If you have no old age plan, you may lose control of your level of comfort, style and luxury.
If you have no plan, you will lose control of your financial freedom.
You may lose control of bodily functions and will need money to take care of medical bills.
As you age you do slow up, and working as hard as you are now will be impossible.
You also don’t want to have to always work hard (though you may choose to) – for most of us there is a time for sitting in the sunshine and if it isn’t when you’re old, then when is it?
So why haven’t we put something aside already? Well, when we are young it’s hard to envisage a time when we won’t be. So we don’t need to prepare for it. Also, we are too busy having a good time to think about such things. Also, we are too busy looking after other members of our family to have much time to think about ourselves. Also, we are mortgaged up to the hilt and work is hard enough. Also, we haven’t entered our earning boom period of our fifties so don’t have lump sums to salt away. Also, also, also.
So, if we are going to put something aside, perhaps we need a few guidelines:
It’s never too late to start, but the earlier you do it, the less it will hurt. Prioritize spending – list what you are going to spend on and see if ‘the future’ is there. If it isn’t, put it there and make it top of the list ahead of that new boat or trip to Paris.
If you haven’t saved much by your fifties put in a lump sum to seed your retirement plan.*
Get your finances in order and curb waste – spend it instead on your plan.
If you don’t have a pension, make sure you have things that will fund your retirement/later years (property to sell? shares to cash in?) and that they will be sufficient.
Always think high interest and move money around to get the best out of it.
Trade down property as you get older and your needs get smaller – once the kids have all left home you don’t need so much space, so downsize and invest the profits.
THE EARLIER YOU DO IT,
THE LESS IT WILL HURT
* God, don’t ever ‘retire’, you’ll drop down dead immediately you do that.
RULE 91
Put something aside for emergencies/rainy days – the contingency fund
As well as saving for your old age you’ll always need to have a contingency fund. I can’t give you a definitive list of emergencies but here’s a few to get you thinking. Don’t have nightmares now:
accidents – motoring, industrial, work-related
illnesses
sudden legal problems – like being sued or arrested wrongly
land disputes – very expensive indeed
problems with children – don’t start me off, there are too many to list here including drugs, unwanted pregnancies, trouble with police, motoring, illnesses, travel problems (it’s expensive to get them back from Thailand when they run out of money and/or enthusiasm)
acts of God – floods, earthquakes, tsunami, droughts, subsidence, forest fire, pestilence (whatever that is)
sudden unemployment
sudden liquidation of your company
recession.
So how much to put aside and where do we put it? Well, the wise move is to put aside enough to keep you going in the same style as you live now for three to six months without having to even think about money for that period. Roughly half your annual income if you like. Obviously if you get completely wiped out in a tsunami or forest fire you’ll be insured so can collect, but you will need something to tide you over. Medical bills can also be covered by insurance.
So where to keep it? Most people keep it as a savings account – high interest of course, but instant access. Personally I’ve noticed the shrewd rich ones keep a safety deposit box with cash for emergencies as well. Always handy in desperate times.
You only have to look at humanitarian disasters to realize how quickly money runs out and how conventional sources become desperately difficult to access. Surviving the storms of Louisiana was bad enough for most people but it was a great leveller because no one could access the banks because they too were under 10 feet of water. And money quickly becomes a useless currency – food and water become the priorities then (and guns I believe, but I don’t want to go there).
You might choose to take out sizeable insurance policies to help alleviate the problems sudden emergencies can cause... Alternatively you might prefer to squirrel away an emergency fund in a highly liquid account (easy quick access), such as a savings account or money market account (which pays higher interest rates). But, as usual, take detailed advice from a proper financial expert – not me.
THE SHREWD RICH ONES KEEP
A SAFETY DEPOSIT BOX WITH
CASH FOR EMERGENCIES
RULE 92
You paid what for it? How to shop around
I know I said shop for quality, and I do really believe that, but I don’t believe in throwing your money away on expensive stuff that could be bought just as cheaply from another source. For instance, a dear friend was recently buying a very expensive car, a wonderful car. I was most jealous. I was so jealous I broke all my own rules and asked him what he was paying for it. I couldn’t believe my ears. ‘You’re paying what for it?!’
He said he could afford it – as indeed he most certainly can. But it was the principle of the thing. ‘You can get it a lot cheaper here, here or here,’ I suggested. ‘Yes,’ he replied, ‘but then I would have to get up off my arse and do something instead of just reaching for the phone.’
I offered to buy it for him at the cheaper location and then sell it on to him and split the difference. But he was having none of it. He explained he had earned his money so he could stay on the sofa and lift a phone and have the world brought to him, delivered with the minimum of effort. That was what he thought great wealth was all about.
