For entrepreneurs, the first decade or two of building a business can feel like a sprint—chasing funding rounds, scaling operations, and navigating the unpredictable highs and lows of startup life. But while founders are often experts at reinvesting in growth, they’re not always as strategic with their personal finances.
By the time you hit 40, the decisions you’ve made, or avoided, will shape your long-term freedom more than you might realize. This is the decade when momentum and compounding start working in your favor — or against you. Here are five essential financial moves every founder should make before reaching that milestone.
Most founders tend to think of the first decade of entrepreneurship as an all-out sprint to raise capital, scale fast, and reinvest every dollar in growth. However, when you’re focused on building a business, your personal financial foundation takes a back seat.
But as an increasing number of young entrepreneurs have discovered, thinking too long-term can be costly. As the number of young people who own businesses has risen, so has the share of business owners under 40. The number of entrepreneurs under 40 has risen to 29.3%, and 6.4% of young workers run their own companies — the highest levels in nearly two decades.
This resurgence of young entrepreneurship reflects a new generation empowered by digital tools, a desire for flexibility, and a hunger for independence. However, it also means more people are creating wealth earlier and, without proper financial planning, risking it. Depending on your decisions today, you may be free by 40 or locked into financial stress.
With that said, before reaching that milestone, every founder should take these five essential financial steps.
1. Separate Your Personal and Business Finances — For Real
When you’re starting out, it’s easy to blur the line between your personal wallet and your business bank account. After all, what’s the big deal if you use your personal card for a few expenses? Perhaps you took an “owner draw” instead of a salary. It works for a while — until it doesn’t.
By 40, you should treat yourself as an employee, not a founder. In other words, you should pay yourself a constant, market-rate salary and keep all business transactions within the company.
Why does this matter? You can protect your personal assets, simplify your taxes, and build a healthier business by separating your personal and business assets. Also, financial discipline is what investors, buyers, and even lenders look for, not creative accounting.
Moreover, it helps you understand your actual financial situation. Without knowing where your business ends and your personal wealth begins, you can’t plan for your future.
2. Build a “Freedom Fund” Outside Your Business
Founders tend to invest everything back into their ventures. It seems logical. Why invest in the stock market when you can bet on yourself? Unfortunately, that mindset leaves you vulnerable.
Even if your business is doing well today, industries change, markets crash, and buyers disappear. Smart entrepreneurs protect themselves by creating what I call a “freedom fund” — assets completely independent of their companies.
An index fund, real estate, bonds, or other asset classes with low volatility could comprise this fund. It’s not about hitting home runs, but about building stability.
Start small if you must, but automate as much as possible. Every month, transfer money from your business account to your personal investments. Eventually, that consistency builds real freedom — the kind that allows you to make business decisions without fear of losing your job.
3. Get Serious About Tax Strategy
Taxes are among the most significant and overlooked expenses for founders. In many cases, entrepreneurs overpay because they react rather than plan proactively.
By 40, your financial complexity is likely to include equity, capital gains, deferred income, and perhaps multiple entities. At this point, tax planning becomes a necessity.
You should work with a CPA who has experience in entrepreneurship. An advisor can provide you with the following assistance;
- Consider an optimal salary-dividend compensation mix.
- Utilize self-employed retirement accounts such as Solo 401(k)s or SEP IRAs.
- If applicable, take advantage of Qualified Small Business Stock (QSBS) exclusions.
- Offset big income years with charitable giving or real estate deductions.
Tax planning doesn’t mean avoiding taxes. Instead, it’s all about maximizing your income.
And don’t wait until April to think about it either. Often, the biggest savings come from decisions made months before year-end, not after.
4. Protect What You’ve Built
As an entrepreneur, you’re often thinking about growth before protection, but by mid-career, that mindset has to change. Without protection, a lawsuit, accident, or illness can undo years of progress.
First, let’s look at the basics;
- Insurance. Make sure you have adequate coverage for liability, disability, life, and key people.
- Legal structure. Ensure your business entity protects your personal assets.
- Estate plan. You can save your family from unnecessary headaches by making a simple will and a power of attorney.
Then, think beyond emergencies. To protect your assets, you can diversify your income sources, create trusts, or restructure ownership to minimize your exposure.
There’s no way around it if you have dependents — or even just partners who depend on your leadership. Being financially mature is more than earning more; it’s about ensuring what you have built endures for generations to come.
5. Redefine Wealth Around Time and Purpose
Before you reach 40, there is one financial move you should make that’s not purely numerical — it’s philosophical. Founders usually chase numbers: $1 million in revenue, $10 million in net worth, $100 million in valuation. Eventually, however, you have to ask yourself: How do I define wealth?
For some, it’s the freedom to pursue passion projects. Others value family time, travel, or mentoring younger founders. Regardless of what you plan, align your financial plan with your life plan.
If your identity is tied to your business, wealth won’t feel like freedom — it will feel like another job. Entrepreneurship is full of ups and downs, but by building personal assets, passive income, and a clear purpose beyond your company, you can stay grounded.
In other words, as soon as you begin defining wealth in terms of time instead of money, your decision-making changes. By optimizing for sustainability, you go beyond just scale.
The Bottom Line
Founders are usually at their peak in terms of earnings and in years of building before they turn 40. However, that’s also when many people make their most significant financial mistakes by overleveraging, underdiversifying, or delaying planning until it’s too late.
As your midgame strategy, consider these five steps. Keep your personal and business finances separate. Develop assets outside your business. Be proactive with your taxes. Take steps to protect what you have built. Last but not least, redefine your definition of wealth.
If you use money wisely, you can buy something far more valuable than things: freedom.
Image Credit: Matej Bizjak; Pexels
