The biggest lesson from being successful is ………………
They may still have some debt, but what the hell, they say, we’ve worked for it and we’ve earned it.
But if a downturn hits and they have not salted away some emergency money, they can find themselves in financial trouble.
The biggest lesson from the 2009 GFC was …………………
When the going gets tough, cash is king. People who had big mortgages in 2009 (and lost their jobs or businesses) subsequently lost their homes.
However, those that had some cash in hand survived. Emergency cash first and foremost. But also cash in bad times allows the savvy to take advantage of some excellent bargains.
The biggest lesson from Kiwifruit was …………………………….
Not so long ago, kiwifruit orchards were hit with PSA disease, that meant no crops and no income.
Pretty tough going and quite a few growers lost everything.
Those growers who were better organised financially were able to survive (and now after grafting) are enjoying a bumper crop and bumper prices.
The biggest lesson from dairy farming is still to come …………………………
A colleague told me years ago that just about every successful farmer will buy a bach as soon as he/she can afford it.
Unfortunately, when a financial crunch hits, the holiday bach is not a liquid asset, and cannot be turned into cash quickly.
Many baches are in remote areas so cannot be rented out for much more than peanuts, so that does not help either.
Life and money can be mean……………….….
You work hard for 20 to 30 years, reward yourself, and then bang, along comes a sharp downturn, and you are in trouble.
Sometimes life does not seem fair. Even worse, you pick up your newspaper and read this (sorry, ed.).
Financial prudence is so boring
When you work long and hard, and gradually get successful, by all means reward yourself.
If your big reward might cost $100,000, look at what $50,000 might buy, and put the other $50,000 into your emergency fund.
A boring conservative to balanced fund that is high quality, diversified widely, and always available in cash within 2 weeks.
Boring I know, but you may week survive financially in bad times if you do.
They have power over you as long as you are a borrower. By all means borrow if it will help grow your wealth, but soon as you can put some serious sums aside (that they don’t know about) they have no power over you.
Even better, they won’t know that. Great
*Always put an emergency money in a place well away from your bank.
You can still borrow
Let’s assume you have a successful business or farm worth $1,000,000.
Your debt after working long and hard is now down to $100,000. *
Consider borrowing another $100,000 and putting it into your emergency fund. Do it while things are good.
The cost may be $5,000 to $6,000 in tax deductible interest, but your emergency fund should earn about the same. Sometimes it will earn more and sometimes not. But even if you are a tad worse off sometimes, so what? You will be nicely set up to weather most storms.
- Hold your emergency funds in a well-diversified portfolio of quality assets
- Make absolutely sure it is fully accessible / liquid with 14 days
- Tell no one about out it except your spouse end your executors
- Paying off debt is great, but not if you don’t have emergency money in place too
- Have fun, live along the way, reward yourself, but remember money is cruel, so protect yourself.
So what’s the problem with property?
It’s not liquid, you can’t always get money out fast enough to save yourself in emergency.
Supplied by Alan Clarke, financial & retirement adviser, & author.
His 2nd book “The Great NZ Work, Money & Retirement Puzzle” is available on line.
Alan is an independent authorised financial adviser (AFA) FSP26532.
His disclosure statement is available on request and free of charge.