Financial Self Sufficiency
Financial self-sufficiency is a war of multiple fronts: budgets, insurance, income generation, and appropriate investing. Learn how to navigate them here.
Without being in control of your finances, you’ll ever truly “escape modern American life.” Which is exactly why you need to be in control of them. Part of setting up your self-sufficient homestead is to take charge of your entire financial equation: budgeting, secure savings, income generation, and appropriate investing.
Establish a Budget
The first step is to establish a “real-live”, working budget. Having a solid budget in place from month to month is a giant hinge that the rest of your “escape plan” swings on.
So many of the world’s people are trapped in bad life situations, simply because of their finances. Obviously some of this stems from things that people have no control over, but the reality is that most of us DO have a lot of control over our financial situations.
Developing a monthly budget and beginning a savings component will help you tremendously with establishing your modern homestead. It will also help you with buying preps, paying unforeseen medical expenses, job-loss scenarios, and a ton more. It dramatically lessens the number of nights you lay awake stressing about keeping the bills paid and lights on.
And above and beyond helping you make sure the necessities are covered, a budget helps you spend money on the things that you most want to spend money on (i.e. going out to lunch every day for a couple months vs. a cool weekend trip).
There are a lot of things that you begin to realize once you create a real budget and start keeping track of your savings. You realize how fast your money goes when you eat out. You realize that there are a lot of good deals to be had through buying used cars, shopping at thrift stores, and bartering for things that you would normally pay for in cash.
Fire Up An Emergency Savings Account
This is one you’ve already heard everybody else preach about since you were a little kid, so I won’t pound the pulpit too hard on it, but essentially, your emergency savings should be 2-3 months’ worth of living expenses.
In a world that teaches us to spend more than we make, this can be really tough to build up. By far, THE SINGLE BIGGEST help in getting there, is creating a usable, working budget (as also covered in Phase 1).
Once you have a sturdy budget in place, you can make compromises and sacrifices until you get to the point where you are putting away at least some amount of money each month. Maybe you can only afford $100 right now. Maybe only $20. Even if it is meager however, you should do it. Getting in the habit of socking away at least some money that you don’t touch is the habit that modern American life has trained most people out of.
You never know when your circumstances could materially change. You can receive inheritance money, you can change jobs or get a raise, or maybe an unexpected tax return puts you in a better financial situation. If you already have a working budget and have made the decision to be disciplined and put money away, it will be much easier to maintain what you’ve been doing and simply plug in bigger numbers.
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Another thing to decide with your savings account, is when you’re allowed to withdraw. Maybe it’s medical emergencies. Maybe car emergencies. Maybe it’s both of those and emergency home repairs. Maybe it’s none of those, but whatever you decide, you should write down and stick to it. This helps to take the emotion out of the moment when you have something arise later—ESPECIALLY if you are doing this with a partner, and you guys are divided.
Protect Your Savings From Risky Banks
Here’s the reality: the financial institutions, markets, and currencies of the Western world are incredibly risky. They just are. They are backed by insurance, central banks, and governments which are inflated, devalued, over-leveraged, and insolvent. So, if you are holding assets in them, you are exposed to an enormous amount of risk. Especially if this is the ONLY place that you are holding your assets.
Without warning, your portfolio could lose tremendous value, you could have your accounts frozen (a la Greece, Cyprus, Argentina, etc.), or become subjected to other similarly ill-fated ends. It’s time to give yourself a layer of protection from all this. There are better alternatives.
There are more highly capitalized banks within more sound financial jurisdictions where you can keep your hard earned savings. You can invest in vehicles and markets that aren’t controlled by a handful of central bankers and favor-trading politicians. There are retirement accounts that exist outside of the financial mega corps that most people have retirement accounts through. You can hold a portion of your savings in another currency, that doesn’t face the same devaluation that the Dollar and Euro do.
The time to do all this is now.
Start with getting a savings outside your country of residence, at a highly-capitalized, highly-liquid bank. With as little as a $5,000 deposit and a couple forms, you can open an account in one of several sound banking jurisdictions.
Cover Your Bases With Insurance
I know, I know. If you’re like most people, the word “insurance” probably makes you throw up in your mouth a little.
I fall into the same category.
Every time there is a conversation about it, I’m either feeling like a bad person because I don’t have enough, or once again reminded of how badly I’m getting raped (sans dinner and a movie).
