There are three foundations, and therefore objectives, for everyone’s financial health and prosperity. These three apply to my 21st century son Adam.
However, the Big Three were also requirements for my Great-grandfather John W. born in 1853. Greatx2-grandfather James born in 1755 and back to my Greatx6-grandfather John W. Sr. from 1654 who, through all their lives, marched to the tune of these three bedrocks of financial comfort.
The three financial foundations and goals are: continuous and steady employment/income, wealth growth over time, and financial security for the future.
At first look, these would appear to be an equilateral triangle in which all sides—income, growth, and security—have equal weight and importance. However, the way we manage our financial lives changes over time.
There are different priorities as we grow. Prepare the field, plant the seeds and reap the harvest as the seasons change.
You plan for your higher earning years when you are in your twenties. But that is also a good time—if you can afford it—to buy life insurance as the costs are low. The ‘Thirties’, earlier the better, is when a person should accumulate core assets—a home being the primary one. Our Forties and the later peak earning years is when you fund your ‘growth income’ opportunities such as a business (passive or active) and other investment opportunities.
If you have properly and effectively managed your financial affairs, the Fifties should be a time when wealth growth intensifies and expands. The optimum situation would be that by the time you are “legally” if not physically/mentally a “Senior Citizen,” you have provided for yourself and loved ones a secure future that does not depend on the “kindness of strangers,” family, or government to live comfortably.
Too many people think that if they work and plan for steady income, wealth growth and security will naturally follow. Not true. Each of the Big Three is distinct even as they must function together. Further, you must prepare for one or two of the three to fail completely. The lockdowns taught that lesson to many who thought they had it all figured out.
As the “twenties” lead to the “thirties” and so on, also steady income leads to wealth growth, which leads to security. The reverse is true. No income means no growth, which means no security/confidence in the future.
The macro-economic system works the same way.
An economy must supply workers with jobs and employers need a steady supply of workers who have the skill and age qualifications to fill those positions. The economy must continually grow to create more jobs as population increases and to create and increase wealth. However, increased wealth must be genuine so that future economic prosperity feels secure with positive confidence in the future.
Here is the problem. Governments for the past 40 years have tried to manipulate economies and have failed miserably.
Thailand and South Korea artificially controlled currency exchange rates, which allowed business to borrow less expensive foreign money to expand and create jobs. Market forces always win, and their currencies disintegrated, killing jobs and economic growth.
Artificial personal wealth growth was manipulated in the property sector and when market forces destroyed the debt of unqualified and government subsidized borrowers, all the fake wealth creation was destroyed.
For more than a decade, artificial economic growth—hoping to create a sense of future security—through the manipulation of false low interest rates and massive public debt has succumbed to the reality of the greatest destroyer of future security that is uncontrolled price inflation.
“Rain poured down, rivers flooded, and winds beat against the house. But it was built on solid rock, and so it did not fall. A foolish person built a house on sand. Rain poured down, rivers flooded, and the winds blew and beat against that house. Finally, it collapsed with a crash.”
Building on rock solid foundations take time and effort. Building on sand is easy and cheap. You get out what you put in.
E-mail me at mangun@gmail.com. Follow me on Twitter @mangunonmarkets. PSE stock-market information and technical analysis provided by AAA Southeast Equities Inc.