by Owen Sullivan
On Apr 16, 2018
One of the key skills for prepping for crisis is knowing the difference between a legitimate threat and a bowlful of hot air. James Altucher knows the difference… and he’s discovered how to make money from it.
by Owen Sullivan
On Feb 5, 2018
You might know Jim Rickards as the New York Times bestselling author of Currency Wars and The Death of Money. I know him as the man to turn to when an unsolvable problem needs to be solved. Today, I asked Jim to talk to you about how to invest when crisis could strike at any moment.
I always say that a financial crisis can happen at any time.
A Black Swan (an unpredictable catastrophic event) could strike at any moment and bring the entire economy crashing down around us.
It could be a terrorist attack on the scale of 9/11. Or the collapse of a market in a far off nation that sets off a global chain reaction. You just never really know until it’s too late.
But it doesn’t always take a random catastrophic event to kick start a financial crisis. Sometimes it’s just part of the regular economic cycle of growth and recession.
In fact, we are on the path to recession right now. And it will kick off in 2020, or sooner, if we don’t do anything about it. So says Dan White, director of government consulting and fiscal policy research for Moody’s Analytics.
White told lawmakers in Maryland yesterday that the U.S. is on track for recession. It will likely happen in 2020. But if the government remains shutdown for any longer, we could be looking at a full-blown recession this year.
“If we get to March without some kind of agreement,” says White. “It will be enough to cause a recession in the United States.”
This isn’t surprising. We said as much last week in this issue of Money & Crisis.
When asked by lawmakers what they should do to prepare for recession, White suggested that they be cautious in adding new spending to the state budget. For the folks at home, he recommended to have enough money in your “rainy day fund” to get you through the next recession.
Now, you know I’m a big fan of the old “rainy day fund,” or emergency fund as we call it here. But you know as well as I do that there’s more to preparing for a full-blown financial crisis than an emergency fund.
Over the next week or so, I’m going to lay out for you an in-depth plan for preparing for recession — starting today.
Laying the Foundation
The first step of prepping your finances for crisis is a budget.
I know, I know. It seems overly simple.
But trust me, a simple budget is a powerful tool that can help you build savings, get out of debt, and meet your long-term financial goals. And it shouldn’t take up too much of your time — no more than about half an hour every month.
My wife and I benefited enormously when we first started budgeting. We were finally able to see all the leaky holes our money was pouring out of.
Let’s See What We’re Working With
To start, you’ll need to figure out your after-tax income.
If you get a regular paycheck, you might be able to pull this figure straight from your pay slip. If you have automatic deductions for a 401(k), savings, health and life insurance, you should add those back into the total figure. This will give you a more accurate picture of your savings and expenditures.
If you’re self-employed, you’ll need to manually subtract taxes and business expenses to get this figure.
Divide up Your Spending
Now that we know exactly how much money we have to work with, it’s time to create a plan.
First, divide all your spending into three categories — necessities, luxuries, and investments.
Necessities are obligations you have to pay every month — bills, mortgage, groceries, health insurance, and repaying debt.
Luxuries cover all forms of entertainment, from vacations to family nights out to a cold beer after work on Friday. Don’t worry, the purpose of our budget isn’t to take away life’s little luxuries. It’s simply to help identify overspending, take the stress out of spending, and make sure you have the resources to enjoy those luxuries for many years to come.
Investments are any steps you take to securing your financial future — savings, 401(k), investment funds, and buying commodities and assets.
Create Your Budget Plan
Once you can see exactly how much you’re spending — and on what — it’s time to create your plan.
In the end, how you choose to spend your money is up to you. But the plan we’re going to give you is a sustainable strategy that encourages investing for crisis without sacrificing luxury.
50% Necessities: You should be spending about 50% of your after-tax income on your necessities (bills, mortgage/rent, food, health insurance, and repaying debt).
If you find yourself spending much more than 50% on your necessities, I’m afraid you’re living beyond your means and deliberate action will need to be taken.
The word “necessities” seems to imply that these costs are fixed, but that’s far from the truth.
Are there more affordable internet or phone packages available to you? Are you overspending on groceries? How much breathing room would a slightly smaller home or apartment give you? Could you be spending less money on electricity and gas?
I understand that lowering your spending on necessities can involve some difficult decisions, but ultimately, it will be worth it. The only other options are to take on a side hustle, make more money, or invest in an asset that increases your cash flow.
30% Luxuries: Nine times out of 10, this is where you’ll find the serious offenders for overspending. But you’d be surprised how easy it is to get this under control once you see it laid out in front of you.
Instead of scrapping the most expensive luxuries, make a list prioritizing the most important or rewarding luxuries for everyone in the family.
Maybe you’re a die-hard baseball fan… or you only see your old friends once a month when you all go out for dinner…
There are no right or wrong answers here. This is going to look a little different for everyone.
Next, simply scrape away everything at the bottom of the list that falls below the allotted 30%.
When my wife and I put our first budget together, it was shocking how much money we spent on things that we didn’t need — thoughtless impulse buys and junk we never used. So much so that it was eating into our spending on the things we actually wanted.
20% Investments: For me, this is by far the most satisfying part of my monthly budget.
While the money you spend above will buy you fancy dinners and HD TVs… the cash you allocate to your savings and investments will protect you in a financial crisis, secure your retirement, and make you more money.
You should divide this 20% equally between savings and investing.
But if you’re starting from scratch, I recommend allocating all 20% to savings until you have a robust emergency fund. We’re talking at least $1,000 to $2,000 in cash and six months’ pay in a savings account.
Once you get the ball rolling, you can start investing and saving equally.
My favorite thing about this plan is that it recognizes that life’s little luxuries are an important part of staying sane. But if you think you have what it takes to tighten the belt, you can supercharge your savings and investments by modifying the plan to 25% luxuries/25% investments or even 20% luxuries/30% investments.
All the best,
Editor, Money & Crisis
P.S. Governments around the world are secretly preparing an alternative strategy for the next big crisis: a lockdown.
The global elite has already started making their own preparations, including hoarding cash and hard assets.
It will be the average investor who suffers most — unless you act now.
New York Times bestselling author Jim Rickards pulls back the curtain on this global collusion in his new book The Road to Ruin: The Global Elites’ Secret Plan for the Next Financial Crisis.
And for a limited time, Jim is giving away free copies to readers of Money & Crisis.
In this groundbreaking tell-all, Jim reveals the powerful strategies you can use to protect your money and your family from the coming crisis.
In light of recent events, there isn’t a better time than now to take Jim up on his offer.