Mark this day in history, April 15th of 2013 and suddenly the price of gold drops almost 10 percent in one day and the stock market takes a dive. Whoopy dink.
From an historic perspective this is probably just business as usual but it certainly makes me think, because so many people have been shouting about how the bull run has to end at some point for a long time now. Eventually, of course, all things do come to end. But no one knows if this is just a speed bump or if it is the start of a nasty decline.
Anyway it makes me think about life, security, entrepreneurship, etc.
There is a continuum of people who are basically optimistic about our economy and investing all the way down to people who believe it is all going to crash and burn at any moment. And of course everything in between.
There are some scenarios that are very difficult (or nearly impossible) to defend against. It doesn’t matter what your asset allocation is on paper if hyperinflation hits, for example. Nor does it matter if you own property if complete anarchy arrives and there are looters pillaging the countryside. At some point you have to ask yourself how bad you think it might get in a worst case scenario, and if that is even worth planning for or not.
To some extent I believe the only real diversification is resilience and skill building.
If you can live an extremely frugal life and you also have lots of different skills that lend themselves to self sufficiency then you are about as diversified and well-prepared as you can get.
So one question is: “How do you practice a lifestyle of frugality, while also building up various skill sets?”
I have made some efforts in this area over the last few years and I am happy with my results so far. My two biggest examples in the frugality arena are my home and my car. Currently I:
1) Live and work out of an apartment for $425/month. A home office tax deduction drops this even lower.
2) Drive a ten year old car with an operating cost that is under $200/month. If I buy a new (used) car I will do so in that same price range of around $200/month operating cost. (Of course I would pay cash up front for a used car and never finance it).
I could almost say that my distance running is part of frugality and resilience as well. I have a strict schedule of running 6 miles every other day and the cost of doing this is close to zero. I do buy running shoes occasionally but these become my everyday footwear once they are “retired.” I generally buy last years shoes on closeout rather than the latest and greatest shoes.
There was a day several years ago when I woke up here in Michigan to go to work and there was so much snow that the regular plow trucks were getting stuck (not the big ones of course). The snow was piled up higher than my car tires and no one had made it out of my parking lot yet. I think most people would have just walked back inside, called in sick to work, and curled up on the couch.
Instead, I simply locked my door, put my head down, and started running. I ran right down the main road because almost no one was out driving. It turned out that I made it to work only 7 minutes late and the employees were shocked to see me even show up. This is resilience through exercise. Because I was a distance runner it was no big deal to just leave the car behind and take off for work during inclement weather conditions.
So I ask you:
Who is more ready for an economic crash? The wealthy individual or the extremely frugal person?
Just go ask someone who is living homeless in any city today: how badly were they affected by the market downturn today? They will give you a blank stare or cuss at you for being so arrogant to suggest that they might have investments. The markets (and money in general) does not affect them much because they are used to operating with so little of it. If anarchy hits and the world markets completely melt down, the homeless population may be the best group of people to handle it and adapt.
If you can be happy with less then it empowers you to be more flexible and live a happier life in general.
If the whole world crumbles then we are left to rebuild with what we can salvage. Those who have a diverse skill set will fare better than others if things get worse (or really bad).
But I am not necessarily betting on total anarchy. I think that the government will do everything it can to preserve the wealth of the older generation and of their voters. Most of the reasonable people that I listen to think that it will take several years or even decades for the full effects of this to unwind. A long slow decline rather than a sudden crash. The end results may be the same, not sure. I am certainly no expert.
But I think it is smart to stay sharp, and keep developing skills, and practicing frugality. Lean and mean, baby!
What are you doing to future-proof your security? Buying guns and land? Investing in bitcoins? Hording gold?
Is it even a concern? Or do you feel content and worry-free with current economic conditions?