Interview with Jerry Robinson About The Five Levels to Financial Freedom
(Excerpt from FTM Quarterly Newsletter - October 15, 2010)FTM Quarterly: Jerry, over the last couple of months you have increased your calls for individual investors to find refuge in precious metals and other hard assets. Is this still your general recommendation?
Jerry Robinson: What I have been advocating, and will continue to advocate, is that individuals take control of their finances through the implantation of a sound financial game plan. Too many people are standing on the sidelines while precious metals and other asset classes are outperforming the general market. While I do believe that investors must due their due diligence, I also fear that many are missing out on some great opportunities to properly position their investments for the coming currency crisis that will certainly unfold over the next 12-36 months. Our leaders in Washington are in unchartered waters of their own making. They have overspent and overpromised and now they are left with two choices: default or inflate. However, listeners to our radio program know that recent statements by the Fed indicate that inflation appears to be the weapon of choice going forward. Many people do not realize how grave the global economic situation has become. Sovereign debt concerns, currency woes, and a severely unbalanced global economic situation have led many investors in a flight to safety towards not just precious metals, but agricultural commodities as well. Now, more than ever, people need to be making preparations for the months ahead. In an effort to help our folks make good financial decisions, I have recently created FTM’s five levels to financial freedom.
FTM Quarterly: Yes, you have been talking a lot about these five levels lately. Basically, you have been encouraging people to filter their financial game plan through these five levels to insure that they are “ready for anything” as you often say.
Jerry Robinson: That’s right. But there is nothing magical about these five levels to financial freedom. However, I have found that most people who fail financially did so because they did not build their financial game plan in the proper order. There is a reason for the order in which these levels are arranged. The other benefit to the five levels is that they include some interesting concepts not found in most financial plans. Some of these unique concepts include: diversifying your savings, trading cash for cash flow, diversifying your income streams, among others. In fact, my next book release will be centered around five levels to financial freedom.
FTM Quarterly: Alright, so why don’t you walk us through each of the five levels. Let’s begin with level one. What is level one all about?
Jerry Robinson: Okay, if you think of each of these five levels in terms of building a house, then Level One is like pouring a foundation. Level One is where we lay the foundation for a solid financial game plan. Regardless of how much or how little money a person has, we encourage everyone to begin their journey to financial freedom by going through Level One. In Level One, you are going to adopt a preparedness mindset and build an emergency reserve. First, this involves changing your thinking. In recent decades, modern society has become utterly dependent upon governments, corporations, and financial institutions for everyday living. Developing a preparedness mindset helps you decouple yourself from the culture and thereby empowering yourself to thrive in the event of times of crisis. This begins by buying and storing three months of food and water. Most people do not currently have enough food in their home to thrive in the event of a two-week food supply breakdown. A preparedness mentality knows that grocery stores do not make food. What if a “Hurricane Katrina” type of event were to strike your area? Are you prepared? And the question is not just, are you prepared to help yourself and your own family. The broader question is, are you ready to help your neighbor as well in the event of an emergency. It may not feel like it sometimes, but these truly are the most dangerous times in which humanity has ever existed. The threats facing mankind today are severe and very real. I do not say these things to instill fear in you. I say them because they need to be said and the solution at the individual level is for you to adopt a preparedness mentality. Also in Level One, you will begin a savings program. Our recommendation is 15% per month of your gross income. However, not everyone can accomplish this immediately. Therefore, the 15% savings becomes your goal. Perhaps you can only start with 2%-3%. Any amount is better than zero. You’re your savings you will be building a two month savings reserve of your gross income. So, if you earn $2,500 per month, you will save $5,000. IRA’s, 401(k)’s, and home equity do not count. This money needs to be 100% liquid and therefore easily accessible in the event that you should need it. Some people have told me that they have cleared out their garage and attic with a yard sale and created their two month savings reserve. Either way, you are going to be building a two month savings reserve and it is going to feel really good when you have it. Finally, in Level One, you will begin thinking about a charitable giving plan. Many people have a financial or an investment plan, but few have seriously thought about a charitable giving plan. The mechanics of this charitable giving plan will come later. However, you will begin thinking and meditating on how you want to diversify your charitable giving in this Level.
FTM Quarterly: So there is a lot of planning involved in getting through Level One. Once someone has completed the steps in Level One, they can proceed to Level Two. What happens in Level Two?
Jerry Robinson: Once they have developed a three month food and water supply, a systematic savings plan with a minimum two month savings reserve, and have given some serious thought to their future charitable giving goals, then it is time for Level Two. Going back to our house building analogy, Level Two is similar to creating a moat around your beautiful home. In essence, Level Two is all about maximizing protection on your assets, your income-producing ability, and on your life. First, you will be examining the current insurance on your assets. This will include your automobile, renter’s, homeowner’s, and liability insurance coverage. Many people have large investment portfolio but have extremely low limits of liability on their vehicle insurance. I have witnessed high net worth individuals lose their shirts by opting for the state minimum auto insurance coverage and no umbrella policy. When you think about it, why should you go to all of the trouble of building wealth if it will constantly be at risk through poor insurance planning. Second, you will examine your disability, health, and long-term care insurance coverage. Do you what your largest asset if you are still in your working years? It is your ability to produce income. Ask anyone who has lost their income-producing ability through a tragic disability if they felt like they spent too much money on disability insurance. Statistically speaking, the average working age individual is several times more likely to be disabled than to die. Additionally, inadequate health and long-term care coverage are some of the leading causes of bankruptcy today. Finally, you will examine your need for life insurance and you will create a last will and testament. If you are married, this is very important. But if you have a family, it is imperative.
