in what you know,” then health stocks, which range from drug to insurance companies, certainly qualify.

They qualify for economic reasons too. For years now, healthcare costs have far outpaced the rate of inflation. National health spending, which accounts for 18% of total US GDP (gross domestic product), is projected to reach $6.2 trillion by 2028

Many healthcare stocks have exhibited robust earnings and share price growth – not only in the COVID 19-dominated year of 2020 but throughout the past decade – and many economists and analysts predict continued growth in the years to come. 

Why invest in healthcare stocks?

Actually, the question might be why not invest in healthcare stocks. In fact, the healthcare industry is hard for investors to avoid. 

So, you might be hard-pressed to build a diversified portfolio of any kind that doesn’t include at least some healthcare stocks.

But it goes beyond ubiquity. Ranging from robotics to insurance companies, from century-old drug makers to fresh cannabis farms, the diversity of the health care sector also makes it an important place to invest. And because the sector includes both growth and value stocks, defensive stocks, aggressive small-cap plays and more conservative large-cap companies, you can achieve a lot of diversification within your portfolio via healthcare too.

We’ll get into the hows of investing in healthcare. But first, let’s examine how the healthcare industry is organized, the types of companies it includes, and their characteristics.

Types of healthcare stocks for investment

When you invest in the healthcare sector you’re actually investing in a broad range of industries. Some are manufacturing/production, others are service-oriented. 

Each element of the health care sector can act like its own mini-sector, with varying degrees of volatility and performance depending on demographics, government regulation, reimbursement patterns, scientific and technological breakthroughs.

There are six generally agreed-upon healthcare subsectors, each with its own characteristics:

healthcare industry sectors
The six segments of the healthcare sector.


Major pharmaceutical companies, aka “Big Pharma,” manufacture and market prescription and over-the-counter drugs, creating a stable stream of revenue from continued sales. These firms also conduct research and development to create new drugs that undergo clinical trials in the hopes of ultimately being approved for use. Some of these efforts can result in “blockbuster” drugs such as cholesterol-lowering agents and diabetes drugs that generate profits for years.  

The fortunes of these big drugmakers wane when patents expire and generic competition eats into sales or improved drug therapies are approved and take precedent over established brands. 

Leading pharmaceutical companies include names such as Novartis AG, GlaxoSmithKline PLC, and Pfizer, the company that developed a COVID-19 vaccine with BioNTech.

Generic drug manufacturers are another important member of the pharmaceutical subsector. These companies manufacture look-alike drugs that are cheaper than brand-name pharmaceuticals once the patents for those brand-name drugs expire. Because of insurer and government incentives to use less-expensive generics, these companies can benefit from increased demand for lower-priced drug alternatives. 

At the same time, because of the lower prices, generic drug makers experience thinner profit margins. In addition, many manufacturers have been under fire for faulty formulas and quality standards.


Biotech firms also conduct research and development to create new drugs and therapies. However, they are often focused on one or two “breakthrough” products or treatments. 

Biotech firms are sometimes classified as part of the pharmaceutical drug subsector, but they often behave differently than their Big Pharma counterparts. While the established drug-makers often offer steady returns and income, biotech firms are more akin to volatile growth stocks. Because their pipelines are concentrated and because it can take years to get FDA approval for a promising product, investors can wait years for a payoff. 

Biotech firms include small startup companies and larger, more established drug makers such as Amgen and Biogen. BioNTech has become a well-known biotech name as Pfizer’s partner in developing the COVID-19 vaccine.

Medical equipment

Medical equipment makers range from firms that make everything from commodity items such as bandages and gloves to expensive, high-tech equipment such as MRI machines and surgical robots. 

In the right product categories, medical equipment stocks can offer long-term growth as the growth in healthcare consumption continues to increase. Investors need to consider product innovation, patents, government approval and reimbursements, and market demand when evaluating medical equipment stocks. 

Large medical equipment companies include companies such as Johnson & Johnson and Medtronic PLC.

Sales and distribution

This sector includes pharmacies and retailers and wholesalers of healthcare products. Companies can be influenced by general retail trends, but are also subject to consumer demand for medical and health goods, and to regulations affecting the healthcare industry. 

With more healthcare products and drugs being produced and used, growth in distribution networks has increased significantly in recent years, making healthcare distribution a growth industry with names such as McKesson and AmerisourceBergen. 

Managed Healthcare

Managed healthcare is just another way of saying insurance companies. The field includes any company that provides health insurance policies, whether it be through employer-sponsored or private insurance, the Affordable Care Act exchanges, or socialized programs like Medicare and Medicaid.

