Purpose For Money By Daniel Varone
The Stylish Economist.
Posted on March 25, 2020
A Short History Lesson. Nearly four millennia ago, there lived a young man who grew up to become the second in command of the nation of Egypt. I will spare you the story of how he attained that position but let me assure you; it was the pits. You may have heard of him, he had a fancy jacket and looked remarkably like Donny Osmond. His name was Joseph. The Pharaoh of the day had a recurring nightmare, about seven fat cows and seven thin cows, and wanted the dream interpreted by his magi, who couldn’t do it, so he called a young man who had some experience in the practice, to assist. Joseph explained to Pharaoh that the dream meant there would be seven years of bumper crops, record GDP and massive stock-market returns, followed by seven years of famine and recession. Pharaoh was relieved that his nightmares would be over, but now had a new problem on his hands; what to do about the upcoming economic crisis. Like any good leader, he delegated all responsibility to this bright, young former slave. Joseph went to work on a plan to set aside one-fifth of all produce during the good years, so the nation would have something for the lean years. Fast-forward 14 years, Egypt survived, because of Joseph’s strategy and implementation thereof. Life Application, please? OK. So first, I confess, I wish I wrote this article a few years ago. Here we are in the middle of a ‘crisis’, where untold thousands of jobs are being lost and businesses being shut down. Many people are scared, not everyone, but enough to change the atmosphere from one of optimism to pessimism in literally a matter of weeks. The reason for that is that governments around the world have “overnighted” legislation that criminalises activities that, just days ago, were ordinary elements of a normal existence; like going to a movie, catching up with a friend for a coffee or buying two packs of toilet paper (I had to get that in). To contextualise the Joseph story is to simply say that no matter how prosperous the situation looks right now; a famine is probably just around the corner. Like I said, I wish I wrote this earlier, because we are in the middle of a famine right now. One thing I refuse to do is hop on my soapbox and preach at people that they “shoulda planned ahead, ya brought it on yerself”. Heck, that horse has not only bolted, it finished the race, had a cooldown and is on the trailer heading back to Beremboke. Now is not the time for lectures. People are hurting right now. Many families have a legitimate concern about how they are going to feed their families, probably not today, but maybe in a few weeks. What we need to do is wrap our arms (metaphorically speaking and from at least 1.5 metres away) around our friends, family and neighbours, and just get each other through this period. Who knows, it might be over before we know it. I mentioned before the Government basically shut down all but essential business activity. I wouldn’t want to be in their shoes right now. They are damned if they do and damned if they don’t. Take drastic action to stop the virus – businesses will shut down, massive unemployment, and the virus might slow down. Don’t take drastic action, businesses will continue, but the virus toll may escalate, or it might not. Who’s to know really? We need to recognise that those at the “top” have made the decision based on information they have at hand, and we need to roll with it. Let’s use this situation to prepare for the future. So, I’m not going to lecture families who are struggling, nor am I going to give my opinion about the Government’s actions. I do want to encourage everyone, once this is over, to be like Joseph. You say “Oh great, Joseph had forewarning that the famine was coming”. True, but we know from history that the economy flows in cycles of boom and bust. But even if that is the case, I am more interested in your own personal economy. There will be people fully employed during this crisis. They will not miss one paycheque! Alternatively, individuals have in the past and will continue to do so in the future, become unemployed during peak economic times. The point is, if you are working right now, start to be like Joseph. Start saving for an emergency. You say: “Oh you’re so pessimistic”. I say: “Tell that to the person who lost their job yesterday and had nothing to fall back on”. The Great Emergency Fund. Financial pundits say you need 3 to 6 months of expenses saved. Where do you invest it? Anywhere you can get your hands on it quickly, like, today. You say, “what like a bank account earning 4/5ths of 5/8ths of not much at all?”. Yes. One of those. You not worried about investment returns on this money, it is to tide you over until you get back on your feet. True, if you never need it, you may feel that you’ve lost a heap in potential returns. But if you do need it, you may actually be smiling. You can have a 3 – 6 month (slightly-stressful-because-you-will-eventually-need-to-find-a-job-but-at-least-you-can-pay-the-bills-in-the-meantime) holiday. It like any insurance policy. You complain every month when you have to pay the bill, but if you have a crash, flood or hernia, boy are you glad you paid those premiums. And that’s the point. Most of us will never have a specific, pinpoint accurate prophecy about the future happenings of the global over the next 14 years (but if you do give me a call!), so we have all the more reason to take a portion of our income every pay cycle and start stacking up that rainy day fund. Maybe it’s not one-fifth, but something is better than nothing, right? Be a Joseph. Put on that snazzy coat and start saving.