But like it or not, in the legal day and age we live in, having insurance still really is a smart thing to do.
The Simple Dollar has some great resources to help you navigate the insurance waters. It’s full of posts organized into 4 categories:
Each of these 4 guides is CHUCK FULL of really good insurance wisdom, to help you make the right decisions. Things like:
- High deductible vs. High Premium
- Laws and coverage limits by state
- The questions you need to ask before purchasing policies
- What to do when you’ve had a car accident
- and a ton more!
Get and maintain at least some insurance on your car, house, health, and life. And then if you want to go above and beyond, you can pretty much find somebody that will insure anything in this world (yes even your prized rear end J-Lo!), but I think these 4 areas represent the baseline coverages that most people want in life.
Yes, insurance as we know it today is a complete racket, but until you have greater resources and are further detached from the modern American life, HAVING insurance is better than the alternative.
Like a handful of you know, I have a couple kids with an extremely rare medical condition. It has come with some terrifying moments and a lot of heartache. Their health insurance has been an absolute nightmare to deal with. Hours and hours on the phone clarifying, debating, reversing charges, and more. Still, I would’ve been even more screwed without them. Although the hospital visits, medication and treatments have definitely set us back a few shekels, I’d rather pay insurance premiums and co-pays than $250,000 dollar bills (yes, plural).
Not having insurance (or enough of it) can land you in a world of hurt. Just ask the victims of Katrina, Sandy, Mt. St. Helens, the Southern California fires, or 100 other disasters if their insurance was worth it. Ask any hospital patient if health insurance was a good investment.
Feel me? I recommend that your priorities be:
- Health Insurance
- Home Insurance
- Life Insurance
- Car Insurance
Obviously if you operate a business, there are business insurances that could be applicable to what you do. If this is the case, you are likely already leaps and bounds ahead of the pack in understanding the “lesser of two evils” that having insurance is.
Create Your Own Income Stream
This is an “800 Pound gorilla” topic, but the bottom line is that being completely dependent on your 9-5 job is being widely exposed to an incredibly fragile aspect of the modern American life.
It means that you could be downsized, fired, or replaced. It means that you are at the mercy of somebody else’s ideas and whims. Many people have already attempted to create their own income streams, so if this is you, you could have a great head start. If not, these are the best resources I’ve found for helping to get the wheels turning:
- Noah Kagan – How To Make a $1000 a Month Business
- Tim Ferriss – The 4 Hour Workweek
- Gary Vaynerchuk – Crush It
- Chris Guillebeau – The Empire Building Kit and Side Hustle School
The common thread between the messages that these guys preach is that they teach “low barrier to entry” income generation. No elaborate business plans, funding, approvals, large teams, or anything else. Just lean action plans that give you the quickest route to income generation from your present situation (particularly Noah Kagan’s $1000 a month course).
Creating your own income stream doesn’t have to always have to mean starting a “business” though. True, that is probably the most profitable, long-term option, but there are plenty of weird and obscure ways that you generate some money.
You can register with freelancer boards such as Fiverr or Upwork, to do part-time or contract work of many kinds. You can search your local Craigslist in the help wanted section. There are needs ranging from specific technical jobs, to “day laborer” type jobs for moving boxes or junk for people. When I was in college, I registered with a handful of promotional agencies to work a few days a month, handing out freebies at concerts, state fairs, and other events.
This is how you and I need to be thinking about generating income. What are the shortest routes to being able to create revenue for ourselves?
Making The Jump To Full Time Self-Employment
Once you are able to begin producing at least a portion of your income, then making the jump to full time self-employment could be as simple as scaling what’s working. If you are collecting retirement, this may be enough money to escape the 9-5.
The other thing to consider in making the jump to full time self-employment is your monthly cost of living. Are there some expenses that you can temporarily cut out while you are making the transition? Or if you can’t cut them out altogether, are there less expensive alternatives that you can use to substitute for a time (i.e. Netflix instead of cable).
Nobody says this step has to happen in a certain time frame, and it could take a while. If it were easy, more people would already have done it. Nevertheless, finding a way to escape the 9-5 is an enormous pillar in the larger goal of becoming financially self sufficient.
