In my previous post I described how business cycle booms and busts are the norm, not the exception. Also, surprises, accidents and disappointments will happen regularly. We should all prepare for these national and individual Black Swans, and those of us who are followers of Christ certainly should not fear them.
My goal here is to share with you some imperfect wisdom gained from sixty-eight years of living, raising five children, and surviving at least ten recessions and the subsequent growth (or, in the most recent case, the muddle).
The following recommendations are not guaranteed to solve all potential problems, and they are not “survivalist” creeds to counter a total meltdown of society. They are just common sense ideas that will help get through the inevitable bad periods which have always occurred and always will.
The final one, applicable only to believers, is actually the most powerful. So please read, enjoy, and adopt any that may be helpful to you.
Financial Cushion Save at least 10% of your income and invest it long term. Regular savings and compound interest work wonders. $3.50 per day (the cost of a Latte, or about $100 per month) saved for 45 years at a 10% return (the long term average return of the stock market) will grow to over $1 million. Invest in diverse assets (see below) in a tax-deferred plan with low carrying costs, so that all of your money works every year.
If you don’t have 45 years, here are the results for $100 per month for shorter periods, showing the incredible advantage to young people if they start investing even a small amount early: 35 years = $380,000. 25 years = $133,000. 15 years = $41,500. But even if you only have 15 years, $1,200 per month will grow to over half a million dollars, which is not a bad cushion, and a good down payment on a retirement nest egg.
Diversify, Diversify, Diversify None of us, not the greatest financial experts, can accurately predict the future. Who, just ten years ago, would have imagined the results of fracking? Or that interest rates on U.S. debt would be near zero for seven years? The point: since no one knows the future, the safest strategy is to widely diversify your investment assets, so that the next Black Swan causes a little damage, but does not sink the ship.
For example, I have a group of foreign stocks that have performed miserably for the past few years, losing half their value. But I rejoice, because diversifying means that other assets are doing OK, and, who knows, in five years these foreign stocks may be way up again. That’s the point!
Cash Having some cash around is important for short term glitches. Ask the folks in Cyprus and Greece. In denominations of all sizes. And having near-cash as part of your investment
diversity is also important, particularly at the time of an asset bubble, which I have to say is how today feels to me. And particularly if you are older and therefore the “long term” in which younger people can recover (that also always happens) is shorter in your case.
Margin Read the last half of Richard Swenson’s great book, Margin. Then build more margin into all aspects of your life: time, money, faith, relationships. You can take a blow in any area a lot better if you are not already running flat out in every area.
Marriage Marry the right person, stay married, and put down roots. Keep margin in all aspects of your married life. As a young couple, don’t base your lifestyle on both your incomes—only on one. Then, whether it is children or the unexpected Black Swan of bad health or a job loss, you can still live well on just one paycheck. The other’s future extra income can then be used for more savings, a new home, retirement, or even some fun.
Relationships Work on relationships. Your To Be List instead of your To Do List (See the final story in Ten Lies and Ten Truths). Besides the natural joy and pleasure that most relationships provide, they will typically last much longer than any current issues which need solving. And having a large number of strong relationships can help solve problems, from extra wisdom to a job referral.
Character matters Work ethic screams. Be upbeat, friendly and someone whom others want to be around.
When companies have to lay people off, or are considering a new hire, are you someone with more than just expertise, or just experience?
Family is Important More than other relationships, good family relationships are critical to getting through a difficult period. Actively work on connections with your parents, children, siblings and other family members. You will need them and they will need you. Don’t be passive. Let them know regularly that they truly matter to you. Be a shepherd. If there are broken relationships, offer genuine reconciliation. To the extent that it depends on you, forgive and welcome back the prodigal son, daughter, or parent (see Enemy In The Room).
For Believers Only This last recommendation may seem difficult at first to some followers of Christ, but it will be nonsensical to everyone else as a way to prepare for the next Black Swan.
Tithe, at least. And tithe on your gross income.
If I am a Christian and tell others, particularly my children, that I trust God and live under His authority, then how better to actually model His authority than to follow His teaching on money?
Besides many references in the New Testament to giving sacrificially and to caring for all those in need, I think the clearest statement of this “investment strategy” is in Malachi 3: 8-12, in the last book of the Old Testament.
As a new believer I certainly understood the concept, but I could not imagine how we could tithe, particularly on the gross amount (the “whole tithe” in Malachi). But then, thanks to more mature people of faith, I realized that this passage contains both a test and a promise. Tithing on the gross didn’t make sense to me in terms of the math in my checkbook, but I finally understood that “faith” had to trump math if I was really going to trust God in all areas of my/our life, not just money.
By the way, He doesn’t need our money. It’s all His anyway. Tithing is for us, not Him.
And so we did. And He answered, as He promised, in ways that I could never have imagined or planned for with my human math. In ways including but also far beyond anything to do with money—this is not the “prosperity gospel” of pulling levers on a holy vending machine. This is trusting our Creator with every aspect of our lives, including our finances. My math in all areas turned out to be far too small for His plans.
As a father, if I promise my child that I will take her to a ball game, and I do, does that seem so incredible? And yet when God promises and then fulfills His promise, our first inclination is to say that the results are “incredible”. Really?
And so my final recommendation to prepare for the Black Swans in our lives is to trust God completely, and as a symbol/test of that trust, at a minimum, to tithe our gross income back to Him.
But this is really a double promise to believers. When, even after all of the best preparation and stewardship to mitigate any damage, the unexpected inevitably happens, God has promised that He will be with us through the times of trouble, guiding our steps and giving us His peace, even when our own runs out.
So I surrendured my life, my marriage, our children, my business–everything–to God’s control. The tithe is just a symbol of the larger faith that sustains us whatever our circumstances may be–good or bad, rich or poor, sickness or health. His plans are better than ours.
He says that we are to test Him in this one important area. So go ahead, make His day.
Then go back and make the other preparations. the Black Swans are definitely coming.