Save three months' worth of income and invest the rest
Usually, as the gold price appreciates in value, I will be happy. When the gold price drops, I will also be pleased because I get to buy an expensive asset at a lower price. Compare to the two, I would prefer the latter as I would bring down my average purchase price.
As a hypothetical example, let’s look at it this way. If your dream house is currently at sale below the market price, would you analyse this news as bad news or good news? I am sure you will see this as good news, am I right? The same mindset is what we experience with gold.
People worry more when the price drops
Typically, people who worry the most when gold price drops usually do not have sufficient savings in their account. When they over-allocate their savings into gold, they would feel restless due to poor allocation. Even if they are in a dire situation, they can pledge for a quick loan even though the price level might not be at a good level yet.
It is suggested that in such situations, we are to allocate emergency funds worth three months of income. When the gold price crashes, it is not necessarily a bad situation because we are not in the position to use those gold savings. We have other funds to tap on if we need cash urgently.
Allocate three months of savings, then invest the rest
To be honest, this advice is not something exclusive to gold. Rather, it is worthwhile for any form of investment, and usually, this allocation is extended to six months worth of income. However, for gold savers, three months' worth of income is sufficient because gold is essentially money.
Moreover, whenever the need arises, we can always leverage gold by pledging a quick loan or selling them away. The loan will be quickly granted in cash as gold is a highly liquid asset. Even though gold is a physical asset, it is easily liquidated, unlike other physical assets such as property, real estate or other tools that may not be easy to be liquidated.
In that case, is three months' worth of income essential before starting gold savings? The short answer is that it is the best.
Nevertheless, many people have yet to save three months’ worth of income. Hence, they are exposed to another big problem that requires attention, especially if they have no gold savings. Doing so exposes them to savings ‘leakage’. Meaning by the time they save three months worth of income, the exact allocation gets used up for other purposes elsewhere. Examples include new gadgets, new curtains, a new sofa set, or even that sports rim (even when the old one works just fine). In short, the money is used up on things that are not a need.
If you are worried about financial ‘leakage.’
For those who have challenges in saving money, I would suggest you start with a small budget. Public Gold frequently runs promotions to buy gold items on an instalment basis. That can be a good start if you are serious about building up this habit. As you pursue this instalment plan, saving three months' worth of income would be easier as long as you are motivated to do so.
Change of habit is mainly due to the aura that gold has. From our observations, gold savers tend to save more gold after they begin their journey. They would not quickly sell off their gold because it is not worth selling. Even if that happens, they will be motivated to get another gold item.
Tuan Syukor frequently says that gold is a ‘wealth magnet’. Not because the gold price will skyrocket in the short term but rather the behaviour instilled among the gold savers. Humans tend to hoard gold. When gold savers focus on increasing their gold savings, sooner or later, their wealth would increase in value.
Consider sharing this with your friends and family. Let's create awareness about our money because nobody will come forward to help us.
Easy way to start gold savings can be found here: Gold Accumulation Program
Join my Facebook page for free here: FB page
Hope you find it useful.
Your buddy on gold investing,
Naresh G