Set Up Your Self-Directed Retirement Account
In Phase 2 we talked about some of the many vulnerabilities posed by Western markets and financial systems. Having a retirement account in a large brokerage puts you squarely in the middle of that risk. These brokerages are heavily invested in government bonds (a really bad investment class in this day and age), and are in bed with politicians and central bankers.
If a new piece of legislation gets enacted that restricts the kind of investing you are able to do, or possibly even makes bonds investing mandatory, you can believe that the large brokerages won’t hesitate to conform, and require the same of you.
Even if something that drastic never were to happen, having a “traditional” brokerage account still restricts the types of investments that you can make. For instance, you could never buy a 20 acre ranch with your Charles Schwab IRA account, even if it’s the best investment under the sun. Similarly, you can’t go out and buy 100 ounces of physical silver. In many cases, there are foreign markets that you don’t have access to with your brokerage account.
Converting your brokerage account to one that is self-directed allows you to have the ultimate flexibility. You can invest in REAL assets (like physical real estate, and physical precious metals). You can invest in virtually any market you want. And as an added layer of protection, you can hold the assets in your retirement in other jurisdictions, where it would be next to impossible for your home government to seize, freeze, or otherwise control your hard-earned savings.
As you can imagine, this kind of investment vehicle takes some careful structuring. It’s not something that you want to “wing it” on. Fixing sprinklers is a great DIY project, playing around with your life’s savings is not. There are some very specific requirements that need to be followed in order to receive the maximum benefits (and avoid possible penalties!). Do yourself a favor, and get expert legal help converting your retirement account to one that is self-directed.
Should I Buy Precious Metals As An Investment?
When it comes to specific investment classes and vehicles, there are many that make sense. Real estate has historically been an awesome asset class to be involved with, on a number of different levels. Energy, currencies, and several other sectors have some great upside, if you are willing to learn and work at them.
In particular however, many self sufficient people ask if they should invest in precious metals. The answer is “yes”, and I thought I’d give you 1 specific reason why.
Simply put, many currencies in the world today are not backed by anything tangible (commodoties, precious metals, etc). In the U.S., and elsewhere in the world, we have a “fiat” (or government controlled) currency, which lends itself to extreme volatility, and specifically, inflation.
Because this type of currency can be essentially created “out of thin air”, more of it can be created at any given time. And the more that is created, the less valuable it is.
On the other hand, gold and silver cannot be created out of thin air anytime that someone wants to. They are limited, finite elements that come from the earth.
And because there is limited supply, their demand (or value) remains consistent.
The History of Gold and Silver
Gold and silver have been used as currency for thousands of years, in virtually all corners of the globe. They have been used as money for so long, that they have practically been “money” for longer than money has been money.
Over the years, gold has been associated more with luxury and prominence, while silver has been more associated with utility. Even today, silver has a ton of uses. It’s used in:
- Solar Panels
- Film Photography
- much more!
What is the “Gold Standard”?
The Gold Standard is a term used to describe a currency whose valuation is directly tied to a set amount of gold. As the valuation of gold increases, so does that of the currency. At any given time, a given quantity of gold can be exchanged for a set amount of currency, and vice versa.
From 1785 to 1861, the United States was on an official precious metals standard, and up until the 1930’s, currency and precious metals were exchanged interchangeably. In 1933, Franklin D. Roosevelt enacted executive order 6102, which forbade private stockpiling, and required citizens to turn over gold to the government.
The next year, in 1934, The Gold Reserve Act was put into effect, essentially ending the direct exchange of currency for precious metals at a set amount. Since that time, precious metals have had to be “bought” and “sold” at varying rates against currency.
Are Precious Metals Offense or Defense?
If you buy gold and silver as an investment, it’s important to understand that doing so is a long term, defensive play. This puts it on the far opposite end of the continuam from speculative investments like penny stocks, or funding a tech startup on track for a big I.P.O.
When people talk about the price of gold or silver shooting up, what is more likely the case is that other currencies are actually plummeting. True, the “relative” value of precious metals has increased, but what has actually happened is that your precious metals have maintained their value while other monies have decreased.
Think of it as more of a protection against a sudden loss of wealth, rather than a tool to quickly increase your portfolio.
With economies all over the world becoming more and more unpredictable as the weeks pass, precious metals are one of the only investments that remain as strong now as they were the week before, and the week before that. Do yourself and your future wealth a favor and consider even a small investment in precious metals.