So we’ve talked about how debt is bad and it needs to be killed off. We’ve highlighted the need to minimise your Tax footprint, and we’ve provoked a bit of thought about where we spend our hard earned cash.
So let’s say for the sake of argument that we’ve cleared all our debt (or at least we’ve got to the point where we have a reasonable level of mortgage which we are taking steps to pay off early), we’re not wasting money overpaying our taxes, and we’re ensuring that we aren’t squandering our hard earned cash on trivial purchases.
SO WHAT DO WE DO WITH THAT SURPLUS INCOME WE’VE CREATED?
Well, a valid use would be to use it to help pay the mortgage off early, because that is the best option for financial freedom, however, lets park that point for a second.
Our country, many of the individuals in it, and many other countries in the world are in a bad way financially right now. That is mostly down to overspending (often on things we don’t need or can’t afford), and a lack of financial reserves (that’s savings to you and me). We’ve also not got a huge number of tangible assets to fall back on, as successive governments have squandered them. Perhaps the biggest crime is when between 1999 and 2002, the then Chancellor, Gordon Brown sold off half of Britains gold reserves at a time when Gold prices were at a low point. This isn’t the only example, but it’s certainly one that stings when you think about it.
That’s an unforgiveable situation to be in and one that as an individual committed to Self Sufficiency, you must take action to resolve. You need two things: Savings, and tangible assets. Lets look at some of these:
Immediate Emergency Fund – “Cash on Hand”:
I strongly believe you need a cash emergency fund that you can get your hands on physically. Whether you store it in a safe, lockbox, or take other means to secure it, you need to have a small fund of cash (£500 – £1000) that you can get to without having to go to a cash machine.
Long Term Emergency Fund – “Cash Emergency Fund”:
This is what a lot of financial advisors and virtually every authority on finance will have told you in the past. Make sure you have cash savings equivalent to three months income stored somewhere where you can use it if you have an emergency. I’ve modified this slightly. I think you need at least six months equivalent of your essential expenditure in a bank account that you can get to if you need it.
Savings:
These are your normal long term savings that you need to build and nurture. If you haven’t used your ISA allowance, then wrap them in an ISA to protect the interest from the taxman, but keep a close eye on interest rates as ISA rates may not always keep pace with savings account rates.
Pensions:
I suggest you have one, and I suggest you pay into it, but DO NOT PUT ALL YOUR SAVINGS INTO YOUR PENSION. As soon as you put your hard earned money into a pension, you lock it away until retirement. What happens if you need some of that money in the meantime? That said, a pension should be part of your Self Sufficient savings and investment portfolio. They can be tax efficient, and if you are currently working, and your employer pays in, they can be very worthwhile. With annuity rates as they have been recently, and given the state of the economy I have genuine concerns as to whether they will be a good method of saving for retirement, and therefore I think it is important to have some of your income invested in a pension, and some in other investments.
Precious Metals:
I think it makes sense to have some of your funds invested in Gold and Silver. Both offer a hedge against inflation and given the fragility of the global economic environment, and the potential for rampant inflation in the not too distant future, anything that protects your wealth against erosion due to inflation is a good thing. The ratio of the prices between Gold and Silver is out of kilter at the moment meaning either Gold is overpriced, or silver is underpriced. The reality is probably a mixture of the two, meaning it’s not a good time to buy gold, but it could be an excellent time to pick up silver here and there. You can invest in precious metal funds, mining stocks, or physical gold and silver. Physical precious metal that you control is the best bet in my book.
Land/Property:
For me this is the ultimate investment. If you own rural land, particularly if it has a property on it that you can live in, then this is perhaps the best asset you can have. It is a finite commodity. We aren’t going to magic up more of the Earths surface than we already have. In the future land will become increasingly valuable, and land that can produce food of some sort will become more difficult to purchase.
Other assets:
There are other tangible assets that you can invest in, and I would encourage you to consider what these are. Think of things that you can purchase and use, and which hold their value, or which pay you back in some way on an ongoing basis. In many ways your garden could be considered an investment, particularly if it contains perennial plants that produce food for you. Items you can buy as a hedge against future inflation also count. Don’t go mad here however. This is NOT an excuse to spend. Think carefully about whether you are “spending” or “investing”.
This isn’t an exhaustive list, but it covers the major points that are worth investigating further. An important piece of advice that we’ve all heard is “don’t put all your eggs in one basket”. I think that is as valuable a piece of advice now as it has ever been. Try to diversify your savings and investments. Don’t put everything in a pension. Don’t leave everything in cash. DO TAKE CONTROL OF YOUR OWN FINANCIAL FUTURE.
