This post is by Kip Knight from Thomvest Ventures - Medium
My great grandfather, Charles Oscar Knight, was born in 1877 and lived in a very small town (Enon) in Louisiana. Much like his father before him, he made his living running a sawmill. While he wasn’t a wealthy man, he made enough money to comfortably support his family.
In the mid-1920s, Charles discovered you could make really good money from cotton without having to actually go through the trouble of growing it. It was something called the futures market and he quickly learned to love it. It was the Roaring 20’s and financial speculation was growing in popularity.
By 1924, life was looking pretty sweet. By then his son (my future grandfather) had left for college — the first in the Knight family to do so — thanks to a basketball scholarship, which based on my athletic prowess, is a skill that was not genetically inherited. Meanwhile, back at the sawmill, my great grandfather was making a lot more money in cotton futures than he had ever made sawing lumber.
Unfortunately, as we all know, markets go up and down, sometimes in a hurry. So do telegraph lines, the primary means of sharing financial information at the time. One fateful day, my great grandfather’s broker sent him an urgent telegram telling him the cotton market was trending down and he should get out of his futures contracts while he still had time.
When Oscar got the telegraph from his broker, a tremendous storm came through his town and took down all the telegraph lines. As the storm was raging, the cotton futures market melted down. By the time the telegraph lines were restored and he sent his cancellation orders in, he was financially ruined. The losses on his futures contracts were much greater than the value of his sawmill. In the course of one week, he was completely wiped out.
I can only imagine the shock and horror of this happening. Evidently it was too much for him. He spent the rest of his 27 years living in and out of the East Louisiana Hospital for the Insane in Jackson, Louisiana. His wife — my great grandmother Mattie, a wonderfully optimistic woman I grew up with as a child — sprung into survival mode. She literally split their house into two halves, and shipped their house via railcar to a town where a sympathetic relative lived. She put the house back together on a vacant lot, and took in boarders to make ends meet. My future grandfather dropped out of college to help the family make ends meet.
I didn’t understand or appreciate any of this family history growing up as a child, but there were constant reminders you should always “hope for the best and prepare for the worst.” I understand now exactly what they meant. When it comes to personal finances, I was taught to appreciate the value of financial independence and was told to be sure we earned it and kept it no matter what happened. It made a deep impression on me that has lasted my whole life.
Seven Core Principles To Create Your Own Financial Independence
Over the years, I’ve taught a number of leadership and management courses for the companies I’ve worked in. Financial literacy and independence have always been important to me, so whenever I could, I included them in these courses. This knowledge comes down to seven core principles I’ve used my whole life. This “Finance 101” presentation only took about 15 minutes to share, but I’ve been amazed how many people have told me years later how they followed one or more of these principles and it made a tremendous difference in their family’s financial well-being, and in some cases, was life-changing.
Given all of the trauma and grief the COVID-19 pandemic is inflicting on our collective health and wealth, I thought it might be helpful to share these principles with you. I did not create any of these principles — they are based on either advice or readings I picked up over the years. But I can tell you they work and have been “time tested” by millions of people. If you follow them on a consistent basis over time, your odds of being and staying financially independent will go up significantly.
Principle #1: Create And Maintain An Emergency Fund
Over half of all Americans have less than $1,000 set aside in cash for an emergency. The importance of having an emergency fund has never been clearer than in the past three months. Creating one isn’t easy, and for many people, doing so would be a huge challenge. However, you should try to always have at least six months of living expenses in cash available at all times. The peace of mind an emergency fund provides is real. I’ve needed mine several times in my life and it made a huge difference in how I was able to handle a difficult situation.
Principle #2: Create and Follow A Budget
Your personal budget doesn’t have to be anything fancy. It can be created with a pencil and paper or a spreadsheet, or any of the numerous apps or financial planning software that are available. How you create and update your budget isn’t important. The fact you created one, and follow it, is all that matters. Being financially independent isn’t an accidental or random event. You have to plan and work hard at it for the rest of your life. Every dollar of income you earn should have a special place in your budget.
