Over ten years ago, zombie movies and TV shows sprung to life as the genre became a dominant trope in collective consciousness. Ten years later, our sweat-soaked tax dollars were spent on a tongue-in-cheek campaign at the CDC. Naturally, they chose the zombie preparedness as hipster way to teach us about all things communicable. Because it's the government, though, the link click here was broken the morning that I wrote this.
With the Covid-19 pandemic, zombie movies seem less like science fiction. If you're not preparing, you're probably a science denier. So the question is how do you prepare for a worst-case scenario. You may have forgotten the bare shelves back in March, especially the toilet paper aisle. Which was weird. Then meat was getting scarce. Restaurants were closed. Bottled water was rationed. You heard of fights at the supermarket. Lysol was extinct. Living in Central Florida, we are in hurricane season as I write this. So you would think we were more than prepared. But that's why we call it the unexpected. Again how do you prepare for the next pandemic, hurricane or zombie apocalypse?
Stuff and Things
This isn't a blog about being a prepper and living off the grid. However, for my family in Florida we've had a week here and there without electricity and damage to our home when a major storm rolls through. So, anecdotally, I've learned a few things.
First, stock up on stuff. Potable water, flashlights and batteries. Tarps, a weather radio and a full tank of gas are also a good idea. They store for a year at a time and will help you in the short term. Next, stock up on non-perishable food stuffs. I still have Vienna sausages from 2005 storm season. Like fine wine, they age well. Finally, consider how to best protect your family from crimes of opportunity. I leave it at that.
In the three pillars of StabilityPlanningSM , you'll recall that the first pillar is the liquid pillar. There’s nothing sexy about cash in the bank. In today's low-interest rate environment, it's actually going backwards when adjusted for inflation over the long term. But in the next few months, it's worth many times it's weight in gold.
You see wealth is measured in many ways. The number one metric of wealth is peace of mind. I've met many clients who feel a great need to invest their money into real estate. It gives them peace of mind to be able to see, touch and feel their investment. There's nothing wrong with that. I know others who squirrel away gold and silver as a way to hedge against future inflation and take control of their finances. There's a place for that as well.
However, no asset class spends quite like cash. You can’t spend your rental property or your primary residence for a loaf of bread. Some would argue that you can take a line of credit against your property to create temporary liquidity. That's true, some of the time. But in 2008 and 2009, if you were cash poor and real estate rich the banks had no time for you. Gold and silver have always been an intrinsic store of value. But if your neighbor wants to sell you bread, will you give him 1/200th an ounce of gold? Will he accept that payment? I would argue that the good old United States Dollar is probably the most liquid and wisest asset to have in a short-term emergency.
So how much cash should you have? One of my financial heroes is Dave Ramsey. From day one he's always said that you should get debt free, then pile up 3 to 6 months of living expenses in your savings account apart from your day to day checking. For years, leading up to the recent pandemic, this has been a tough sell, especially to working families. When coronavirus hit and the nation was locked down the 3 to 6 months the suggestion seemed like barely enough. I suggest that retirees should enter retirement with at least 6 months of living expenses, with the ideal being an entire year. This money should be FDIC insured in the bank. It's okay if some of the cash on hand is in your IRA for retirees, as long as the cash positions are liquid and FDIC insured while inside your IRA.
But remember, the key metric of wealth is peace of mind. The amount of liquid, FDIC-insured cash in the bank that you have in your Liquid Pillar is the amount that brings you peace of mind. So it's a balancing act. Too much cash, and you may have difficulty filling the Income and Growth Pillars sufficiently. Too little and you may have to reach into the other two pillars at an inopportune time. In other words, the equities could be down in your Growth pillar or your municipal bonds could be illiquid in your Income Pillar. I'm not recommending equities or muni bonds to you, dear reader, this is just a hypothetical illustration to make my point.
Balancing the three pillars is an art and a science. There's hard math and soft emotions that come to play. What's the number of dollars that you have to have in the bank to sleep at night? Assuming you can sleep with all those zombies scratching at your door. That's where a long thoughtful conversation, pencil and calculator in hand, makes sense. StabilityPlanningSM is a great approach to life planning, retirement planning and apocalypse planning.
If you fear zombies and need a shoulder to cry on click here.
Related: The Noble Art of Tax Avoidance