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| A "Rai" stone from the Pacific island of Yap, Currency Museum, Ottawa, (ca 2009) photograph by Beades |
You have probably heard, ‘Money makes the world go around,’ but what is Money?
Federal Reserve Notes (FRN), Euros, blocks of salt, beads, shells, donkeys, and many other things have been used for money. But what is Money?
If I have a chicken and you have a pair of shoes, and you want my chicken, and I want your shoes, we have a trade. Are chickens and shoes money?
But, what happens if I don't want your shoes you made? How will you get food for your family if all you have is shoes?
With money, of course!
But what is money?
OK. I’ll quit playing games.
Money is a recognized medium of exchange.
Your boss deposits ‘electronic’ money in your credit union, for your work. You give me a debit card to pay for my chicken. I withdraw ‘cash’ from the ATM, and I give those same Federal Reserve Notes for a pressure cooker at the local thrift store, and ex cetera.
So what does this matter to you?
Because during a disaster, there is the possibility that the electronic money (maybe even the cash) that we have used all of our lives will be useless.
Yep, I said it. The money in your pocket, savings account, retirement fund, credit cards, and all of the other stashes of cash you own could be worthless. This includes the silver and gold that others advise new preppers to purchase.
So, what’s a prepper to do?
Conventional Wisdom
First, have an emergency fund. Yes; before getting out of debt, investing, and all the other financial stuff; put aside some of your money for emergencies.
Some people suggest having two to six months of funds to cover your family’s basic needs, such as mortgage or rent payments, insurance, and fuel for heating and getting to job interviews or work. Not eating out, parties, or other nonessentials.
For some families that will be a lot of money, if you can't afford this, save your change. Then use this change as your emergency fund. No matter how well-off you are or how poor you are, you need to have money for emergencies.
Next, live below your means. If you make $25,000 a year, live like you make $20,000. If you make $50,000, live like you make $35,000. If you make $100,000 a year, live like you make $50,000. You get the point.
Third, you need to invest for the future, and one way to do that is to invest in your company's 401K plan, especially if your employer provides a match. As you invest in your employer’s plan, make sure you check the fees for each of the offered funds. Some 401K funds have options that will cost you money. I can’t say it enough, watch those fees. These fees take money that you have earned, reducing your return on investment.
You also need to make sure you are diversified. Diversification is having investments in different "classes" of investments. These classes are stocks, bonds, cash, real estate, and others I am unfamiliar with.
To diversify, some people will tell you, if you are between 25 and 50 years old, to have 70% in stocks and 30% in bonds. The 70% in stocks is split between 50% in US-based companies and 20% in foreign companies. The 30% in bonds is split between short and long-term bonds.
Even if your company allows you to invest in their stock, don't. Remember the scandal about ENRON, the petroleum company. Plus, the popular thought is, if you invest in your company’s stock then you can’t be well diversified.
If your company doesn't have a 401K plan, put your investments in a Roth IRA (individual retirement account). As with the 401k, make sure you are diversified. You can easily diversify with a few mutual funds. Just like the 401K, watch those fees.
According to Vanguard, the popular investment company, you and your family should invest in passively managed mutual fund, for your Roth IRA. You should look for fees ranging from 0.15% to .25%, and like I said, you should be diversified in your investments.
Insurance
Next, you and your insurance agent need to make sure you and your family are properly insured. Yes, you read that right; you and your family need to make sure you are properly insured!
Because, most common disasters are covered by insurance, car accident – covered, earthquake – covered, house fire – covered, wind damage – covered. The list of insurance is endless. Supposedly, there is even insurance coverage for space debris destroying your home, too. Needless to say, see a local insurance agent for specific advice.
Unconventional Wisdom
All of the previous is conventional wisdom that will cover common emergencies, but what about someone preparing for an uncommon emergency, specifically a financial collapse.
I suggest the following preparations.
First, have enough food on hand, in the house, to feed you, your family, and some friends for at least a year. If your family has the storage space, and you are preparing for a typical long-term financial disaster, you and your family should have three to five years of long-term food storage.