Principle #3: Pay Yourself First
This principle ties directly into creating your personal budget. Be sure to “pay yourself first” by putting aside a fixed amount of money every month and investing it in a relatively safe investment such as a broad-based, low-cost index fund, like the Vanguard 500 Index Fund or a diversified bond fund. Be sure to automatically reinvest your dividends from your mutual fund as well.The initial amount isn’t critical. You could start with as little as $100 a month and build it up over time.
By doing this consistently (think years or decades), you take advantage of “dollar-cost averaging” which has been proven to be superior to trying to “time the market.” The resulting wealth for you and your family can make the difference between a comfortable versus a worry-filled retirement.
Principle #4: Pay Off Your Credit Card Balances Every Month
If you “pay yourself first”, you will enjoy the “magic of compounding” which means your wealth grows at an exponential rate. The converse of this “math magic” is true in a really bad way if you don’t pay off your credit card balance every month. The average outstanding credit card unpaid monthly balance for the typical American adult is $6,200.
With an average APR of 17% and a monthly minimum payment of $100, it would take you a mind-boggling 12.5 years to pay this off (and cost you more than the debt itself — $8700 in interest). While there will be times when you don’t have a choice but to carry a credit card balance, you should always try to get rid of this kind of debt ASAP given the incredibly high cost. It’s simply not worth it.
Principle #5: Know and Monitor Your “Number”
Do you know what your net worth is? It’s pretty easy to calculate: your assets minus your debts. Plenty of research studies have shown the power of setting and knowing your “number”, otherwise known as your “net worth”. If you track it and work at improving it over time, your odds of increasing it over time will improve. Your net worth goal should be your personal finance North Star, and guide all of your personal financial planning. Remember: it’s not what you earn, it’s what you keep that counts.
Principle #6: Diversify, Diversify, Diversify
This was the principle my great grandfather, unfortunately, didn’t follow. He put all of his assets in the cotton futures market, and when it crashed, it took him and his family down with it. You should spread out your risks by making sure your investments are in enough different asset classes so if you take a direct hit in one asset class (such as stocks), your other assets (like bonds, property, cash, etc.) will still be in good enough shape to keep you solvent. Egg farmers are not the only ones who know the wisdom of not putting all of their eggs in one basket.
Principle #7: Don’t Leave A Mess For Your Family To Fix
More than half of Americans do not have a will and only 40% have life insurance. I’ve had too many friends who had a parent suddenly die without a will, life insurance, or in most cases, neither one. This already sad event then turns into an unnecessary nightmare for their family, burdening them with extra expenses and time as they settle their parent’s estate. If you don’t have a spouse, significant other, or children, perhaps you don’t need to worry about Principle #7.
Otherwise, please do it for the sake of your family. There are plenty of affordable online apps for creating a will and https://www.ladderlife.com/ is a easy and affordable way to buy term life insurance (in my opinion, the only kind of life insurance worth buying).
One More Time With Feeling
So those are the seven key principles I’ve learned over time can make a dramatic difference in getting and keeping your financial independence:
- Create and maintain an emergency fund
- Create and follow a budget
- Pay yourself first
- Pay off your credit card balances each month
- Know and monitor your “number” (i.e. net worth)
- Diversify, diversify, diversify
- Don’t leave a mess for your family to fix
There’s nothing really complicated or very hard to comprehend in any of these principles. Just like chess, it just takes 15 minutes to understand but requires a lifetime to master.
“A Calm Sea Never Made A Skilled Sailor”
As a lover of the sea, Franklin D Roosevelt once noted: “A calm sea never made a skilled sailor.” He had to deal with a number of personal setbacks and challenges during his life, especially after being struck with polio at the age of 39. But he went on to overcome that seemingly overwhelming personal health setback to lead his country through the Great Depression and World War II. He learned how to deal with whatever life gave him and pushed ahead.
