Five financial checkpoints
Positive cashflow
This term means that we can save aside a portion of our income. Financial gurus suggest that at least 10% of our savings have to be kept as savings while the remaining balance can be utilised as expenses. The highly discussed method is known as the 50:30:20 rule. The basic rule of thumb is to divide our monthly income into three categories: 50% for needs, 30% for wants and 20% for savings or paying off debt.
The problem is that the moment we put such savings aside, we use them for unnecessary expenses. This is what we mean by financial ‘leakage’. We discipline ourselves to save money, but eventually, the savings are not growing. It is highly suggested to make use of gold as forgotten savings to solve this problem.
In other words, once we get our income, we buy one gram of gold as forced saving and forget about it. The remaining savings can be kept in trust funds, mutual funds, etc. I firmly believe that with the ‘one gram per month’ concept, we would not touch our gold savings unless it is crucial and we urgently need cash.
Sufficient emergency fund
If you have read or listened to other financial experts, they typically suggest saving an emergency fund worth three months of our income. If we earn RM 6,000, the emergency fund we ought to save would be at least RM 18,000.
This amount must be readily available. We can consider keeping a savings bond or in a bank that offers such features. Since this fund is not meant to be easily accessed, the less chance we have in withdrawing the fund, the better.
However, many of us still find this a challenge. Somehow or rather, we access this fund and utilize it for unnecessary things. It is highly suggested to consider converting this fund into gold. Though the gold price is susceptible to fluctuations, this is much better than spending it and having way less in the account.
Apart from gold serving as an alternative form of emergency funds, it can also seal financial ‘leakage’ as mentioned earlier. If needed, the gold can always be sold off should we need urgent cash for immediate needs.
Free from negative debt
Being free from debt means that we no longer own any obligations to take away our money. Having bad debts essentially robs us of our money, resulting in our wealth in the future decreasing. Negative debts include our car loans, personal loans, credit card loans, furniture loans, etc.
We utilise debts to acquire rentable property with a decent rental amount, known as ‘positive’ debt or ‘good’ debt. Such debts increase our wealth as long as we own them, even in the future.
Unfortunately, buying gold does not help us get rid of our bad debts. For those who have gold savings worth more than three months of income, it is highly suggested to sell the gold savings. With that money, focus on paying off the debts. Setting aside three months' income in gold as an emergency fund is sufficient.
Upon clearing the bad debts, new excitement will rise in increasing our wealth and reaching the following checkpoints: financial security followed by financial freedom.
Financial security
To those who have savings worth six months of their income, this is defined as financial security. If any mishaps occur with our job or our ability to work, at least we have the backup fund to cover us for six months. But, those in that condition would utilise this fund for up to a year. When we lose our job for some reason, we would typically change our lifestyle and bring our expenses to a bare minimum.
For those in this stage of financial security, it is highly suggested to have three months' worth of income in cash while the other half in the form of gold. This way, the fund would be protected against inflationary risk, currency risks and any form of economic/political turbulence. As discussed previously, the numbers might be there, but the actual purchasing might have dropped.
Gold for specific target
In addition, gold can be saved as long-term savings for specific financial targets, such as downpayment for a new home. Save gold consistently and once we reach the target, proceed to sell the gold and use the money to pay the deposit for your new home.
Gold = real property
Gold, in a way, is also real property. While waiting to achieve our target, we choose to save in the form of gold. By doing so, we might enjoy capital gain while waiting.
Furthermore, with a sufficient purchase of gold, we can upgrade our status as an agent for a gold company. While we save money for ourselves in the form of gold, we facilitate other gold savers who can be our friends and family.
And finally, to those who wish to explore gold trading, this is the right time to do it. The extra funds apart from six months’ worth of income can be used for the ‘buy low, sell high’ strategy as described previously.
Financial freedom
When our wealth has reached a level where we are financially free, Tuan Azizi Ali recommended that 10% of our net worth be kept in gold as wealth ‘insurance’.
Net worth means the value of all assets minus the total of all liabilities. In other words, net worth is what is owned minus what is owed.
How do we know our net worth?
Net worth = Total assets (what we own) – Total liabilities (what we owe)
The 10% savings are essentially our protection against various uncertainties such as economic or political crises, including currency crash, currency collapse, political turmoil, and worst case would be war. These uncertainties may come without warning too. Hence being protected is the best way to stay safe against all these uncertainties.
As we have seen previously, precious metals such as gold and silver are the only financial asset that will never go to zero. They cannot be created nor destroyed in whichever way we could think of. They are valuable, even in powder form and across the world.
As a conclusion
When any financial uncertainties occur (economic or political), our assets such as savings in the bank or stocks would be affected first. Physical assets like gold, silver and property would not be highly affected. And the least affected asset of them all is gold. Hence, gold savings can be a saviour to rebuild our wealth when we are brought down to financial ‘Ground Zero’.
Should you find this article useful, consider sharing this with your friends and family. Let's create awareness about gold savings 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 Gold Buddy,
Naresh G