RaboDirect E-Zine - Sept 2008

Posted by Jill Kerby on September 01 2008 @ 21:42



 ‘To my American friends I offer these wise words from your perhaps more frugal neighbours north of the border: Use it up. Wear it out. Make it do. Or do without.’ 

                            - An anonymous Canadian  


We never seem to do anything by halves here.  

Historically, the Irish didn’t just have a couple of tough years.  We had a famine. 

Over the centuries our young people didn’t just seek work in other countries… they emigrated ‘en masse’.  

Even our good times have been noted for their, well, over-exuberance.  Ireland didn’t just take its place amongst the rank of prosperous nations in the last decade; we allegedly became the second richest people in the world, after the Japanese. 

“A ‘correction’ is equal and opposite to the deception that preceded it,” says one of my favourite literary economists, Bill Bonner.  It looks now like our bust will be even ‘buster’ than others, to paraphrase our ex-Taoiseach’s pithy description of the boom years. Our house prices, pension fund values and stock market values could all end up reaching depths that other countries, if they’re lucky, will only read about. 

That said, we’ve already reacted - in character - to the bad economic news by dramatically slashing our high street spending and by saving like mad again.  And despite what you may hear from politicians and bank economists (this bank excepted), who have become so obsessed by the concept of the ‘growth’ economy that they didn’t recognise the property bubble until it was exploding under their noses, saving is actually a very good thing.

No one ever got rich by just borrowing and spending.  

Real wealth, as we discovered in the early days of the Celtic Tiger, is created by the accumulation of capital over time, and the prudent investing over time of that capital in genuine growth opportunities, like software development; the creation and manufacture of new drugs and high tech medical devices; high end finished food and agriculture products and high value tourism.  Selling ugly, overpriced houses to each other just doesn’t achieve this end. 

Where to start?

Aside from cutting up your credit card and vowing to live in an entirely cash economy again, how about starting with a contingency fund, if you don’t already have one.  


As a nation we’ve already increased our volume of savings by a reported €4 billion in the first eight months of 2008; these savings accounts are your first line of defence in any recession and will support the financial rainy days going forward. 


Ideally, you should aim to have between three to six months worth of net salary in your contingency or emergency fund, enough to see you over a period of short-term redundancy, illness or the expensive and unexpected household events that can result, for example, in a plumber having to be called out on a freezing New Year’s Eve, 1997 to replace the central heating pump. (Believe me, that’s an expensive call you won’t forget.) 


Whatever amount you designate for your fund – if you earn €40,000 net, you want to build it up to at least €9,000 in cash – start with a deposit of a few hundred a month (think the SSIA scheme), and consider adding bonus and commission payments as well. You’ll be surprised how quickly your fund builds up.  


If you arrange your salary contribution to be debited directly – and some companies with deduction software programmes will happily do so if you ask nicely, you won’t even notice the shortfall after a short while. 


This cash diversion doesn’t have to last forever – just until you reach your target – but it means living well within your means for a while, at least.  Once the fund is in place, you can either stop the salary transfer altogether or re-route it back into your every day budget.  Or better still, it can pay off the mortgage faster, boost a pension of AVC fund or build up a diversified portfolio of assets and shares. 


These are volatile times, so make haste slowly, but every downturn throws up investment opportunities in strong, well-run companies and sectors, with low debts and high cash flow.  


The bull run in energy, minerals, food, and other essential commodity products (like water, especially) isn’t over yet, say investment gurus like Jim Rogers (George Soros’ old Quantum Fund partner), despite a sharp fall-off in share prices during August.  


The developing economies of China and India could very well slow down if this recession goes global, but giant infrastructure companies don’t just build power stations, roads and bridges and sewage facilities in the developing world.  

The developed world’s infrastructure – that’s us too - is aging and clapped out; western government’s don’t have much choice but to keep the drains running. 




Hurray! for Prudence & Thrift! 


It may still be early days in the downturn but even the most profligate Celtic Tiger cub should know by now that it really does pay to shop around for big ticket items like housing, food and insurance.  

There’s also no time like the present to rediscover the joys of ‘making do’, as my mother used to say.  Give or take another 20 years when Peak Oil really does kick in, the joys of endless out of town shopping malls, global trotting Caesar salads and tasteless, out-of-season strawberries will be nothing more than a distant memory. So why not, beat the rush and… 

- dump the €600 gym membership that was used twice last February and start walking or use a bike.  

- ditto the monthly €9.99 DVD club subscription. Rediscover your local library instead, where they not only lend out books, but DVDs, CDs and computer games. 

-  bring a thermos cup of home-brewed coffee to work every day to replace the watery €3 cappuccino (and save €700 a year).  Not smoking is a financial no-brainer, but making a packed lunch, even a couple of days a week, can easily save you another €500 a year. 

- learn to manicure your own nails, massage your own feet, exfoliate your own face and even wash and blow dry your own hair again.  Ubergrooming is not just wildly overpriced in this country but is downright scary now that young men are doing it too.

- wear all your clothes for another season without buying any more; it’s always the autumn here anyway.

- takea course this winter and learn some essential DIY.  Bring you kids so they can also learn how to fix a leaky tap, replace broken hinges, hang some shelves or service a car. Teach yourself and them how to grow and plant a vegetable garden or some fruit trees and then - and here’s a real throwback - learn how to cook your own food… from scratch. 

Doom and gloom?  We haven’t seen anything yet!

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