Since health-care coverage is a staple of people’s lives, managed-care companies’ returns tend to be steady. It also helps that this sector in the US is dominated by a quintet of companies. The “Big Five” firms are: 

  • UnitedHealth Group Inc. 
  • Anthem Inc.
  • Aetna Inc.
  • Humana Inc.
  • Cigna Corp.

Unlike the firms in other healthcare sectors, like biotech, the Big Five don’t face many disruptors or new competitors. However, insurers’ profits are tied to both consumer demand and government actions. The creation of new laws, or prospects of changes in laws, often causes ripples in the stocks, as the market tries to assess “what that’ll mean for the insurance companies.”

Healthcare facilities

Healthcare facilities firms operate hospitals, clinics, labs, physician offices, psychiatric facilities, and nursing homes.  Major players include HCA Healthcare, which operates hospitals, and Laboratory Corp. of America.

Although the demographics are in its favor, this subsector has had problems with profitability in the past – making its business models work. It’s also somewhat subject to real estate market trends. 

It was particularly hard hit in 2020 by COVID-19, as consumers stayed away from routine doctor visits and hospitals wrestled with the demands of the pandemic.

The pros and cons of healthcare stocks

The number one advantage of investing in health care stocks? To participate in a sector that’s expanding at a faster rate than the economy as a whole. 

Healthcare stocks generally belong to an investment category of defensive stocks – that is, they provide consistent returns, regardless of how the stock market or economy is doing. But of course, some companies perform better than others. When investing in healthcare, look for companies that are best poised to take advantage of some underlying fundamentals that can fuel growth, including:

  • An aging population
  • Treatment advances in chronic diseases and conditions, including obesity and diabetes
  • Technological advances such as telehealth and remote monitoring

Drawbacks of healthcare stocks

Despite their defensive reputation, healthcare stocks do offer risks – some typical of any investment, some more unique to this industry. 

  • Regulatory: Subsectors such as pharmaceuticals and managed care are highly regulated by the government. So FDA standards, new rules/changes in Medicare, Medicaid, and other programs, and cost controls can all play a role in how a stock performs.
  • Political: No industry is immune to public opinion, but healthcare is a particularly hot button item. Consumer demand for lower costs and the ongoing debate for universal insurance programs and healthcare reform all can and do impact the prospect for healthcare corporate profits, and their stocks. 
  • Economic: Although the industry as a whole has good growth potential, many providers and facilities are experiencing dramatic competition – and consolidation trends. as consolidation continues pricing, and profits, could decline.

How to invest in healthcare

There are several ways to add healthcare stocks to your investments.

Individual stocks

All types of global healthcare stocks are available on the exchanges – not just US ones, but international companies as well, like Bayer AG (BAYZF).  You’ll need to determine which subsectors best fit with your portfolio and from there determine which companies offer the best potential for appreciation, income, or whatever your main investment goal.

Mutual funds and ETFs

There are numerous healthcare sector mutual funds and ETFs. Many are index funds. Some follow the sector as a whole via an index like the S&P 500 Health Care Index. There are also subsector indices such as the S&P Pharmaceuticals Select Industry Index or the Russell 2000 Biotechnology index. 

Other funds are actively managed, with the manager choosing individual stocks within the healthcare sector based on corporate performance, outlook, and other factors. 

Some examples of healthcare funds include:


Real estate investment trusts, publicly traded funds that hold a portfolio of properties, often specialize in healthcare facilities – the physical buildings that contain hospitals, medical offices, and senior housing. Though a more indirect play, these healthcare REITs can be a way to invest in real estate and healthcare at the same time.

The financial takeaway

Healthcare stocks offer an unusual bevy of choices and diversity. Growth, value, aggressive, and low-risk investors can all find choices within this expansive sector. Its sheer size, the growth in healthcare consumption makes this sector hard for any diversified investor to ignore.

Forecasts for healthcare consumption and spending suggest good growth prospects for this industry. As with any investment, though, healthcare has its downsides – and its own characteristic risks, such as its sensitivity to government regulation and political currents. That’s why thorough research is an important part of healthcare investing.

Related Coverage in Investing:

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ETFs and mutual funds can instantly diversify your portfolio, but they differ in how they’re traded, managed, and taxed. Here’s what you should know.

How to invest in tech stocks, a risky but fast-rising segment of the market

How to diversify your portfolio to limit losses and guard against risk

What is common stock? The most typical way to invest in a company and profit from its growth

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