The March 4, 2008, New York Times ran a great article called Unlike Consumers, Companies are Piling Up Cash. Apparently, corporate balance sheets are the brightest spot in the economy right now. Some companies have enough cash on hand to pay off all of their debt. They don’t have to, because they bought the debt cheap. Cheap debt and large cash reserves give the companies tremendous flexibility.
Among other reasons, companies are saving their money as a protection against rising risks. Competition is tougher than ever before, and the economy itself is either in a recession or teetering on the brink of one. Cash makes a company more agile, better able to adapt to changing conditions.
But look at the headline again – specifically the words “Unlike Consumers.” With our negative savings rate, the American people have decided to emulate our government instead of our employers; we borrow against presumed future income rather than save money to build wealth for a rainy day. But rainy days do come. If I could get one idea across to people young and old, it would be this: SAVE YOUR MONEY!
I don’t recommend stuffing cash into a mattress; I’m a big believer in putting one’s money to work, with a goal of personal solvency. Personal solvency creates choices; the ability to start a business or get your existing business through tough times, or to leave a job you hate to try something new.
For those who decry the accumulation of wealth as inherently immoral, I recommend a fascinating New York Times article called The Moral Instinct, which asks why society tends to revere Mother Theresa but revile Bill Gates, when he has already done so much more to alleviate suffering.
Perhaps Gates’ smugness does not fit our stereotype of a moral individual? There are few things that better build confidence – and protect one’s integrity – than money in the bank. Solvency gives you more power to live in accordance with your principles – that’s justified smugness.
Need strategies for saving money? Here’s an amusing article by photographer/blogger Ken Rockwell, called How to Afford Anything. Some people are put off by Ken’s style, and I don’t agree with everything he opines here, but the gist of his article, that frugality is the key to wealth, liberty and happiness, is dead on. Benjamin Franklin said that when you borrow money, you give power over your life to someone else. American companies are accumulating cash to preserve their freedom. How about you?
14 comments:
Thanks!
I agree that even I don't agree with everything I said – I put some of it in there for lightheartedness' sake.
Your blog is so well written that I need to stop writing my own to take time to read yours. Thanks for sharing everything!
Ken Rockwell
I share your views and was really impressed by the article you referenced by Ken Rockwell. I was initially amused by Ken's articulation of financial self reliance and, on reflection, realized it is fundamental to the entire culture of freedom and responsibility set in motion by the signers of the Declaration of Independence 232 years ago. In a more pragmatic sense, it says set your priorities carefully and stay focused on them and use sound financial principles to achieve them. Glad to see CEO's are reading and endorsing them too.
I wound up on to your blog site from Ken Rockwell's site. Having read your first essay, I went on to read quite a few others.
It is refreshing to read opinion bases upon reason and observation of real life situations and conditions instead of the strictly theoretical (that is not a theory bash).
Thanks for taking the time to share your accumulated experience, and the thoughts it has inspired in you.
I especially liked your musing on listening.
Luke
Most large American companies aren't really American in that they are owned or controlled by foreign companies or individuals. Over the past seven years the country itself has become so deeply indebted to countries like China, Japan, Saudi Arabia, and Germany that they now have entirely too much influence on how our government operates. I don't know about you but it scares me just how much control other peoples have over us.
I also question your comments on a companies cash flow being healthy for the company. You neglect to mention that much of that cash they have on hand now is from cutting thousands of jobs, closing productive facicities that weren't making 'enough' profit for the bean counters. I admit, not all companies are like that but face it that's really the norm. I think Ford Motot Company taking back control of their company from being controlled by ignorant and/or greedy investors who only care about their own profits and nothing about the hardworking individuals who make up that company that's making them their millions. There is a lot wrong with the way business is done in America nowadays. Money is the be-all and end-all and the middle and lower class workers are left to die out. Change is needed sorely if we are to continue being a country of the same freedoms and lifestyles even our parents enjoyed, that led to our generation having so many opportunities. (now fast fading away) The status quo is not enough.
Speaking as a business owner, manager, and someone who was a worker - that's my two cents on the matter.
I found your blog while researching on DLSR cameras (Ken Rockwell' site). It is very well written and very very interesting. I can almost hear my dad voicing out the same sentiments as yours.
I share your views (and those of Ken's) and hope that more people realize the value of having something to fall back on. I came from a pretty well to do family in Asia but was always reminded by my father to save for the rainy days and to live within my means. One thing that really reverberates to me was his advice on buying anything -- if you cant afford to pay for it in cash -- don't buy it.
In 1992 you recruited me to come to work for Kinko's out at the Ventura store. After coming on board you recommended I get in on the retirement plan Kinko's offered. Since then everywhere I have worked I have participated in some form of retirement savings. Thanks Paul. 16 years later I still remember the day we met and discussed joining the Kinko's Family.