Now, unlike my friend, the sensible rich don’t just throw money away because they can. Instead they:
always get at least three quotes for work being done and don’t just accept the first quote they get
shop around to make sure they aren’t wasting their money
are cautious about spending if they have had to work hard for their money. They aren’t miserly, just cautious and selective and discriminating.
There is an old Russian saying that spending is quick but earning long. That’s true. We can offload the work of years in a few moments. We have to be prudent when it comes to spending. Not to deny ourselves anything – God forbid I should recommend that. But instead just be a bit cautious and don’t go throwing money away needlessly.
I think wise spending is something we should be teaching our kids from a very early age. They are all too often persuaded by advertising that if something is brightly coloured, noisy, messy or in some way repugnant to parents, it must be a good thing. And they rush home and strip off all those wrappings and disappointment sets in so very quickly. Teach ’em young.
As for you, time to discover for yourself the joy of getting value for money in everything you buy (if you haven’t already). The internet makes it all terribly easy to compare prices and shop around and make sure you aren’t paying more than you have to for anything. Use it.
JUST BE A BIT
CAUTIOUS AND DON’T
GO THROWING MONEY
AWAY NEEDLESSLY
RULE 93
Never borrow money from friends or family (but you can allow them to invest)
I think we might need to have a quick recap of what friends and family are there for – and what you are there for, for them as well. Friends are for:
caring
loving
supporting
nurturing
helping
advising – and getting advice from
comforting
having fun with
sharing.
Nowhere in that lot does it mention:
borrowing from
stealing from
conni
ng.
Put simply, it is very bad manners to borrow from friends and family. It sets up too many issues and agendas. It causes resentments and recriminations and suspicions. It jeopardizes relationships that are important. Don’t do it.
Besides which, friends and family aren’t proper sources of loans because they aren’t licensed for it. I’m not talking here of the odd fiver to get a round of drinks in but significantly large amounts – how much that is will depend on your circumstances... You do need to be licensed to be a credit broker (no seriously) and if you borrow from friends (or conversely lend to the same) you have no legal recourse if it all goes wrong – and it will, as sure as eggs is eggs.
I know technically you could get proper agreements drawn up and all that but even then, and even if they are charging you the proper interest rates, it’s dangerous. If you fail to pay them back – due to circumstances beyond your control – you risk losing their friendship, which of course would mean much more to you than the loan would in the first place.
The only exception to this is if family and friends want to invest in say a business you are starting, and they fully understand that, like any investment, they may not see a return and all the usual risks apply. (See Rule 97 for more on this.) What you can’t afford is for it to cause a rift if things don’t work out. Family and friends are too important for that.
IT IS VERY BAD MANNERS
TO BORROW FROM FRIENDS
AND FAMILY
RULE 94
Don’t surrender equity
This is a Rule for anybody who runs a company, or who is a freelance and is thinking of setting themselves up as a sole trader business. Essentially the point is not to give away bits of you or your company.
The aim of the exercise is to preserve wealth so don’t surrender equity (shares or a stake in your company) or you’ll be paying someone a share of your hard work, time and energy. Better to give them money, even if it is with interest, rather than a share of you.
In a later Rule on spending your money I’ll tell you to ask for equity, but that’s different – that’s you as a lender of money. The shoe is on the other bank account then, so different rules apply.
There is a misconception that having total control of one’s business is a bad thing and many business advisers will advocate giving away equity as a good thing. But I have noticed that the really successful wealthy don’t do this. They hang on to every bit they’ve got. They may borrow and take out loans and run up overdrafts but they don’t give away equity.
Advisers will suggest steering clear of a bank loan because the bank can close down your business so quickly. A business angel will lend money instead, but they will demand equity.
If you do have to surrender equity then make sure you swap it for:
business skills and acumen
hands-on directorships
a freedom-from-hassle agreement so you can run the business the way you want
a realistic percentage so you don’t give away too much
a buy-back clause so you can buy back the equity for cash at a later stage when you are cash rich.
I run a company and have some shareholders but the shares they hold don’t give them voting rights. So, although they do get some equity, they don’t get control, and in fact the shares were given as a reward for advice rather than money I borrowed.
Only take money into your business from people who have experience of your business and understand its ebbs and flows and industry-related problems – and remember, never give voting shares away to anyone.
NEVER GIVE VOTING SHARES
AWAY TO ANYONE
RULE 95
Know when to stop
What? I can hear a gasp of surprise. Know when to stop?! Didn’t you say earlier that you shouldn’t rest on your laurels or they will wilt? Yes I did, but that was when you were starting to get results, not when you’d done really well and were wealthier than you thought you ever would be. Look, there has to come a time when enough is enough. There has to come a time when you want to:
spend more time with your family
enjoy your life
have fun
go travelling
get the work/life balance tipped a bit in favour of the life
use your time to pass on what you have learned to others.
