Archive for the ‘Private Reserve Strategy’ Category

“Even if you buy a car with cash, you are forfeiting the opportunity of investing that cash and earning a return on it. So even people who always ‘pay cash’ still experience the same implicit trade-offs between spending now versus later…the real question is whether you are going to obtain your financing from a bank controlled by outsiders, versus a bank that you control.” -Robert Murphy

“Rather than inheriting lump sums of money, they’ll inherit an interest in a ‘family fund’.  The purpose of that fund is to help individual family members enrich their lives.  But how they do that must make sense.

Children can borrow from the fund.  But if they do, they must return the borrowed money with interest.  They can use the money to start businesses or pursue educations, but they can’t use it to buy sports cars or yachts.

They should also help the fund grow in value.  That way, when they die, it’s larger than it was—large enough to help their own children.” -Mark Ford

Trying to look a part is perhaps the single easiest way to never become the part.  This is especially true when it comes to money.  It takes a lot of money to keep up appearances.  This money spent on consumption items will be money not used to create real wealth.  If you really want to be rich, create a private reserve first, then let the money your money makes do the purchasing.  Spending first will leave you with empty pockets.

A proper private reserve provides you with quick access to your money.  Another term is “liquid”.  This is why I call it a pool of money.  You can go to the pool and take water out with a bucket.  In the same way, this private reserve allows you access to money when you need it.

A resource you have built and control is worth more than a resource someone else maintains and loans to you.  This seems obvious and logical.  But, it is much easier to simply rely on someone else who has already built it than to grow it yourself.  Consider long term costs when considering how you develop your money reserve.

One key feature of the private reserve strategy is that one builds a pool of funds from which to finance many purchases in life.  The benefit is the interest paid returns to one’s own pool instead an alternate finance company.

“The purpose of the fund [family fund] is to help individual family members enrich their lives…. Children can borrow from the fund. But if they do, they must return the borrowed money with interest. They can use the money to start businesses or pursue educations, but they can’t use it to buy sports cars or yachts.” -Mark Ford