“If you are going to take risks, take them early before you have a family.”
Risky is the new safe. “Stop waiting for the perfect time. There isn’t going to be one”, said the investment banker to the young well-dressed serial entrepreneur a week before his company’s initial public offering (IPO). Four individuals, three of whom were roommates — Mark Zuckerberg, Eduardo Saverin, Chris Hughes, and Dustin Moskovitz — founded Facebook in their Harvard University dorm room on February 4, 2004 in Cambridge, Massachusetts.
Originally called thefacebook.com, the social networking website was intended as an “exclusive online directory” of all Harvard’s students to help residential students identify members of other residences. More or less dating, socializing and frolicking as some would now call it ;)
In June 2004, Zuckerberg, Hughes and Moskovitz took a year off from Harvard and moved Facebook’s base of operations to Palo Alto, California, and hired eight employees. They were later joined by Sean Parker, who ironically enough, cofounded the file-sharing computer service Napster and eventually served as the first president of Facebook. However, it was a short-lived stint.
As food for thought, consider this. The average tuition cost at the prestigious Harvard University was $47,074 in 2016. I’m sure it still cost a pretty penny or two in 2004 as well. Furthermore, in 2004, as co-founder and Chief Financial Officer for Mark Zuckerberg and Facebook, Eduardo Saverin invested roughly $15,000 in the company’s start-up expenses, servers and future vision. Some people would call that risky, others wouldn’t lose a nights sleep over it today.
As of 2016, Saverin’s net worth was $6.9 billion. Only Dustin Moskovitz ($9.7 billion) and Mark Zuckerberg ($55.3 billion) ranked higher than he did. Do you think they were nervous about their initial investment of time, energy and capital? As I’ll get to later, this isn’t about making millions or billions with a neat app idea, becoming an “overnight success”, winning it big with the lottery or picking the next Apple stock.
Things went south from there. Their was a falling out, disputes over servers and money, business separations, dilutions of initial shares of stock and, eventually, expensive lawsuits were held between multiple parties.
In the end this is what happens when greed, power, dissatisfaction, stolen intellectual property, convoluted ideas and miscommunication get in the way of the billion dollar company Facebook.
Now doesn’t all of that sound very similar to what happened in 2008 and 2009? Do you think it will happen again? Who’s to say it won’t? The illusion of financial security has come and gone. I don’t believe it’s ever going to return. It’s at least going to take some more time and not everyone has the patience or time on their side to leave it to chance.
Benjamin Franklin once said, “If you seek security you have no independence”. His inventions, scientific inquiries, perseverance and leadership as one of the Founding Father of the United States left a residual legacy on this entire country.
Years before 2016, the game had been flipped upside down on it’s wide-open head. In a world where our only references growing up usually ranged from 1) go to school, 2) get straight A’s, 3) get a safe and secure job and 4) work until the age of retirement, you tell me what’s defined as safe anymore.
From my experience and perspective (take it as you may), I thought this may be helpful to relay factual evidence I’ve found in the following realms of business, school, personal finance, savings and investing.
My overarching purpose, strategy and talents have always aligned with providing truthful and honest advice when it comes to finances, business investments, and intellectual and human capital. I understand that having an in depth conversation about finances can be challenging and most people shy away from it. Plus, investing in anything these days is risky, right? You’re probably asking yourself, “Why should I do that?” Well, not having this discussion and not investing money in anything is even riskier. So let’s dive in to it!
First things first, if you own a home (which I don’t intend to do for at least another decade) ask yourself if it’s an asset or a liability? Simply put, if your home is putting money in to your pocket it’s an asset. However, if you’re paying a mortgage for 20 to 30 years it’s still a liability as it’s taking money out of your pocket.
From December 2007 up until June 2009 there were plenty of fascinating conversations, terrible business decisions and subprime mortgages cooking up in a toxic brewery that was spearheaded by the banking industry. As homework, do yourself a favor and watch The Big Short and Inside Job if you haven’t already. Everyone’s money was put all in in order to make a select few filthy rich as everyone else lost. That my friends is called a zero-sum game, which was mistake number one. Win-win outcomes are what we’re looking for!
The recession was triggered by a large decline in home prices after the collapse of a housing bubble, leading to mortgage delinquencies and foreclosures as well as the devaluation of housing-related securities. This wasn’t a market you wanted to be involved in at the time. It’s crazy to think that an extra $300 per month would have saved upwards of 80% of the foreclosures that arose during this time frame.
This expansion of household debt was financed with mortgage-backed securities (MBS) and collateralized debt obligations (CDO’s). Their pitches offered attractive rates of return due to the higher interest rates on the mortgages; however, the lower credit quality ultimately caused massive defaults.
I may have lost one or two of my readers at the recession as I’m doing my best not to make this complicated. Simply be aware that commercial banks and investment banks were essentially gambling away at the values of homes throughout the U.S.
My suggestion is this, rent a home for as long as you possibly can as you save a significant amount of your income and work on generating savings/wealth.
Yes the real estate industry is “better” than it was in the past. However, there are still many flaws and crooks to blame and who’s to say something like this won’t happen again.
Is an investment in a college education starting at the age of 18 years old worth it today? Surveys would say some people say yes and others say hell no. Don’t misunderstand me, I value education. I wouldn’t have committed four years of my life to a private liberal arts college to receive my bachelors degree in economics if I didn’t.
What I’m eluding to is that a bright-eyed, naive and careless high school graduate could hypothetically sign off on college applications, go all in on an unguaranteed four or five year education, sign a dotted line on a 30-year fixed-rate mortgage and apply for a credit card all before he or she could even have a legal drink. Nonetheless, you would hope they aren’t that irrational.
