Alexa von Tobel on Founder Personal Finance

Founders and Personal Finance: Insights from Alexa von Tobel

Alexa von Tobel possesses extensive expertise regarding financial management for founders. As a certified financial planner, she successfully launched a personal finance startup during the recession – a venture ultimately acquired for a substantial sum – and currently operates as a venture capitalist, providing investment and guidance to entrepreneurs.

During Early Stage 2021, von Tobel delivered a presentation focused on wealth management strategies tailored for founders.

The Founder's Financial Blind Spot

Startup founders frequently prioritize their company’s financial health to the detriment of their personal finances. This can lead to a situation where they dedicate more attention to their business’s accounts than to their own.

It’s common for founders to invest the majority of their capital into their venture, potentially overlooking their individual financial well-being.

Building Financial Security

Von Tobel detailed a series of actionable steps designed to help founders avoid debt, establish strong credit, and grow wealth through strategic investments.

These measures are crucial for achieving financial peace of mind while navigating the inherently stressful process of launching a company.

Key Strategies for Founders

• Debt Management: Proactively avoid accumulating unnecessary debt.
• Credit Building: Establish and maintain a positive credit history.
• Investment: Strategically invest to build long-term wealth.

Implementing these strategies allows founders to secure their personal financial future alongside the growth of their business.

Ultimately, prioritizing personal finance is not a distraction from building a company; it’s a foundational element for sustained success and well-being.

Understanding Your Financial Position

Initiating a process of organization and proactive financial management frequently begins with a comprehensive assessment of your current standing. Von Tobel emphasizes that a firm grasp of your financial figures, coupled with digital organization, forms the foundational step towards achieving financial tranquility.

The Importance of Inventory

Taking stock of your financial situation is paramount. This involves meticulously documenting all assets, liabilities, income, and expenses.

Digital Organization as a Key Component

Alongside numerical awareness, establishing a system for digital organization is crucial. Utilizing tools and platforms to track finances electronically streamlines the process and enhances accessibility.

Ultimately, the combination of knowing where you stand financially and employing digital tools empowers individuals to take control and cultivate a sense of financial peace of mind, as advocated by Von Tobel.

Benefits of this Approach

• Improved clarity regarding income and expenses.
• Enhanced ability to identify areas for savings.
• Greater control over financial planning.
• Reduced stress and anxiety related to finances.

By prioritizing these initial steps, individuals can lay a solid groundwork for long-term financial well-being.

Taking Control of Your Finances: Credit and Debt Management

Financial wellness hinges significantly on maintaining a strong credit score, and responsible debt management is a cornerstone of achieving this. As highlighted by Von Tobel, consistent bill payment is paramount.

While automating payments for online bills is convenient, it’s crucial not to overlook traditionally mailed invoices, such as medical bills or parking fines. Utilizing a digital calendar or reminder application can help ensure no payment is missed.

Strategies for Debt Reduction

Beyond timely payments, actively reducing debt is vital. The optimal approach, according to Von Tobel, involves settling your credit card balance in its entirety each month.

This practice not only avoids accruing interest charges but also demonstrates responsible credit utilization to credit reporting agencies.

Enhancing Your Credit Profile

Improving your credit score isn't solely about avoiding late payments and eliminating debt; a less conventional tactic can also be beneficial.

Consider diversifying your credit mix and maintaining a healthy balance between different types of credit accounts. This demonstrates responsible financial behavior to lenders.

The 50-20-30 Budgeting Rule

Once you've assessed your financial standing, including your credit score and outstanding debts, establishing a budget becomes crucial. Financial advisor Von Tobel proposes a straightforward budgeting method known as the 50-20-30 rule.

This rule allocates your income as follows: 50% towards necessities, 20% towards financial goals like savings, and the remaining 30% for discretionary spending.

Understanding the Allocation

The 50% allocated to essentials covers fundamental living expenses. These include housing, utilities, transportation, groceries, and healthcare.

A 20% portion should be dedicated to savings and debt repayment. This encompasses emergency funds, retirement contributions, and paying down any outstanding loans.

Finally, the 30% designated for wants allows for non-essential spending. This category includes entertainment, dining out, hobbies, and other enjoyable activities.

Benefits of the 50-20-30 Rule

• Simplicity: The rule is easy to understand and implement.
• Balance: It encourages a balanced approach to spending, saving, and enjoying life.
• Flexibility: While a guideline, the percentages can be adjusted to fit individual circumstances.

By adhering to this framework, individuals can gain greater control over their finances and work towards achieving their financial objectives.

Establishing Financial Stability: The Monopoly Step

Often referred to as the Monopoly Step, this foundational financial strategy actually comprises three distinct phases. It’s named as such because progressing further without completing all three is inadvisable. The initial phase centers on building an emergency fund to ensure liquidity when unexpected expenses arise.

According to Von Tobel, accumulating between six to nine months of living expenses in a readily accessible savings account is prudent. Individuals in higher income brackets, particularly CEOs and founders earning over $100,000 annually, should aim for the nine-month benchmark due to potentially longer re-employment periods.

Prioritizing Debt Reduction

The second crucial component of the Monopoly Step involves the complete elimination of outstanding credit card debt. This is a key step towards financial freedom.

Focusing on debt repayment frees up financial resources for future investments and reduces the burden of high-interest charges.

Securing Long-Term Financial Future

The concluding element of the Monopoly Step is establishing a robust retirement plan. Von Tobel advocates for utilizing both a 401(k) and an Individual Retirement Account (IRA).

This dual approach is recommended due to the increasing human lifespan, a trend driven by ongoing advancements in scientific research and medical technology. Planning for a longer retirement is therefore essential.

• Emergency Fund: 6-9 months of expenses.
• Debt Elimination: Focus on credit card balances.
• Retirement Savings: Utilize both 401(k) and IRA options.

Successfully navigating these three steps provides a solid financial base, allowing for more confident pursuit of other financial goals.

Understanding the Five-Year Rule

After establishing a solid financial foundation – encompassing asset organization, debt reduction, retirement planning, insurance coverage, and budgeting – allocating funds for enjoyment becomes possible. A key consideration, according to von Tobel, centers around the anticipated timeframe for needing access to these funds. This leads to the implementation of the rule of five.

During the session, von Tobel extensively discussed principles of sound financial management and addressed numerous inquiries from attendees. The complete video recording of this presentation is available for viewing, and a full transcript can also be accessed.

This rule serves as a guideline for determining how to allocate discretionary income. It’s a practical approach to balancing current enjoyment with future financial security.

Essentially, the rule of five helps individuals categorize their funds based on liquidity needs. Funds potentially required within five years should be treated differently than those with a longer time horizon.

Von Tobel’s insights provide a framework for making informed financial decisions. Her advice emphasizes proactive planning and a clear understanding of one’s financial goals.