-
Risk and Startups -Mike Perham
This is a good take on risk and risk mitigation when joining a start up. The one major item that I’d like to add to Mike’s list is related to personal finance.
When I was younger my dad made me play a game called CashFlow 101 It was all about personal finance and reinforced a concept that was new to me.
Your personal wealth is not measured by numbers like “total asset value” or “total net worth”. Your personal wealth is measure in “financial freedom” and “personal choice”. This equates to the # of days you can live without being required to work to sustain yourself. So, if my monthly expenses are $1,500 / mnth and I have $15,000 in cash in the bank; then my personal wealth is 10 months. This type of thinking is interesting because:
- It forces you to focus on your expenses, not your salary or current income. If you figure out how to be more frugal and drop your monthly expenses to $750 / mnth your personal wealth just doubled to 20 months.
- It presents a novel idea, “infinite wealth”. Infinite wealth is achieved when you have passive income that exceeds your monthly expenses. Pass income is income that you receive that doesn’t require you to be at a job, e.g. stock dividends, rental income, etc. So, if I have my $1,500 / mnth expenses and rental income of $1,000 / mnth and stock dividends of $800 / mnth, then I am infinitely wealthy. I am also generating a monthly surplus of $300 / mnth, which I can reinvest to generate additional passive income.
The point is not that we should strive to live in an “infinite wealth” state where we don’t work or don’t contribute. The point is that putting yourself in an “infinite wealth” state provides you unlimited personal freedom and choice. Choice to take greater risks if you want, without the dangers of being stuck “without a paycheck”.
-