Great advice...especially for someone in the middle of growing a small business in a tough industry and economy. I think that financial freedom can be moral freedom as well. It allows you to do things because they are the "right" thing to do as opposed to the "necessary" thing to do. I am curious as to what you think about incurring extreme debt in order to obtain higher education. I know that many have overwhelming debt once they leave school. Do you have any recommendations (nuggets of wisdom) for those who are financially limited but want to go after their college educations. BTW - thank you for the words of wisdom in your blog. Now I'll have to check out your recommended reading and books.
Are you Angela from the KSC Marketing Department, circa 1987? If so, Dean Z. says Hey! Z
Paul,
Very good thoughts... I too came to your article via Ken's site.
I have given advice to many new hires and friends of the family that recently graduated from college.. it is you can be a spender or a saver, not both. You can have your money work for you or you can work to service your debit.
Pay cash for toys, and live below your means and you will find you are never tied to a job. Having the flexibility to make the correct decisions, not just what needs to be done to pay the bills is priceless.
Society reveres Mother Theresa because she grew up doing good. Bill Gates on the other hand grew up doing what HE was interested in and ended up being a philanthropist when he had got more money than he knew what to do with.
Maz (UK)
Paul,
I arrived here via Ken's site too. A few years back, after living in Asia for 8 yrs and in particular in Viet Nam for a year, I came to realize what your blog and Ken's article are about.
I was living a very comfortable life, was healthier than I had ever been and had great friends, some of which earned less than $1 per day.
I got back to the UK with no debts and no financial record. In my wallet I have two debit cards and one credit card for emergencies. The credit card is always paid off before any interest is due, if it is used at all.
Interestingly I only got the credit card when I returned to Hong Kong! In the UK, I could not get a mortgage or a credit card or in fact any other type of credit (I had to sell some shares just to get back on my feet over there). I had been freelance since 1994 and despite being on a pretty decent salary and in investment banking, I ticked all the wrong boxes when I tried to buy a place to live.
- Self employed
- No history of any credit
- No debts
- Bank account less than a few months old
- UK company with no accounts as yet
Basically the mortgage advisor that worked with me went through a whole heap of questions and was laughing by the end. She told me I would have scored higher had I had a court judgment against me for failing to pay debts!
This is hard evidence that having been a bad debtor would have afforded me more debt. Being frugal with my money helped no end.
Why is debt a prison? Once you rely on it, you're trapped. I had taken out a gym membership to try and retain my health, Gyms don't work so after a while I bought a bicycle and got back to fitness within a couple of weeks. I cancelled my membership and paid all my dues, but this company somehow lost all the records of this. Luckily I keep them. They were attacking me with lawyers and debt collectors, threatening to get a court judgment against me to collect the monies owed. I of course told them, they'd have to prove I owe them anything before I spend time proving that I had paid up. The threats kept coming and finally one lady said they'd issue the court proceedings. I said I don't care. She said 'you'll end up with a poor credit history'. I told her, I don't use credit and I don't have a credit history. Go ahead, you'll do me a favour. This went on for some time but after that call, I never heard from them again, even though I had all the paperwork to hand, I never proved to them that I had paid up. It's a scam of course.
Always keep the documentation to hand
This was not the only occurence, telephone companies play a big game with bills and cancelled services, perhaps they are completely disorganised, but two different companies did exactly the same thing to me. After cancelling my services (as I went back to Asia) I received lots of letters from debt collectors, saying I hadn't paid. In fact I had somehow aquired a load of services I had never signed up for. I had the paperwork to prove it too. I then had trouble with cancelling the service. Basically these companies do everything by phone. They record this on their systems, so what I do is follow up with a fax or email.
In two instances I was being asked to pay money, taken to a debt collector and finally ended up listing all the exact dates and times of calls I had made, plus emails I had sent (I never actually produced the emails, just listed the dates and time by phone). Only after detailed dates and times, did the companies suddenly stop pestering me.
One of them was so ridiculous that they had three separate cases against me and after resolving the first one where they had to drop all the 'additional' charges after passing to a debt collector, I tackled the next case and the same person told me it was impossible to drop the charges! Bizarre, but clearly they have a set pattern they go through.
Always keep documentation about monies you owe and monies you pay - be particularly careful about paying by phone!
I hope these experiences help your readers to experience the liberation of a debt free life and having money in the bank for when it's needed.
-Paul
Seems to disagree somewhat with Robert Kiyosaki. Goverment is converting mortgage debt into cash like never before, debtors are finding themselves much better off than savers with freefalling interest rates, & savers wake up to find their money completely worthless amid runaway inflation.
Saving for emergencies is good. Saving to become wealthy is stupid.
As to your moral question it really comes down to the philosophical debate: does the ends justify the means?
Hi, another visitor from Ken's site. Great articles :)
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