Tag: saving money

Asset Allocation

submitted by jwithrow.asset-allocation

Asset allocation is a necessary tool for saving money and building capital within a fiat monetary system. Within a fiat system, the purchasing power of your currency is gradually inflated away and the value of various asset classes can fluctuate rapidly based on central bank monetary policy. Thus, it is important to have a principled yet flexible asset allocation model in place.

The concept of asset allocation is to allot a percentage of your capital to various asset classes and to maintain each allocation ratio until you deem it necessary to adjust your model. For example, a basic asset allocation model could consist of 25% cash, 25% precious metals, 25% real estate, and 25% stocks. You would then allocate your income to each asset class accordingly.

The beauty of this strategy is that you cannot be wiped out by any wild swings in the market and you will always have cash on hand with which to purchase assets when they go on sale (when the market tanks). Of course you can always add additional asset classes into your model such as bonds or bitcoin or cattle depending upon your outlook and you may need to adjust your percentages based on new analysis from time to time as well.

The Infinite Banking insurance strategy that we talk so much about here at Zenconomics and in our book works perfectly to house much of your cash allocation. An IBC policy serves to compound returns on your cash while it sits idle waiting to be put to use without sacrificing any liquidity whatsoever.

As for your precious metals allocation, you can purchase gold and silver bullion from any local coin shop or from reputable dealers online or you can purchase through companies like Hard Assets Alliance which will facilitate fully allocated domestic or international storage for you.

Of course to follow an asset allocation model you will need to save a large percentage of your income. I think 50% is a good benchmark. 75% savings is preferred. Very few people have the discipline to pull this off but those who do never have to worry about financial problems again.

If maintaining such an asset allocation model for your household sounds extremely tedious and time-consuming that’s because it is. This is the price we must pay for living under a fiat monetary regime. In a sound monetary system we would be able to build capital simply by saving money in a bank account because our money would maintain its purchasing power over time. Instead, saving money in a bank account is a losing strategy so we are all forced to become financial analysts or have our wealth systematically transferred away from us.

Saving

submitted by jwithrow.Fishing Boat

We have been hearing all about how most Americans are living paycheck to paycheck and not saving any money as justification for the brilliant (*cough*) myRA government savings plans so we felt that it would be prudent to take a deeper look at what ‘saving’ is.

You see, we don’t think that saving is about money. Money is involved, but it is not the focus. Saving is really about storing our productive efforts.

It goes back to the days of barter…

Back then the fisherman would catch extra fish in the morning and take them to the market in the afternoon to trade his extra fish with the farmer for vegetables. His wife liked to have vegetables with her fish for supper so he had to trade for vegetables instead of the painted rock that he really liked.

The fisherman had learned that fish would start to smell bad the day after being caught so he had no choice but to trade all of his extra fish every afternoon and go fishing for more again every morning.

Until the fisherman discovered gold. Then the fisherman could trade his extra fish for gold and take the next day off. The fisherman didn’t really care about amassing gold; he just figured out that gold would let him store his production so he didn’t have to go fishing every single day to feed his family. And it turned out that three day old gold smelled much better than three day old fish – this was a bonus.

So saving was born!

Somewhere along the line we forgot this and started to think that saving was about amassing money. And on top of that we started to think that money was paper and not gold. We are so forgetful!

So when saving became about money and not about production we opened the door to debt. We started to think that instead of saving we could just borrow whatever money we needed. After all, the credit money still bought stuff just like the saved money except we didn’t have to wait to use it!

But then when we had to start using our entire paycheck to pay back all of the credit money we found out that we had to be even more productive now than before we went into debt. Our plan backfired.

We didn’t learn from our smart fisherman ancestor and now we had to go fishing both in the morning and in the afternoon to have enough fish for our supper and also enough to trade for vegetables so our wife won’t get mad and also enough to give to the banker to pay him back for the credit money that bought us the really neat painted rock.

Darn painted rocks.