As I continue to think about and plan my future, and about money. I’m forming a more coherent vision. There are dangers ahead. Some I can control. Some not. In my recent reading and rumination on the content, I offer the following sermon:
I stumbled on the following video. It is fairly alarmist and designed to get you to buy the magazine subscription. What it talks about, and something for our US brethren to digest, is that debt is a problem that is disguised by low interest rates. If all debt is included, then the percentage in relation to GDP is a potentially massive problem.
In the private sector leverage comes in and out of fashion and, when used as a form of business investment, is probably no bad thing. Good business governance should mean that this debt risk can be, on the whole, discounted in my view.
The housing sector in the UK is really peculiar. Fundamentally a small country, with tight planning laws, not enough housing stock and a lot of people chasing them means property values will stay high. Thus personal debt is unusually high. I also discount this factor as people in the UK will always scrimp and save to buy property, so the down side risk is unlikely to be cataclysmic.
Governments do not contribute anything to the wealth of nations [ a nod to Adam Smith]. They, at best, provide a safety net and provide for common things like law and order, defence etc. At worst, people poorly equipped to make decisions squander vast quantities of money. Governments are, therefore, destroyers of wealth not generators.
Following this line of reasoning, anything that runs up debt by squandering money away must be a bad thing. Ultimately the ability to pay its bills [UK government debt] into the future while still squandering money away is a potential problem. So governments will borrow, tax and inflate their way out of their inability to make the right decisions on our behalf.
So why, dear reader [if indeed there are any], is this something to blog about. None of this macro stuff is anything I can control. None-the-less, it will have an impact on me and my loved ones. It is also laden with parables for my life. And, most importantly, I’m not powerless!
The following are truths I will use as tests on all things financial:
- A government owns all the money and can pass any laws it wants to get yours when ever it chooses (taxes, levy’s, exchange controls and more)
- Politicians are only interested in being re-elected. They do not care about anything other than that (populist policies to get the most votes – ie free money/services)
- Only I can put in places strategies to protect my finances and family
So what does this mean for me in a post divorced world? Well, for one thing my outgoings are going to increase while income remains fixed. I need to make provision for 2 houses from the current capital base: I want [am legally required] to provide a house for ex Mrs MD & the kids; I also need somewhere to live. I need to eat. I need some ‘flash’ money. The key to this is not take on any more, and actually to reduce, debt. By this I mean a mortgage. By this I mean protecting myself in the “apocalypse” to come if interest rates go from 0% to 5% or higher.
So here are 3 rules I will endeavour to rigorously apply:
Number 1 – Minimise and eliminate debt.
This means trying to amicably agree divorce and financial terms so housing can be bought mortgage free using the maximum available capital. It also means mentally taking a step back and “de-materialising” [not in the Star Trek sense] my life; not chasing the materialistic good life. This does not mean living like a Spartan. I do like my luxuries. I deserve my treats and in the brave new world will have absolute discretion to indulge as I like. But I will not go into debt to do it. This means that little or no money will go servicing debt [take note governments!!!!] .
Number 2 – Devise and execute defensive financial strategies
This means what money I do have I will not hand over to others to manage. Financial advisers are in my experience no good. Pension advice is pretty poor. I do not believe pensions are sustainable in their current form. The state pension is not something you can live on and in the future this is unlikely to change. The projections in the video about pensions, I believe, represent a possible future. Even if that is not the case, the management charges and future taxes on what are restricted funds do not make good sense. I equally do not intend to be destitute in my old age. There are other forms of investments that can provide a rainy day fund and income when (and if) I retire.
Number 3 – no point being the richest man in the whole damn cemetery
Dying with capital is a pointless objective; Shrouds don’t have pockets in them. It is heresy, but eating down your capital is not necessarily a bad thing. I’ve provided a firm educational foundation for my kids. But it is up to them to make their way in the world. They need to have their own satisfaction in achievement – not just on the back of “daddy”. Thus I intend to make loads of money and spend it all during my lifetime on my needs. Will I give to charity? Yes. Will I pay the minimum legal taxes I must? Yes. Is this selfish? Somewhat – yes!
End of sermon. None of it may come to pass. Plan for the worst hope for the best.