Next, have an emergency fund of cash on-hand in the house. Not in the bank, under the mattress, just like the United States’ Great Depression. How much is going to be up to you. Be warned, during certain financial disaster, cash can quickly lose its value, so be prepared to spend it, quickly.
Third, have a few silver and gold coins on-hand, more silver than gold. Like the suggestion for having cash, take physical possession of these precious metals and store it in a safe place, such as a safe bolted to the floor in your home or business. Just in case, we have hyperinflation like Zimbabwe.
Next, get out of Debt and stay out of Debt, but this one has a caveat; depending on the situation. During a depression, cash becomes hard to find, so getting out of debt, as soon as possible, is a great idea because you and your family may not have the money, from job loss, to pay your bills, such as your home’s mortgage.
It’s the opposite, during hyperinflation because cash is easy to get. People are spending their money trying to buy things of value, however; you can use this almost ‘valueless’ money to pay off your debts. Be careful though. Hyperinflation may lead to a depression because your employer is unable to purchase supplies, going out of business.
Fifth, invest in yourself, your partner, and your children. Learn a trade, read informative books, grow some of your own food, start your own company (even part-time), and learn new skills
Appendix A: Common Mistakes
The first, a very common mistake, is concentrating on buying gold, silver, and copper before the other needed items for survival. Like firearms and ammunition, many beginning preppers believe all they need is to own gold, silver, and copper, but it’s not the most common financial mistake.
The most common mistake is failing to have an emergency fund. More likely than not, your vehicle will break down; the dishwasher will quit working; or you will not have the cash for a late-night pizza delivery.
The third financial mistake is failing to start saving for retirement, early. Once again, we are more likely to live a long and happy life than have a financial collapse, so you need to use ‘time’ and ‘the miracle of compound interest’ to increase the amount of money for your retirement.
Another common mistake is failing to be diversified in your investments. It has been shown, by popular financial gurus that one of the asset classes (stocks, bonds, real estate, or others) will always do well, increasing in value while some other assets may do O.K. and others will do poorly. Needless to say, no one knows which asset class will increase or decrease, that year, until the end of the year results are in.
The fifth common mistake is being over or under insured. You need to make sure you and your family have adequate insurance coverage to cover ‘normal’ events, so see your local insurance agent or, for the technology savvy, an online insurance company, like USAA.
The last common mistake, I’m going to talk about, is ignoring and listening to conventional financial thought. Yes, I know; it sounds contradictory.
But, Dave Ramsey, Suzie Orman, and many others have good advice for preppers. Some of their advice should be followed such as having an emergency fund, getting out of debt, saving money for big purchases, having insurance, and investing for retirement because the common disasters are more likely to happen.
But, you and your family are preppers, so you might be preparing for uncommon disasters like financial depressions, hyperinflation, nuclear war, and other less likely events. That is when you have to ignore their advice.
So, what is a prepper to do?
Make a decision and act on it.
Appendix B: Other Information
Cash is “King”
During a power outage, “Cash is King” because the banks and automatic teller machines (ATM) will be out of power and off-line. This means, the grocery stores can’t accept your credit or debit cards, neither can the gasoline stations.
100 U.S. Dollars in Cash
So, have some cash in your home. I suggest you keep a variety of notes in your stash. For every hundred dollars, you should have, say, three $20s, two $10s, two $5s and ten $1s. This allows you to make change, multiple times, if you have to spend it. Plus, you might want to keep $5 in loose change, just in case.
Barter
Some preppers suggest storing items to trade, in other words barter. Just so you know, barter is basically trading something for something else. It could be shoes for chickens to eat, cigarettes for protection, in prison, or an ounce or two of silver for a week’s worth of groceries
The items that I have seen suggested include any item that is consumable such as ammunition, sewing needles, engine oil, buttons, oil filters, word-search puzzles, zippers, antifreeze, handguns, bolts of cloth, brake fluid, family games, thread, rifles, informative books, cigarettes, pencils, liquor, knives, writing paper, coffee, school textbooks, pool shock for treating water, heirloom seeds, jig-saw puzzles, garden tools, and many other things, including phone books for toilet paper.
It’s a good idea, but I have limited cash for the supplies that my family would use much less items to trade. Plus, my threat analysis does not include disasters that historically include an opportunity to barter, however; there are families that will have a greater disposable income, and their threat analysis may include disasters where barter was important for survival. For these families, instead of using someone else’s list, I suggest researching the large-scale disasters such as the aftermath of revolutions, wars, and other wide-scale disruptions to find items worth storing for barter.
Now, this is also where, investing in yourself and your family may pay off because you can use that knowledge, like soap making, an electrical certification, raising chickens, plumbing and many other skills to trade. Plus, you will never run out of the knowledge to do your trade.
Needless to say, interacting with anyone, especially strangers, after a disaster can be dangerous this includes bartering. So, what do you do?
Barter Safety
First, never, ever deal with strangers; you always work though a friend or acquaintance. Next, never, ever tell anyone you have more barter items; always make them think these are your last ones. Next, never, ever allow anyone to come to your home; always deal with them in a neutral setting if possible, like a swap meet or bazar. Those three suggestions should keep you and your family safe.
Lastly, for those readers thinking it would be a good idea to trade firearms and ammunition, including 22LR cartridges. It’s a bad idea, a very bad idea. Why? What’s to stop someone from turning those firearms and ammo, you traded them, on your family and friends?
The Three Ks
Lastly, during Japan’s decades long financial difficulties, many Japanese lost their jobs. Some, if not many, Japanese youths even turned away from the traditional wisdom of going to school and working up the corporate ladder because of a lack of jobs. During this financial crisis, it seems that only difficult, dirty, or dangerous jobs were available. These jobs became known as the "3K;" it stands for kitsui (difficult), kitanai (dirty) and kiken (dangerous).
During a similar financial crisis, these difficult, dirty, and dangerous jobs maybe the only ones available for you and your family, something for you to think about as you invest in yourself and your family.
Appendix C: Silver, Gold, and Copper Coins
I dread writing this section because I believe most beginning preppers will improperly focus on acquiring silver, gold, and copper instead of purchasing the many other needed items for their family’s survival. With that said, let me begin.
Silver, Gold, and Copper
As you prepare, some people will tell you to only buy gold and silver. I disagree, for the family just beginning to prepare. I say this for many different reasons.
One, you can't drink silver and gold.
Silver and gold will offer no quenching of your thirst, only water that you have stored or treated will do that.
Two, you can't eat silver and gold.
Silver and gold will offer no nourishment for your family's hunger, only food will do that.
Three, you can't defend yourself with silver and gold.
Silver and gold will offer no protection against the rapist, looters, robbers, and other villains only firearms and their ammunition will do that.
Lastly, why should I, or any other person, sell you water, food, guns, or the other necessities of life if all I have to do is wait for you and your family to die and then take your silver and gold.
With all that said, a family that has enough food, guns and ammo, medical supplies, power generating equipment, and is preparing for a financial emergency might want to buy some silver and gold.
Buying Silver and Gold Coins
Like most purchases, you and your family want to pay as little as possible for the item, especially silver and gold. You can do this using a few different methods.
eBay
The first method, I will discuss, is bidding at the auction site eBay. Just go to the home page and type in “Junk Silver” into the search box. eBay will currently return over 100 auctions for “junk silver.”
Junk silver is older United States’ 10¢, 25¢, 50¢, and $1 coins minted in 1964 and before. These coins are 90% silver. They are called junk silver because these coins are well worn or very, very, very, common and most coin collectors do not collect junk silver.
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90% Silver Pre-1964 Dimes, Quarters, and Half-Dollars
by
293.xx.xxx.xx from Wikicommons
There are also auctions, on eBay, for modern silver coins from the United States and other countries.
But, there is a problem. Fakes have been showing up on eBay. Yes, fake Morgan and Silver Eagles.
Locally
The local pawn shop and coin dealers are a source for silver coins. These two places may have junk silver to sell. Coin dealers also may have modern silver coins, for you.
But, the “may” is truly a maybe. People have been flocking to silver, so the local sources have been sold out, recently.
On-Line
Yes, I know eBay is on-line, but I’m talking about the on-line coin dealers or sellers. There are many of them. Some of these professional dealers have been in business before the internet was created, by mail. Others have only started their business since they found out they could legally rip you off, so you and your family need to do your due diligence before you purchase any silver and gold.
Avoiding Getting Ripped Off or Paying Too Much
First, you need to look around to see what is available, locally and on-line. My brothers and I were looking and found some folks charging $10 more an ounce than their competitors, usually in the magazine ads for Silver Eagles. Remember, you and your family are trying to get the most silver and gold for the least amount of money.
Next, you need to know the “Spot Price” of silver and gold before you buy or sell. I find the current spot price by conducting an internet search for “Spot Silver.” A company called Kitco is usually the first result on Google. Next, you click on that link, and it will take you to a chart. The chart shows the price of silver over the last two days and the current spot price. To find the spot price for gold, I look on the left side of the page, under a section called “Live Charts” and click on ‘Gold.’
Third, I start searching for the best price, on-line and locally. The on-line dealers will usually have the most accurate price for their products. Some even update the price as you purchase the silver. That’s really cool if the price is going down. Not so cool, if the price of silver is increasing.
Rip Off #1
The first rip-off is buying a graded silver eagle. Usually, the dealer or seller will emphasize how much the price of a graded silver eagle has increased, like the 1995-W silver eagle for $4,200.
You could buy, at $30 an ounce, over 125 ungraded silver eagles for the same $4,200, or 125 cases of food from the Latter-day Saints distribution center.
Rip-off #2
The next rip-off is playing on your ignorance about pre-1964 United States silver coins. Some sellers will advertise junk silver dollars for $30, $32, or $35 each. Most uninformed people would say that is a good deal, at $30 an ounce for silver.
It isn’t! Let me explain.
First, junk silver dollars are 90% silver. They only contain about 0.7735 troy ounces of silver, so a dollar worth of junk silver is valued at $23.20, at $30 for an ounce of silver.
Next, the seller plays on your ignorance about how much silver is in each coin. If you’re like me, I assumed a dime (10¢) was 1/10 of a dollar in silver. It isn’t.
United States 90% ‘Junk’ Silver Coins
Denomination of Coin Silver Content (%) Weight of Silver in Coin
10¢ Mercury Head & Roosevelt 90% 2.25 grams
25¢ Standing Liberty & Washington 90% 5.625 grams
50¢ Walking Liberty & Kennedy, 1964 90% 11.25 grams
$1 Peace & Morgan 90% 24.057 grams
Note: one troy ounce of silver is 31 grams
The last play on your ignorance, by some dealers, is calculating the price based on the chart above. Excluding the Morgan and Peace silver dollars, most junk silver coins were well used when they were removed from circulation. After all those years, the dimes, quarters, and half-dollars may weight a lot less, so you should use .715 when calculating the value of silver in junk silver coins. Let me explain.
You are going to purchase $1.00 face value of junk silver. It may be ten dimes, four quarters, two half-dollars, or some combination that makes one dollar. You take the “spot price” of silver and multiply by 0.715 that gives you the value of the silver in the one dollar of junk silver coins.
If silver is at $30 an ounce, one dollar of silver coins should cost $21.45. So, if a dealer is asking even $25 for one dollar of junk silver coins, you are probably getting rip-off.
Rip-Off #3
The third rip-off is buying a ‘fake’ coin. Folks, eBay has people selling fake Morgan and Silver Eagle dollar coins this is also kind of true for the local pawn shops and coin dealers.
Now, don’t get me wrong.
The local coin dealer is probably very knowledgeable, but they make mistakes. So, you need to know their return policy, just in case a coin turns out to be a fake.
Rip-Off #4, Almost
This one isn’t so much of a rip-off. But, if you pay too much for the silver or gold, you have been rip-off, kind of. Let me explain.
Your local dealer and everyone else are in the business to make a living, so they make their profit two ways. First, they sell with a markup. Spot silver is at $28 an ounce; they sell for $30. