7 contrarian cash management strategies that certainly people who’re struggling with money don’t know, and multi-millionaires, even billionaires that I’ve met, they kind of see it as normal.
There’s a very famous saying, “observe the masses, and do the opposite.” I think it’s very wise to take your financial education, advice, knowledge, experience from people who’ve actually been there, and made the money. That’s why I have this Podcast Money about all-things-money.
I have 7 ways for you to think differently to the masses, to help you manage cash, grow cash, preserve and create wealth and capital.
The first thing, is, to save for the recession in the previous recession.
Most people when there is a recession, they tighten their belt. They spend less. They invest less. But that creates a paradox, where you can’t grow your wealth, because you’re restricting your spending. You’re restricting your personal GDP, if you like.
I called your personal GDP, the economy that you create. If you think about GDP globally or nationally, it’s the GDP of the jurisdiction that it creates the total volume of money exchange, where your GDP is the total money flow that you create. The employment that you create. The taxation, the income, the multiple streams of income, etc.
What most people do in a recession, is, spend less. When in fact, it’s the best opportunity to invest more, because assets will be cheaper. Staffing and hiring is likely to be cheaper. Living is likely to be cheaper. Because prices are likely to come down, not in all areas, of course, because a recession is on average.
I remember a Board Member, we had a Guest Board Member for a few months in Progressive. He’s been on the Board for Aviva, for some big companies. We were maybe 3 or 4 years out of the last recession. We’d kind of just recovered, really. This must have been 7 years ago. And he said,” chaps, you should be building a war chest, and saving for the next recession.” Both Mark and I kind of did a double take, and said. In different ways, we said, well, it could be 7 or 8, or 10 years away. He said, exactly.
Cash is king as they say. And if you’ve got cash in a recession, when cars, watches, houses and businesses are all underpriced against the long-term average, then you get depressed priced assets. You get to value invest. You get to uplift value.
I’ve bought a personal development company that was turning globally tens of millions of pounds. I’ve bought it for £5,000 in the recession. Now, there was some liability and debt attached to that. But that was cheap. That was very, very cheap in the long-term growth curve. Of course, at the time, there were issues, because otherwise, it wouldn’t have been cheap.
Many people believe the recession is coming. Well, I know that it’s coming. But it could be way longer than we think. Some people think it’ll be straight after Brexit. Some people think it might be 2 years. It could be 3. It could be 5. I don’t know. You can’t stop living. You can’t stop investing. And you can’t stop running your business to wait for the recession, otherwise, you miss 15 years of good business climate, from an economic point of view.
But what you can do, is, incrementally and aggressively save cash in the form of liquid assets, or cash, or, ISAs, or stocks, or make sure it’s in relatively liquid vehicles so that when the recession does kick in:
A – You can buy all these depressed assets, which you will be so glad you did. I’m just selling 2 Rolexes at the moment, which I’d like to just sort of move my collections around. Keep it moving. Keep the money flowing through it. I’ve got Rolexes that I pay £4,000 for. Then I’d probably get £12,000 to £15,000 for now just selling a couple of those. That’s a pretty good return.
But one of the reasons I’m selling them, because I think their prices are quite high. I think watch prices could come down, because Rolex has been going up and up. And I can always buy back it later. And not, then they’re not the ones that I really wear them. They’re just ones I used to have. You want to be ready for the recession.
B – The next thing, is, you’ve got cash to burn. Let’s say your business does challenge, and have difficulties, growing pains, and maybe, your turnover and your profit go down through a recession. Well, if you’ve got one, 2, 5 years’ worth of operating cash, that you can burn even without making any sales, then you can ride out the recession, when others are probably going to struggle.
Okay, so that leads to the second point, which is, similar, but different: spending investment others are saving, and save while others are spending.
You want to be investing when asset prices are low. Then when everyone else is investing when asset prices are high, you’d probably want to be holding a bit of cash back, and waiting. Again, it’s the kind of observe the masses, do the opposite, contrarian investing model.
The third thing then, is, what many companies and people do as soon as there’s a bit of correction or things get a bit hard.
The first expense that they cut is marketing, because they see that as a variable cost, not a fixed overhead. I think it’s painful for people to let go of staff. I get that. But there are plenty of other cost. If your staff is 20 to 30 percent, if your marketing is 20 to 30 percent, there’s still 40 percent plus left that you could cut.
