Building A Brick House – How You Can Build A Strong Financial Foundation

I love literature and fairy tales. I am a big Disney fan for the love of the art, the stories and the fantasy (not to mention the Dividend if you own some stock). One main reason I enjoy fairy tales is that there is usually a very poignant life lesson hidden within the stories of dragons, witches and big bad wolves. Therefore I wonder, what can we learn from “fairy tales” that can make us stronger financially?

This brings me to the 3 little pigs:

A bad wolf

We all know the little piggy that took the time and expense to build the brick house won the long game. When the big bad wolf came around, the wolf could not blow down the brick house. That is because the piggy spent the time and attention to build such a solid house, instead of going for the quick flimsy hay house. The same holds true for your financial “house.” The other two piggies that went for the flimsy short term fix were forced out of their flimsy abodes when the big bad wolf came around. The recent stock market swoons and life in general has me thinking about how we can all build a financial brick house. You see, the big bad wolf can take many forms in terms of wrecking havoc on your finances. The bad wolf represents all the things that can easily go wrong with our finances, and if you live long enough something will surely happen. Therefore here are some examples of “bad wolfs” lurking around your corner:
  • The car falls apart. Needs major repairs or clunks out completely.
  • A medical emergency leads to dips in employment or high medical bills.
  • A major component of your home breaks, i.e. water heater, HVAC, roof, etc.
  • The house just needs basic repairs and upkeep.
  • A family member or child falls into trouble and needs financial help.
  • General rise in inflation takes a bite out of your finances throughout the year as a death by a thousand cuts.
You get the idea, there are many bad wolves hiding about, and they are hungry to take a bite out of your finances. So what to do?

A financial brick house

A financial brick house can stand the test of time, weather storms and handle outside threats. There is typically a big bad wolf of some kind lurking about. If you do not prepare, the creep will blow down your house and eat you up In the real world, a flimsy “house” can be in the form of high amounts of debt, risky investments, not saving anything and living beyond our means. All these things make your “house” weak and susceptible to attack.

How to build a financial brick house

Here is a new twist on the old 3 little pigs classic and some ideas on how you can build a solid brick “financial” house. This house can weather the destructive winds from all the wolves of the world: accidents, emergencies, wall street, the government, predatory companies and others. Don’t let this guy take your gold!

1. Insurance

One of the main ways to protect ourselves from the “bad wolf” is through appropriate insurance coverage. The key strategy is to obtain the appropriate amount of coverage at a reasonable cost. Insurance is one of those funny things that we pay for, but in a way we never want to use. As a result, the industry can make a lot of money, which is the case for Warren Buffett and the forever stock BRK-B. The main kinds of insurance are health, home, car and life: Health insurance can be a doozy in the US, and is typically tied to employment or being part of the social welfare system called Medicare. healthcare.gov actually works pretty awesome. I can survey plans and am directed to my State website. For my family size, I discovered over 20 plans competing for my business ranging in price from $700-1300/month. Home insurance is important because typically real estate is a very large family asset. The asset needs to be covered in case of fire, flood or other crazy damage. Car insurance is thankfully rather competitive in the US. Last year I talked about how I reduced my car insurance bill simply by calling and asking for a discount. Life insurance has a lot to do with your stage in life. For example, if you are single in your 20’s with no dependents, then you probably do not need a big life insurance policy if at all. But, consider if you are the sole breadwinner of a family with small children. Therefore, if something happened to you, then life insurance could mean the difference for that family to carry on financially with minimal disruptions. The bottomline is to review your particular situation and ensure you are covered appropriately. In other words, many bad wolves have come to wreck havoc on people’s lives, leading them to financial ruin due to lack of appropriate insurance coverage.

2. Emergency fund

I was hit hard last year with a major home repair job that basically wiped out the emergency fund. Therefore, I am focusing on rebuilding in 2019. When there is a lack of an emergency fund, we end up putting foreseeable emergencies on high interest credit cards. This makes the emergency worse! Keep in mind the big bad wolf of something breaking is ready to pounce. What many folks do not realize about an emergency fund is that it is a key strategy in building wealth. In other words, it is the first line of defense in guarding your investments and savings.

3. Cut costs

Another way to fight back the big bad wolf of financial destruction is by constantly looking for ways to cut costs. We recently talked about the “Konmari” method as a way to declutter and revitalize your life. But I also see direct benefits to our financial health and energy. Folks that build financial “brick houses” run their life like a strong business. Strong businesses are constantly implementing ways to be more efficient and cut costs. Be constantly vigilant about cutting costs. Cable, gym memberships, un used subscriptions, clothing, food (although ensure maximum health), car, gas, insurance, housing, etc. etc.

4. Maintain things (stuff & health)

A key aspect of designing an indestructible life is to take care of the things you have. I notice that millionaires take good care of what they own. They understand the value, money and time that went into having something that adds to their life. Are you properly maintaining your vehicle and home? Are you organizing and managing the tools and other resources you use in your home? Are you too hard on things, causing them to wear out prematurely?

5. Manage debt levels

Debt levels are the quicksand of your brick house. The poison of bad and high debt is twofold. First, it has to be serviced each month, which diverts your capital from going into assets and investments. So make sure the debt is for things that add value to your asssets over time. Secondly, the debt destabilizes our “brick house” in times of financial stress. During the Great Recession, many folks lost everything because of the debt. If the debt was manageable, then perhaps these folks could ride out the storm. But with high debt, the house of cards eventually falls apart.

6. Get ahead (Investing for the future)

One you have the fundamentals of budgeting, debt management, solid employment down; it is then time to get ahead. Getting ahead is socking away as much cash into assets as possible. This act further protects you from the bad wolves out there. If you do get hit with an expensive emergency, at least you will have investments to fall back on. Getting ahead takes several forms of investing that we talk about in detail: 1. Harnessing the power of the Investing Trifecta 2. High quality stocks like Berkshire 3. Classic low cost index investing, i.e. Vanguard

7. Do not take a job for granted

Finally, in this day and age it is important to not take a job for granted. When I am gainfully and gratefully employed, I like to think about this as the good times that will not last forever. This way I think carefully about bolstering and strengthening my “brick house” while times are good. The bottomline here is that when times are good, we should be socking as much away as possible for the inevitable rainy day.

A solid financial brick house

Building your own solid financial brick house does not need to be overly complicated or take some extremely high salary. It is about doing the work and taking the time to plan appropriately. Develop the habits and mindsets required to put your self on solid footing and protect against the inevitable life things that happen.  

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