I know that there are few things less fun than insurance planning but this is the one level that you cannot afford to ignore. The stock market can drop 20%, but you can recover. You can make a bad investment decision and still be okay. But you cannot die, and then go buy life insurance or obtain a will. You cannot get disabled and then go buy disability insurance. Remember, in Level Two, there are no “do-overs.” You only have one chance to get this right. Your insurance coverage has to be set up the way you would want it to be if everything went wrong tomorrow. In centuries past, a moat was constructed to protect any building of value. This was done in order to keep out the thieves and the enemies. Today, there are many thieves and enemies who are waiting to plunder your wealth. Through proper insurance planning, you can prevent this. That is what Level Two is all about.
FTM Quarterly: Yes, insurance planning is hardly an investor’s delight but you are so right when you say that there are no “do-overs.” So after completing the steps in Level Two, what’s ahead in Level Three?
Jerry Robinson: Returning to our house building analogy once again, Level Three is similar to framing and roofing a house. Level Three is an exciting level because once you have reached it, you are already way ahead of the game and you have something to show for it. By the time you reach this level, you have a solid emergency cushion of liquid savings, food and water reserves, you have pondered a charitable giving strategy, and you have reviewed and filled in the gaps of you your insurance coverage. Now, in Level Three, it is time to begin building your final reserves. You are going to increase your three month food supply to a six month supply. You are going to increase your two month savings reserve to a six month savings reserve. And finally, you are going to create something we call a DSL savings plan, a “Diversified Six Month Liquid” savings plan. It’s diversified because you are going to hold in it at least three different forms. It’s a six-month reserve because you are going to increase it to be worth six months of your gross income. And it is liquid because you will be able to access it at any time. Our sample DSL savings plan includes dividing the money into thirds and putting them into U.S. Dollars, stable foreign currencies, and precious metals. Through our own research and analysis, we have documented that this type of savings plan would have provided dramatically improved inflation protection over the last five, ten, and twenty years. Our research on the DSL savings plan was printed in our April 15, 2010 edition of Follow the Money Quarterly.
FTM Quarterly: The DSL savings plan is great and is one of the things that truly separates your work from much of what is already out there. Alright, now that the final reserves have built, it’s time for Level Four. Tell us what this level is all about.
Jerry Robinson: Level Four is all about investing. Using our home building analogy, it is similar to finishing the house including paint and windows. But notice that before we dared enter the investment world, we have empowered ourselves financially with the first three levels. Too many people enter the world of investing with their life savings without being adequately prepared. When they get clobbered, they withdraw and become extremely risk-averse. They end up putting their money in low interest-bearing accounts and not having enough at retirement to really accomplish the things that they desired to do. When you begin investing at Level Four after properly completing the first three levels, you are confident. You are not looking to hit a “home-run” with every investment because you don’t have to. You can afford to be patient when the market turns down because you are sitting on your liquid savings. The first thing to remember about Level Four investing is that investment products are tools and nothing else. There are lots of financial gurus who peddle their certain products and claim that all other financial products are ineffective. They are wrong. Some financial products are right for some situations. There is no one size fits all approach to financial planning. Everyone has a unique situation and therefore deserve their own customized investment approach. The right strategy, not the right products, is the key to investment success.
I teach the importance of diversifying your investments across a broad set of asset classes. The average American investment plan is a house and a 401(k). Both of these are government controlled assets. The government can change the rules on these investments at any time. The secret to protecting yourself from an out of control government is to keep your investments spread out. You will also learn how to effectively trade your cash for cash flow. There are some great investment products that can help you do this.
Many investors are rightfully concerned about the future prospects of inflation. Our answer to inflation-proofing your investments is something I call P.A.C.E. (Precious Metals, Agricultural Commodities, Energy) In Level Four, you will learn how these types of investments can offer you protection against inflation.
In Level Four, you will also learn the importance of creating multiple streams of income. Most individuals are dependent upon only one to two sources of income. In Level Four, you will learn how you can develop up to 15 streams of income that can last you all the way into retirement.
FTM Quarterly: Many of our readers are very interested in the multiple streams of income that are possible. How can they learn more about implementing these.
Jerry Robinson: There are several ways. In upcoming issues of FTM Quarterly, our new upcoming book release, and future monthly webinars. Also, many of our advisors in the Christian Financial Advisor Network can help our readers get started. Those who are interested can go to http://www.cfanetwork.org to fill out the free online form and expect to be contacted within three business days.
FTM Quarterly: Alright, so what comes after Level Four investing?
Jerry Robinson: The next level is where fortunes can be made. This is Level Five investing. I call it advanced investing or speculative investing. Using our homebuilding analogy for one final time, Level Five is similar to furnishing and accessorizing your home. How ridiculous would it be if someone and went out and bought curtains and rugs and furniture for their home before had even poured the foundation. Nevertheless, that is exactly what many people do when they try to skip straight to Level Five without first going through the prior four levels. It is like trying to run before you can even walk. Try this and you are more than likely going to get hurt. Our approach relies upon wisdom, patience, and consistency. Level Five investing involves stock market strategies like online stock trading, option trading, currency trading, and more. It involves real estate investing strategies like buying foreclosures, subject-to investing, investing in rental property, tax-lien investing, and more. It also involves creative business strategies like how to start your own business, venture capital, and more. These are sophisticated investments that should only come after you have built a sound financial foundation. We will be talking about all of these topics more in the weeks and months ahead.
