Counting Your Chickens in Dollars

With silver, you have a rare physical commodity that you can literally take into your possession.

It’s known that quantity, in investment form, is far less than what is perceived by the mainstream. And as a direct consequence, orders of magnitude less than the price indicates.

A never-ending flow is demanded from strategic industries, while the demand for physical continues to grow stronger, despite price – a clear indication of its monetary role and a hint at the ultimate separation from its paper tether.

And the whole thing is held together by an overt, blatant pricing mechanism that systematically destroys the flow of new real supply by crushing the economics underlying production.

Real value is based in trust. Collateral is what is needed to back debt. All currency is debt. Debt is an obligation. In the case of the Federal Reserve, each debt coupon has zero interest with an open-ended term that is tied to confidence and belief and force.

It is backed by an amorphous construct – one that it is powerful and hostile. It is mathematically impossible to repay both official and unofficial debt without collapsing the system that manufactures it.

Without any collateral backing it up, the dollar literal floats in relative value with competing currencies that are equally unhinged. True collateral is consistent – easy to use and measure. Notes are debt without collateral. Fiat is used to buy treasuries, and the interest is rebated to the Treasury.

Individuals still have the opportunity to buy traditional and real collateral. What can you hold outside of the system?

But we also have unrealized (shadow) risk in the background. All of these converge on bullishness. But the shadow aspect of all of this has a dark side effect on most investors.

Naturally, we all want to see a return on investment. Counting your wealth in dollars is the number one prescription for failure in this. Is there a way to profit in the short term?

Yes. But the leverage required to make that happen it is out of reach for most. As is the patience and time to execute proper trades; time better spent preparing for the eventual aftermath of system exponentially fragilized.

For the rest of us, it is a long term play. If you want to watch the price action, watch it… but disassociate from it.

You’ve done all you could. You’ve taken action. Other markets will appear to increase in value. It will seem as if you missed out on unrealized gains. Gains in what? And held where? In whose control?

The problem is that we live in a world of impatience. There is nothing quite like the stoic patience of long term investors in this space. Then it becomes about allocation.

What percentage collateral versus speculative investment? Examined in the context of the recent rally, it is unreal. What is the safest ratio for you?

But the collateral is always there. The trick is to hide it from the people, to disparage it and attack it; to manipulate its price by any all means and completely control it so that the true signal is lost.

The ironic tragedy is that those whose €dare’ to hold physical collateral in their portfolios are constantly plagued with worry over the nominal value measured in uncollateralized figments conjured by the financial system itself.

The greater the ability a person has to withstand that truth – the greater is their appreciation for what they have.

Rules of Thumb

Things like Christmas and gifts, vacations, medical expenses, car repairs, clothing and home maintenance. When you pay a monthly bill it is easier to keep on track with your spending plan.

So the key is to make a monthly bill for every item in your spending plan. You set the money you have allocated for a vacation, car repair and other non-monthly expenses into a savings account. I refer to this as a buffer account. If you leave the money in your checking account you are likely to spend it on other things, and be short when you need it.

When you need to pay for a car repair, you transfer the monies from your buffer account into your checking account to pay the bill. The same applies for all the non-monthly expenses. You can keep track of your non-monthly expenses – accruing the monthly allocation and subtracting your expenditures, and keeping a balance in each expense category.

However, if you aren’t one for details, or you don’t have the time, you may want a simpler approach that you can maintain. Success in a spending plan requires your being consistent. An easier approach is to total the monthly allocation of your non-monthly expenses and transfer it into your buffer savings account. Pay all your non-monthly expenses from the buffer account.

This approach allows you to have ‘fun’ on your spending plan and not feel guilty or get caught short some months in meeting your bills.

I frequently am asked how much should be allocated on different budget items. I see so many variances in people and their likes and dislikes. Some people have 3 closets of clothes, others take extravagant vacations and some have great collections of art or coins or books. I think you need to make room for your own personality or you won’t keep a budget/spending plan.

There is a general rule of thumb to follow. Put 10% of gross income away for long-term goals like retirement and college. Put 20% away for debt reduction and cash reserves. And use 70% for monthly living expenses including the mortgage.

An easy way to accomplish the long-term goal portion of your spending plan is to have automatic deposits into savings or retirement accounts. Company retirement accounts like a 401(k) have payroll deductions. You may be able to have payroll deductions made into a savings account or you can do an automatic banking transfer. Making the monthly contributions automatic is helpful in obtaining your financial goals. It is the easiest form of budgeting.

20% of your income going to debt reduction and cash reserves is also a critical step. A cash reserve is different from your buffer accounts. While it is still a savings account, you use it in time of an emergency. An emergency is defined as something unforeseen and unexpected; something such as losing your job or being off work due to an illness. A sale at the department store does not qualify as an emergency.

Your cash reserve should be 6 months of your bare bones budget. I encourage you to keep the first $5,000 liquid in a savings account. The balance can be in CDs – probably longer terms to get a better interest rate.

Another rule of thumb is to keep your housing costs within 25% of your monthly income. A house is one of the biggest investments a person will make. You want to be able to do the necessary repairs to keep it functional and attractive. But you don’t want the house to become a ball and chain if you can’t easily pay the related bills. And you really don’t want to experience a foreclosure. While many are walking away from their homes, I wonder how many could have kept their home if they had stayed within 25% of their income.