Saving for a Rainy Day
This is the fourth installment of a series about money that I started almost three weeks ago. The series starts from Economics 101. If you want to get up to speed before continuing with this post, you can start from there.
But before I dive in and try to give you some ideas about how you can preserve the purchasing power of your money, I’d like to start off with a disclaimer. The suggestions I am about to give do not constitute financial advice. It is your legal responsibility to due your own research and reach your own conclusions on how to best ‘invest’ your money.
With that out of the way, lets get down to business.
I the previous posts, it was mentioned that the value of one Philippine peso, compared to the price of gold, has lost 99.998% compared to its value during the 1903 to 1949 period. I don’t have the numbers to back it up and all the reference I have is the wikipedia entry about the Philippine peso.
Did you get that? Were you paying attention? I’ll repeat it again, this time with emphasis. The value of one Philippine peso, compared to the price of gold, has
lost 99.998% compared to its value during the 1903 to 1949 period. Even if the banks back in 1903 didn’t close or go bankrupt, the money that was saved up in them would still have lost a huge amount of purchasing power, even with the year-on-year interest. So if your lolos and lolas kept their pesos in the form of gold, they’d have kept the purchasing power of their hard earned money up to this date.
So that’s one hint. But I’d like to point out some things about gold before moving on to other "investment strategies".
1) Learn about your country’s laws regarding ownership, exportation and importation of gold, other precious metals or other precious commodities (like diamonds, other currency, etc).
For the Philippines, this is a bit hard since information about ownership, importation and exportation of gold is not widely publicised or available. But thanks to the age of information and the internet, a Google search is all that is needed most of the time.
From www.allfreight.co.uk/documents/regulations/regulations005.pdf (got the link by Googling "philippines customs gold bullion") it explicitly says that gold/silver and precious metal bullion are prohibited from entering the Philippines. I don’t advocate doing anything illegal like smuggling your bullion inside fluffy teddy bears or something similar. It’ll just cause you undue stress and/or large financial losses and jail-time when caught.
The crafty importer can always import their gold/silver and other precious metals in forms other than buillion. Gold can be in the form of jewelry or art pieces, though there might still be hefty taxes to deal with going through customs if you’re decked out in bling.
2) Buying metal in the form of jewelry costs 10 times or more than the cost of the raw metal. If you ever shopped for gold rings or wedding bands, you know that the cost can sometimes match or even beat the price of one troy ounce of gold. The reasons given for the markup in jewelry are cost of labor, marketing, branding, etc. There are also cases of fraud when the jewelry makers stamp a higher grade of gold on the jewelry than the actual metal content. This has been quite a problem in India where gold is a large part of their monetary culture but it would not be such a huge leap of imagination to think that other jewelers may also be mis-representing their wares.
The best option to keep your gold and other precious metals in the form of jewelry would be to buy your own bullion and make your own jewelry. You’ll keep your costs down and learn a trade in the process.
3) Gold, silver and other precious metals are not for everyone. Your milage may vary depending on your locale, the culture of the region and the awareness of the people regarding the value of precious metals. If coin shops or other places for buying and selling precious metal are not popular where you are residing most of the time, you should consider investing in other tangible goods. What do you need to consider in determining which tangible good to purchase?
- The tangible good you’ll be stocking up on must have a long "shelf life". A cup of freshly cooked white rice, though very valueable during a depression, would not last until the depression does come and money has lost its value. Not all canned or bottled goods are created equal; some foods still spoil faster than others. A rule of thumb is that the drier the good, the longer it will last. Stuff in oil also usually lasts longer than stuff with water. Water "goes stale" after some time and if the usual water sources aren’t available, a bottle of water purifying tablets is almost as precious as gold.
- Needs change depending on the situation at hand. During a relatively stable period, electricity, food and water are cheap. When a storm blows through your part of the country, batteries, food and water tend to disappear from the supermarket shelves pretty quick. Some vendors also take advantage of situations and hike up prices to make a quick buck; enterpreneurs know how to take advantage of changes in supply and demand.
- Renewability is a good feature to have in a tangible good. Batteries are good and can keep for a long time, re-chargeable batteries are much better since you can use them again and again but how about when the lights go off? Investing in a solar-powered battery recharger is not so bad an idea in those cases, or even if the lights are on. Cooking food without electricity? Try Googling "solar oven" and see what you can do with the power of the sun.
- Books are always a good idea. You just need light to be able to read them, they’ll most probably survive after you’ve kicked the bucket, chances are you can trade your book to someone who hasn’t read it yet and as a last resort, you can burn it to keep a fire going.
4) Although it is possible to tough it out alone, being a part of a group or community goes a long way, especially if you don’t have that much cash to buy everything you need to prepare for hard times. Having people who you can lean on and trust makes for better chances of not just surviving, but surviving comfortably in any situation. I know, "community" is really a tangible thing that can be invested in but picking the right place with the right community should by considered well, just like any tangible investment.
Now if you’ve been paying attention you’d have noticed that I have been steering the ideas towards a rather "bleak" future; a time where the electricity might go out or access to food and water may be severly limited. Well the countries that went through the periods of hyper-inflation
were marked by a scarcity of these resources (i.e. energy, food and water) and those who were caught unprepared suffered the most.
But that’s the idea behind saving, right? Preparing for unexpected events. Expecting the unexpected. Everyone remembers the classic childrens’ story about the ant and the grasshopper and how the ants stored up food to prepare for a (bleak) winter and how the grasshopper was caught unprepared and suffered the most between the two.
As much as we’d like to turn a blind eye to unsavory outcomes, it’s time to look straight in the eyes of histories of nations that suffered hyper-inflations and see that the possibilities are becoming more probable by the year.
Before anyone brands me a looney and thinks that I’ve probably gone off the deep end, I’m not discouraging anyone to have that occasional Starbucks coffee. I still do indulge in luxuries from time to time but only because I can afford to. Just like the little ants, my wife and I have "stocked up" and are more or less prepared and "well invested" to weather any bleak winter or simply preserve our purchasing power for the years (of inflation) to come.
With that, I bid my readers, "happy preparations"!