But I like to think that, if there was a correction or a recession, I could actually increase the spending in my marketing to get the business that my competitors are leaving behind, because they’re struggling, or their business is going down. But people see it as a discretionary cost or investment. I don’t at all. I think marketing is the most important part of any business. Therefore, your marketing spend is the future revenue.
I would protect that marketing spend at all cost. But it doesn’t mean to waste money on marketing, and not to track money on marketing, and just to go and flippantly chuck money all over the place, and hope that some of it will stuck. You should always track all your marketing spend. But I would look, I hope, if I’ve got enough capital and reserve to ride out a massive recession, which we always try and stash personally. For my companies, I would hope that we could maybe even increase our marketing spend.
The 4th thing is to preserve capital at all costs.
Maybe a lease car instead of a big depreciating one, or not spending lumps of cash on things that go down in value like, liabilities, even some experiences. People like experiences, but holidays can cost an absolute, pack it, and the cash is gone.
Far better to use income from assets to buy things and stuff and experiences, where the asset keeps kicking the money out every month, whether it’s a book asset, or ads on your social media channel, or property investment, or the payment you get from the business that you’re in, or you maybe even step back from, but you’re still getting the income. Try and preserve the capital elements, and only spend the income elements.
The 5th one really important: don’t take advice about money from skint people. There are millions of skint people out there, giving free advice that’s worth every penny about the money and the rich, and what’s good and what’s not, what you should and shouldn’t do, how rich people are evil and greedy and are just power hungry, have money, but somehow bad and coloured and mix changes you, and all these kinds of stuff. These are people who’ve never had money.
Never take advice from people around money who are skint. That, by the way, does include some professional advices on money, who maybe don’t really make a lot, or who are maybe incentivised to offer you certain products and services, because of the kickbacks.
I’m not making any personal criticisms here. I’m just making it general. I believe you should be your own independent financial advisor. You should be your own money manager. I don’t think you should give this responsibility to other people. It’s nothing wrong with taking advice from smart people who’ve got the experience. That’s very wise. But actually, you’re your own money management and responsibility to invest, to save, to budget, etc. The products, the investments, the income streams, the assets, I believe you should learn all that, and manage that yourself, and master that yourself. I made that commitment 12 years ago for myself and my business partner.
We don’t use IFAs. We get advice from people who are very wealthy. We try and learn from everyone we can. But we take responsibility of investing our own money, and having our own asset building strategies. I think it’s vital. I think you should have been taught at school. I think, if you give that to someone else, that’s like giving the responsibility of raising your children to someone else. Because it’s like the responsibility of what you eat to someone else. You know, your money as well as your health, as well as your children, and maybe, your well-being is right up there. It’s really important.
Okay. finally, then I believe the real benefit of having money and wealth, is, not just the experiences, the material items you can bring, or even the security that you get, or the freedom. I believe it makes you less emotionally volatile. It helps you make better, longer term decisions, and not rash short-term ones, because you’re doing it, because you’re skint, and you’re desperate to get money.
Many people who don’t have a lot of money are making really rash short-term desperate decisions, because they’re desperate to get money. They’re doing things they shouldn’t do. They get sucked into schemes and scams. They’re doing things that they don’t enjoy, because they’re just trying to get by.
Whereas, if you didn’t need to get by, and you can think about making good long-term strategic decisions, then you would make wiser decisions. You’ll be less emotionally volatile. You’ll be more stable, more considered, more strategic, and more long-term. Therefore, you would end up having that compound by making more money.
So, there you are, 7 things to think about in managing your own cash. Let me just summarise for you, because I’m told that the summaries are useful:
1. Save for the recession in well advance of the recession. Save for the recession when you’re going through the recessions. So, every sort of like 15 years cycle plan.
2. Spend or invest when others are saving. Save or invest when others are spending.
3. Cut marketing spend last ideally, and make sure that you don’t just throw the baby out of the bathwater when you need to reduce your expenses.
4. Next one, is preserving capital at all costs. Try and spend money from income, not capital.
5. Don’t take money advice from skint people, including some professionals.
6. You should be your own money manager and IFA, independent financial advisor.
7. And then the real benefit of having money, is, the emotional stability, and the lack of volatility. Therefore, the lack of flippant emotional, short-term, rash, fear-based decisions.