This is as important in your personal finances as it is in business. With enough cash, you can decide for yourself what you want to do and when you want to do it.
I call it buying my time, but in reality, you are buying your freedom to choose. For both people and businesses, it is about getting to the point where your income, assets, and liabilities are in line such that you have a safe surplus.
If you look at the most successful companies or people, they tend to have a significant reserve and that allows them to make choices. Without that reserve, many choices go away. With no reserve, choice almost entirely disappears.
If your goal is freedom, you need to buy that freedom.
This has been my focus for the last two years, both personally and in business. It's paying dividends in both.
This, among others, gives me the impression that among VCs A16Z is the Founder's VC. The drive for profits and ruling by the numbers (favoured by accountants and investors) seems to be tempered by a very real grip and understanding of the reality a founder and their team faces.
You must have the ability to make decisions; cash is king.
I couldn't agree more with you. The timing couldn't be better because I just finished a spreadsheet for a new family budget. Once I got past the scary big numbers, I realised that in a couple years we could be completely debt free. The next thing that crossed my mind was what we could then be able to do: save, travel more, be more selective in jobs, etc. When you have cash, you have freedom.
I agree that cash reserves help, but I think it's hard to ascertain how big a driver of success it is, given that it is also the result of success.
Yes, there's a balance to be had between doing things that generate revenue now and doing things that matter in the longer run ... but guess what ... that is exactly the nature of every business out there. From the biggest multinationals to the smallest corner shop - they're all balancing between generating shorter term revenues with longer term growth.
If you are spending time only doing long run ("strategic") stuff, you are not a business. The funny thing is, the opposite is not true: i.e. if you're only generating revenue but have little to show for long term direction.
- If you have more money (wealth, the key), you are freer, because you don't have to earn a wage for longer (with enough money, you are retired and don't ever have to earn a wage again.)
- If you have lower costs (lifestyle, the chains), you are freer, because any wage you earn can be lower, and you have more spare money to put towards your wealth.
You don't need to chose between being a wage-slave or a hippy. Investing a good fraction (say 10-80%) of your income is something most middle-class westerners can afford, attacks both ends of the problem, and leads reliably to freedom.
What in the world? Investing 80% of your income will leave you substantially in arrears with the IRS.