Investing in Your Future: Why Young Founders Should Build Wealth Outside of Their Business

This is not financial advice and should not be considered as recommendations of any kind. Do your own research and speak with a licensed financial advisor before making any decisions.

Running a business can be a rollercoaster for both your finances and your mental well-being. Many owners and founders I know pursue business for three primary reasons:

1. To create value for others.
2. To refine and develop themselves through the challenges of business.
3. To make money (of course!).

In the early years, business can feel like a journey through different stages:

• Getting started
• Barely surviving
• Thriving
• All of the above… all of the time...

While there are certainly more nuanced phases, it often feels like we’re either on the brink of success or teetering on the edge of failure. Business can expose our deepest fears and insecurities, leaving us feeling that financial success is elusive, uncontrollable, or simply not worth the effort.

The goal of this article is to offer a perspective on building sustainable wealth both within and outside of your business, while encouraging you to stay the course.

Is Investing in My Business Worth It?

A common statement I have heard often from both young and seasoned business owners is:

“The best place to put your money for returns is in your business.”

Though this statement can be true, I do not adhere to the belief that it is universally applicable. I see the problem to be much more nuanced and the answer depends on various factors related to your specific situation.

There are three key factors everyone needs to consider to achieve superior returns, whether investing in their business or elsewhere:

1. Risk Tolerance (Internal)
2. Liquidity Needs (External)
3. Opportunity Cost (External)

These factors play a significant role in determining the impact and returns you’ll see from your investments. The most crucial factor is your own risk tolerance—often, the biggest limitation in your investment decisions is you.

Not every opportunity to reinvest in your business leads to financial success. There are times when it's appropriate to pour money into a business opportunity, but there are also moments when it’s wiser to diversify your investments or even hold onto cash.

Here’s a quick thought exercise to help you decide whether to invest in or out of your business:

• Do I clearly understand how each dollar invested will create greater value for the business?
• Do I have data-based expectations for the cash flow or profit each dollar will generate?
• Do I know the true cost of pursuing this opportunity? ($$ + Time + Stress + [What I now have to say “No” to])
• Do I have enough set aside to see the opportunity through to completion?

If you can confidently answer “yes” to all these questions, you’re likely in a good position to take the opportunity. However, please don’t blindly pour money into projects without knowing their value just because someone told you that "investing in your business is always better."

Throwing money at something without a clear plan isn’t investing—it's wasteful. In fact, many small businesses and young founders end up wasting money because they feel compelled to do something with it.

Why Build Wealth Outside of Your Business?

Now, let's dive into the core of this article. When looking at life holistically, it's essential to recognize the importance of separating yourself from your business. Whether you’re pursuing passive income streams or actively running a company, your life and your business are distinct entities. Consequently, your wealth should also be diversified—separating your financial security from the inherent risks of business ownership.

Although to “win” in business means different things to different people, it’s impossible to win a game you’re not playing. Diversifying your finances early on may feel counter productive at times, but is far more likely to help you stay in the game longer.?

The Risk of Over-Concentration

Business, by nature, carries risk (and probably a lot more than we care to recognize). From market fluctuations to competition and unforeseen events, the factors that can impact a business are numerous and far beyond your control. So, why would you tie all your financial well-being to something that inherently carries this level of risk? Not to mention the emotional toll—business ownership can be stressful, leading to burnout, decision fatigue, and an increased likelihood of making poor financial decisions.

This is why I strongly advocate that young founders and business owners should, from day one, begin building a separate financial portfolio outside of their business. This practice should continue regardless of how large or profitable the business becomes.

Diversification as a Risk Mitigation Strategy

Diversification can be one of the most effective ways to manage risk (but, it can also introduce more risk if you’re not careful). By spreading your investments across different asset classes, markets, or even other businesses, you reduce the impact of any single downturn on your overall financial health. While your business might be thriving, a diversified portfolio allows you to capture upside potential in other areas—whether through stocks, bonds, real estate, or other investment vehicles.

Non-Business Wealth Carries Different Emotional Strings

Money that isn’t tied up in your business often feels more tangible and secure. Depending on the asset, it might be more liquid, providing you with financial flexibility and the ability to “realize” wealth when needed. This creates a different relationship with your money—one that’s less emotionally charged and more grounded in security and peace of mind.

When your wealth is diversified, you approach value creation from a broader perspective. You’re no longer solely focused on what’s happening in your business but are also aware of and engaged with other economic opportunities. This broader view can lead to better decision-making, as you're not over-relying on the success of a single venture.

Success in a broader, systematic approach tends to create forward momentum in the specifics, de-risking the overall probability of failure.

Public Asset Classes Take Less Time to Manage

Investing in public asset classes, such as stocks or bonds, typically requires less time and effort to manage than a business. These assets often have built-in mechanisms for growth and income generation, allowing you to reap the benefits without the day-to-day stress of running a company. This frees up your time and energy to focus on growing your business or pursuing other passions.

It Strengthens Your Ability to Execute in Business

Perhaps one of the most compelling reasons to build wealth outside of your business is the peace of mind it provides. Knowing that you have a separate, secure financial foundation allows you to take calculated risks in your business without the fear of complete financial ruin. This confidence can make you a more decisive and effective leader, empowering you to seize opportunities that you might otherwise shy away from if your entire net worth was tied up in your company.

The Discipline of Investing Builds Resilience

One often overlooked benefit of building wealth outside of your business is the discipline it fosters, through further delayed gratification. Investing requires a long-term mindset, patience, and the ability to weather market fluctuations without panicking. These qualities are invaluable, not just for growing your personal wealth, but also for building resilience in your business life.

When you commit to regularly investing outside of your business, you develop a habit of thinking beyond immediate gains and start focusing on sustainable growth. This disciplined approach to wealth management can positively influence how you manage your business, encouraging a more measured and thoughtful approach to decision-making.

Furthermore, the experience you gain from managing investments—assessing risk, understanding market dynamics, and learning from mistakes—can directly apply to your business strategy. Over time, this discipline strengthens your ability to navigate the ups and downs of entrepreneurship with a steadier hand, knowing that your personal financial security isn’t solely dependent on the success of your business.

In Summary

Diversifying your wealth by investing in other asset classes not only mitigates risk but also provides a sense of security and peace of mind that allows you to make better, more strategic decisions within your business. It’s crucial to recognize that while a business can grow rapidly and offer significant returns, it is too immature, volatile, and risky to be treated as a reliable store of value.

In conclusion, during the first few years (1-5) of your business, treat it as a vehicle for creating money, not as a place to store money. By separating your wealth from your business and investing in more stable assets, you’ll build a stronger, more resilient financial foundation that supports your long-term success.

Books I Recommend on this Topic:

• The Millionaire Next Door by Thomas Stanley?
• Thinking Fast and Slow by Daniel Kahneman?
• Art of War by Sun Tzu?
• The Intelligent Investor by Benjamin Graham?
• Cashflow Quadrant by Robert Kiyosaki?
• Skin in The Game by Nassim Taleb