This in important article was contributed by Laurie Itkin, founder of the Options Lady. To learn more about Laurie scroll to the bottom of this article.

Between 1997 and 2014, the number of women-owned businesses in the U.S. rose by 68 per cent (twice the growth rate for men), according to an American Express analysis of U.S. Census Bureau figures. This is quite an accomplishment for women, but there is also a dark side to this trend. From what I’ve observed, few women have their personal financial houses in order before they launch their businesses and are contributing to the pending retirement crisis among the self-employed. Here are the top three mistakes I often see a female entrepreneur make:

1) Cashes out her 401(k) to pay for her business’ start-up costs

2) Fails to open up and contribute to an individual retirement account (IRA) while she is self-employed

3) Defers her family’s investment and retirement planning or abdicates control to her husband because she is consumed with her new business

10177391_824598600888770_1603671200068491426_nAccording to Bloomberg, 8 out of 10 companies fail within 18 months of opening. If that happens, an entrepreneur will be back to square one, but without any retirement savings if she cashed out her 401(k). Therefore, it is imperative that we female entrepreneurs don’t raid our existing retirement accounts, no matter how small they might be. Who wants to be an old woman with no income or money set aside, having to rely on just social security?

In my latest newsletter, I profiled a 62-year-old woman who 25 years ago left a job with $10,000 in her 401(k). Had she cashed it out she would have paid a 10% penalty plus federal and state income taxes leaving her with around $6,000. Instead, she rolled that 401(k) into an IRA and without ever adding new money to it, finds herself with a $140,000 balance today.

Here’s a piece of tough love for you budding entrepreneurs: if you are tempted to cash out your 401(k), don’t do it. Find another way to get the cash you need. And if you can’t find the cash, you may not be ready to start your own business.

If you can stick it out for a few years working for someone else, here are a few tips from my book, Every Woman Should Know Her Options, to help you build a nest egg before you go off on your own:

  • Educate yourself by reading about investing, the economy and personal finance
  • Spend less than you earn by living below your means
  • Rent a small apartment you can afford rather than mortgage a home you cannot
  • Max out on tax-deferred retirement vehicles such as a 401K and/or IRA
  • Invest a portion of every paycheck or income source in a diversified portfolio of stocks or low-fee exchange traded funds

If you follow these tips and take action, you’ll build some wealth and be well-prepared to leave the corporate grind and start a business based on your passion.

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2fa7b7eLaurie Itkin is the founder of The Options Lady and a financial advisor with Coastwise Capital Group. To contact Laurie or order a copy of her book Every Woman Should Know Her Options: Invest Your Way to Financial Empowerment, visit www.theoptionslady.com.