In sharing these principles, I know I’m one of the lucky ones when it comes to personal finance. I went to college when tuition was measured in thousands of dollars, rather than hundreds of thousands. As a result, I was able to graduate without any student debt. Our first house cost less than $100k. That won’t buy you a parking spot where we live today in California.
Despite these advantages, I’ve had my share of financial challenges. I was unemployed for 18 months at one point in my career and have made some pretty crappy investment decisions that I regret. But through it all, I’ve tried to stick to these seven principles through good times and bad, and they have served me well.
When it comes to personal finance and financial independence, FDR’s observation about calm seas and skilled sailors means every one of us is going to face tough financial challenges. We are going to be tested, sometimes when we least expect it, and sometimes (as in the case of my great grandfather) the results are going to be disastrous.
But over time, if you follow these time tested principles, you will become “financially skilled” and your odds of riding out the inevitable financial storms we all eventually face will improve dramatically. As someone who’s never gambled in Vegas (or played in the futures market on Wall Street), those are the kind of financial odds I really like and increasingly appreciate. In a time when the world feels like the financial odds are against you, it’s good to appreciate the feeling you can get from making a safe bet on your future.
How To Secure and Protect Your Financial Independence was originally published in Thomvest Ventures on Medium, where people are continuing the conversation by highlighting and responding to this story.
This post is by Arman Tabatabai from Fundings & Exits – TechCrunch
Several months ago, we surveyed more than 20 leading real estate VCs to learn about what was exciting them most in the real estate tech sector and hear their opinions on proptech trends like co-working, flexible office space and remote office space.
Since we published our survey, COVID-19 has flipped the real estate sector on its head as more companies move toward mandatory remote work, retail businesses are forced to temporarily shut their doors and high-traffic properties thin out. Suddenly, the traditionally predictable world of real estate is more chaotic and unclear than ever.
What are the short and long-term impacts of pandemic-induced volatility? Does this open up opportunities for proptech startups or shutter them? What does this mean from an investing point of view? We asked several of the VCs that participated in our last survey to update us on how COVID-19 is impacting real estate startups, non-proptech companies in general and the broader real estate market overall:
- Christopher Yip, RET Ventures
- Nima Wedlake, Thomvest Ventures
- Merritt Hummer, Bain Capital Ventures
- Micah Kotch, Urban-X
- Andrew Ackerman, Dreamit Ventures
- Stonly Baptiste, Urban Us
Christopher Yip, RET Ventures
Despite its banner year in 2019, proptech will not be immune to the pressures venture-backed companies face in a market pullback, and we are preparing ourselves and our portfolio companies for a bumpy year.
This post is by Mary Ann Azevedo from Crunchbase News
In today’s market, there are many types of investment vehicles. Some examples include traditional venture capital firms, private equity firms and corporate venture funds. We’re also seeing more firms that provide loans or debt–some for equity and some instead of taking equity.
We could go on.
And then there are evergreen firms. In a nutshell, evergreen firms have open-ended fund structures with no termination date. As such, they are permitted to recycle capital from realized returns and aren’t bound by the same time constraints as a traditional VC firm. That means these investors are well-equipped to sit out sudden shifts or extended downturns in market cycles (such as the one we are potentially about to experience).
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The fact that evergreen firms can invest in a company through multiple stages means they aren’t as pressured to exit. Traditional venture funds often have less flexibility and may be pressured by their fund structure to cash out earlier than an evergreen fund might. Limited partnerships are typically family offices.
Recently, I happened to talk to two evergreen venture firms with the intention of getting a better understanding of what they do, and that got me thinking: What advantages might the evergreen structure provide in fast-changing market cycles?
I also talked with a startup founder who has been Continue reading “Evergreen Funds Equipped To Weather Market Cycles”