{"id":3572,"date":"2016-06-20T05:49:10","date_gmt":"2016-06-20T12:49:10","guid":{"rendered":"http:\/\/evergreensmallbusiness.com\/?p=3572"},"modified":"2016-06-15T14:32:25","modified_gmt":"2016-06-15T21:32:25","slug":"thomas-jeffersons-de-facto-bankruptcy","status":"publish","type":"post","link":"https:\/\/evergreensmallbusiness.com\/thomas-jeffersons-de-facto-bankruptcy\/","title":{"rendered":"Thomas Jefferson’s De Facto Bankruptcy"},"content":{"rendered":"

\"picture<\/a>You probably know that Thomas Jefferson wrote the Declaration of Independence. You may remember that he negotiated\u00a0the best real estate deal in\u00a0the entire history<\/em> of America when he purchased the Louisiana Territory from Napoleon for spare\u00a0change.<\/p>\n

Jefferson also deserves credit for a bunch of other clever stuff, too. (As well as some criticism, I\u2019ll note in passing, but let\u2019s remember this is a blog about small business entrepreneurship and personal finances\u2014not about politics.)<\/p>\n

Yet, there\u2019s something you may not know about Jefferson\u2014and that is this: He was in the end a total personal financial disaster. In fact, he was saved from bankruptcy only because he died (on July 4, 1826) a few months before creditors auctioned off all of his property.<\/p>\n

I wish there was some set of clever financial planning or business management lessons to be gleaned from Jefferson\u2019s life. But, I fear, we don\u2019t really get lessons of that sort from the great man. Rather, we get lessons about what we should not<\/em> do.<\/p>\n

Here, then, are the pieces of that part of Mr. Jefferson\u2019s life story that jump out to me\u2026<\/p>\n

Lesson #1: Smart People Don\u2019t Always Make Smart Money Decisions<\/h1>\n

A first quick point: Jefferson was supposedly a 160 IQ genius. (I\u2019m not going to point you to links that state this, but you can find them with a quick search. Note that IQ tests didn\u2019t exist when Jefferson was alive and so the people supplying these values are either guessing or parroting the guesses of others.)<\/p>\n

In any case, Jefferson, was obviously a terribly clever person, a brilliant politician and a powerful writer. Yet here\u2019s the surprise of sorts: he just wasn\u2019t self-aware enough to realize that spending more than he made would ultimately destroy his family\u2019s finances.<\/p>\n

Joseph Ellis, the history professor who wrote the bestselling book about Jefferson, American Sphinx, said in his book that on another subject (Slavery) Jefferson\u2019s approach was to combine procrastination and denial as his principal problem solving techniques. But you see the same problem solving approach used with his finances.<\/p>\n

Note:<\/strong> It\u2019s striking if you compare Jefferson\u2019s Monticello with George Washington\u2019s Mount Vernon that the richer man, George Washington, apparently lived far more frugally.<\/p>\n

I feel awkward saying this, but if a great man like Thomas Jefferson can totally bungle his personal finances, hey, we all need to be more careful. Maybe especially as we age.<\/p>\n

Lesson #2: Leverage Amplifies Financial Risks<\/h1>\n

You know something else that Jefferson\u2019s finances illustrate? Using lots of borrowed money to \u201crun the show\u201d is risky.<\/p>\n

Yes, leverage amplifies your gains. If you borrow money at 4% and reinvest that money in something that earns 8%, you make out like a bandit.<\/p>\n

But the amplification works both ways. If you borrow money at 4% and then lose at the rate of 8%, you quickly get killed. At least financially.<\/p>\n

Joseph Ellis, whose book I just referenced, wonders aloud in his book whether Jefferson\u2019s investments in land (which is where he was investing) allowed Jefferson to think his investments were far more solid that was in fact the case. Which is interesting to ponder.<\/p>\n

People sort of did that with real estate during our recent financial crisis at least initially. If the building or house or land someone bought was high quality, people almost didn\u2019t care about the debt they incurred.<\/p>\n

They confused the quality of the underlying asset with the quality of the investment arrangement. (This can apply to entrepreneurs and investors in lots of circumstances, right? We see some highly attractive asset, but then acquire it in a manner that means the investment is unstable or financially-shaky from the start.)<\/p>\n

Lesson #3: Financial Risk Blindsides Even the Super Wealthy<\/h1>\n

A final quick point is about whether the top 1% \u2026 or maybe more accurately the top 1% of the top 1% get special advantages in the capital markets and in their entrepreneurship.<\/p>\n

You might assume they do, right? You might, for example, fairly assume that the super wealthy (as Jefferson was in his day at least early in his career) are somehow well-enough connected or so \u201cin-the-know\u201d that they can avoid economic disasters and in fact pick up special bargains when things get crazy.<\/p>\n

But that\u2019s not really true at least in Jefferson\u2019s case. (Or in the case of Jefferson\u2019s friend and another U.S. President James Madison.)<\/p>\n

Though Jefferson was obviously top tier in terms of his business and political connections, and though he had access to the very best political and economic information available, he was just slammed\u00a0by the economic storms triggered by the panic of 1819. (This subject I will provide a link to. Here\u2019s the relevant, though brief, Wikipedia article: Panic of 1819<\/a>. )<\/p>\n

Gosh, I hate to speak in cliches, but we all need to be careful and cautious in our investing…<\/p>\n

Final point: If you get a chance to visit Monticello, do it. It\u2019s a great experience. And by the way, I\u2019d recommend reading Ellis\u2019 book before you visit.<\/p>\n","protected":false},"excerpt":{"rendered":"

You probably know that Thomas Jefferson wrote the Declaration of Independence. You may remember that he negotiated\u00a0the best real estate deal in\u00a0the entire history of America when he purchased the Louisiana Territory from Napoleon for spare\u00a0change. Jefferson also deserves credit for a bunch of other clever stuff, too. (As well as some criticism, I\u2019ll note […]<\/p>\n","protected":false},"author":1,"featured_media":3575,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_genesis_hide_title":false,"_genesis_hide_breadcrumbs":false,"_genesis_hide_singular_image":false,"_genesis_hide_footer_widgets":false,"_genesis_custom_body_class":"","_genesis_custom_post_class":"","_genesis_layout":"","footnotes":""},"categories":[10,20,16],"tags":[],"class_list":{"0":"post-3572","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-personal-finance","8":"category-retirement","9":"category-strategy","10":"entry"},"yoast_head":"\nThomas Jefferson's De Facto Bankruptcy - Evergreen Small Business<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/evergreensmallbusiness.com\/thomas-jeffersons-de-facto-bankruptcy\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Thomas Jefferson's De Facto Bankruptcy\" \/>\n<meta property=\"og:description\" content=\"You probably know that Thomas Jefferson wrote the Declaration of Independence. You may remember that he negotiated\u00a0the best real estate deal in\u00a0the entire history of America when he purchased the Louisiana Territory from Napoleon for spare\u00a0change. Jefferson also deserves credit for a bunch of other clever stuff, too. 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