I’m not going to go off on a huge rant about this because we would be here for days and no one has time for that with Christmas being a couple days away, correct?
The biggest challenge and concern for most families, especially with students graduating with an average student loan debt of $37,000 (which is being conservative), is the return on investment (ROI). If you can manage to graduate from college, earn your degree and escape undergraduate school without debt then you’ve won. Sadly though, the large majority of young adults will go 8, 10 and even 20 plus years paying back student loans. This causes a large burden on what I’m going to discuss next…
I’m going to give the hard-nosed facts on all of these because I’m confident in saying none of the readers here want fluff and bs, right? You must start saving money as soon as you can. Saving 10–20% of what you’re bringing home is critically important. Unfortunately, we live in a country where Americans spend 12–18% more when they use credit cards instead of cash, which is directly from Nerdwallet.com. I’d suggest not having a credit card until it’s necessary and you actually need to start building credit. If you have to have one then first take one out from your bank or Mastercard, Amex or Visa.
This is directly from gallup.com, just 32% of Americans keep a household budget. Why do you need a budget? Well since this isn’t anything you’re taught growing up in school, once you’re in the real world I highly recommend you learn how to budget whether it’s through Excel, Mint, an advisor, or old-school pen and paper. You need to be aware of what’s coming in and what’s going out of your checking and savings accounts.
Next, 30% of Americans prepare a long-term financial plan such as savings and investment goals. The individuals most likely to create future financial plans are those with at least some college education and those making on average $50,000 to 75,000 a year.
Unfortunately, graduates coming out of school are hard-pressed to land a job making $30,000 to $40,000 a year, let alone find work in the field they actually studied. This ties directly in to the next statistic from CNN.com where 76% of Americans live paycheck to paycheck. That should sicken each and every single one of you! I’m aware it does for myself.
Furthermore, half of the American population has less than one month’s income saved for emergencies. It’s recommended that you have three to six months of a cash reserve saved for a rainy day fund. The case in point is that 44% of US households are “liquid asset poor”, which means they have less than three months of savings. Something has to change with the savings epidemic we experience here in America. A lesson or two from our eastern Chinese friends would help simply this savings hurdle!
You’re not going to retire before the age of 40, 50, 60, 62, 65 or 70 unless you change your way of thinking. What I mean by that is you need to take advantage of one of the greatest inventions of all time which is known as compounding interest. It works in a good way and it works in a bad way. Once you get rid of your student loan debt and credit card debt you’ll thank yourself for digging out of that ginormous hole.
To begin, 50% of working Americans have less than $2000 saved for retirement while 36% don’t contribute anything towards their retirement savings. You should at least be contributing up to your companies match in order to receive their free contributions. Who doesn’t love free money?
Next, 24% of Americans have postponed their retirement at least once during the past year. The reason being could be linked to the fact that 35% of Americans over 65 years rely almost entirely on Social Security (which pays roughly $1100 to $1200 per month). Last time we all checked we’re going to need more than that to live comfortably during our golden years, correct?
I could go on and on about what I’ve found over the past couple of years, learned from my mentors and personally researched myself but I won’t. More than likely it’s making you and I both sick to our stomachs so I’ll keep it streamlined.
Yes we have to be saving money which is crystal clear. Yes we should be contributing to our company 401(k)’s, our individual retirement accounts (IRAs), buying life insurance for the tax advantages (especially once you have a family and children to support), researching more about annuities and brokerage accounts, figuring out legacy and estate planning and talking to fiduciaries. However, the overarching problem is that people think they don’t have enough time or money saved. First and foremost, you do have time and if you didn’t rely solely on one or two sources of income you’d definitely be in a better spot than what you are now.
As I previously mentioned, the game has changed and the problem is that no one else is changing around it. Jim Rohn once said, “For things to change, you have to change.” Most people don’t understand that rational decisions shape our destiny’s. Little everyday decisions will take you either to the life you desire or to disaster by default.
For instance, what day is coming up after Christmas? New Years! How many people do you know or will you come across who will be talking about how they’re going to change their habits, lose weight and be in the gym every single day in 2017? These are the same people who quit after the eighth day of running or weight training because they’re still overweight. Or, even people who stop making contributions to their IRA after a few years because they could use the cash — and it doesn’t seem to be adding up to much anyway.
Those of you who know me have heard me say this before, “This isn’t rocket science and we aren’t sending rockets to Mars.” I said it at the beginning of this blog, you’re going to have to take risks and you should more likely than not do all of this prior to having a family. There’s never going to be a perfect time to start saving, a perfect time to have a child, to buy your first home or have the conversation you should have already had with someone you’re close to. You must dive head first in knowing that the water’s going to be cold instead of dipping your foot in.
I challenge all of you to change what you’ve been doing. The same old thinking, results and actions you’ve been taking in the past aren’t going to be enough in today’s economy. You have to plant more seeds in order to reap what you’ll inevitably sow. It may sound boring to just work harder, double down on what you’re already doing, live in your friends basement, go in to a little bit more debt, or start up that business you’ve been thinking about for the past year. There’s no magic formula that’s going to get you where you want to be overnight. It’s going to take 3, 5, 8 and 10 plus years before you notice any longstanding results. The coolest part though is that when you do see the results they become addicting. It worked for Mark Zuckerberg and he’s a human being. So there’s no reason why it will not work for you as long as you put in the work too. Lastly, I will leave you with this:
Small, smart choices + consistency + time + patience = radical differences.
My Very Best,