THERE HAS TO COME A TIME
WHEN ENOUGH IS ENOUGH
Of course you might be able to do all of these without giving up the gaining wealth ideal. But it is the focus that stops perhaps. Being driven to gain prosperity is a good thing. But once gained, you should return to the fold so to speak. I am always impressed by people like Bill Gates, who decided to retire from his work to run his charitable foundation. In his case he probably didn’t need and couldn’t spend or count any more money than he already had/has and it’s probably accumulating faster each day than he can count. He’s probably living on the interest on the interest on the interest on the interest...
And I see Warren Buffet is doing the same – and actually contributing to Bill’s foundation.* I know these boys are playing around with sums well into the billions but their hearts are in the right place. These sorts of people are where this rule comes from. Others doing the same include Thomas Monaghan, the Domino’s Pizza founder, who is reputed to have given away over a billion dollars and founded Ave Maria University.
You’re thinking that you aren’t anywhere in the same league. No, but you can still have an end game strategy whereby you build an ‘enough is enough’ clause into your plan. Otherwise where do you stop? How much is enough? Where do you draw the line? There is an Arab saying: ‘If you have much, give of your wealth; if you have little, give of your heart.’ So when you get a lot, give some of it away – we’ll speak more of this in a moment.
I’m not going to browbeat you about giving to charity but I am suggesting that knowing when you’ve got enough money is important. I know there is an expression that you can’t have too much of a good thing but focusing on prosperity is only one part of a rich and varied life and you can be too dedicated.
* Sorry, it is actually called the Bill and Melinda Gates Foundation – BMGF – sounds like something from a story by Roald Dahl.
Once you’ve worked hard to earn it, it does seem a bit unfair to share it. But if you don’t you run the risk of your hardworking outstretched hand turning into an arthritic grasping claw. Money can be earned, grown, guarded, fought over, used well, used badly, won, lost, buried, invested, given away, bought back, exchanged and divided up. But the nicest thing to do with it is surely to share it.
I’m not talking do-gooding here. I’m talking sharing because sharing is a kind thing to do. It won’t buy you a ticket into heaven but it will help others. I know you’ve worked hard, grafted, and burnt the midnight oil to get to where you are today and why should you give money away to those who are lazy or less focused or indulgent or plain liberty-takers? Yep, good point. But I’m talking here about the less well off, the unfortunate, the weak, the needy and the deserving.
Wealth is a bit like a beautiful painting. Sure you can hang it in your study and only you get to look at it. But you can also share it and let others look as well. Ah, but you’ll say wealth decreases if we share it. Does it? Does it really? I doubt it somehow. I think for every penny you give away – or share with someone less able to gain prosperity – you double its value. Maybe not in hard cash but in other ways.
As I say, I don’t want to browbeat you. It’s just I’ve noticed that the really successful, happy rich people do feel at ease sharing their wealth and that is a lesson for all of us.
RULE 96
Use your wealth wisely
I read of a nice couple the other day – both rock musicians – who had bought a big house in the countryside in Oxfordshire (or some other Home County) with nine acres and were settling down to raise kids and I thought what a good investment as it provides:
a stable place to bring up kids
a sound invest
ment in the long term
a nice place to live in the sense of peace and quiet with no city pollution
a friendly place for the children to grow up with neighbours looking out for them
a sound investment in history and heritage.
On the other hand, I read in the same paper of a fashion model who was in the news a lot because of her drug habit. An expensive habit I have no doubt. I guess you can see where my interests lie from these two snippets gleaned from the newspapers. One is a sound and wise investment and the other is just self-indulgent trouble that lends nothing to the wisdom of wealth.
I’m not a party pooper but I have noticed that those who handle their wealth sensibly and share it and are generous with their time and money get back a whole lot more than those who squander, misuse, indulge and generally behave as if their wealth gives them a licence to show off. Enough moralizing and preaching. I did promise not to. But these are genuine observations and I’m sure you’ve made similar observations yourself. Those who abuse their wealth don’t tend to stay wealthy for long. Here are a few questions regarding our wealth and how wisely we might handle it:
Why did we get wealthy in the first place?
What is the best use of wealth?
What are our long-term goals and expectations for our wealth?
What do we think our wealth will bring us?
What could we do with our wealth that would be beneficial to others?
What sort of world do we want?
How do we and our wealth wish to be seen?
What will they say about us after we’ve gone?
What legacy will we leave behind?
The Rules of Wealth Page 14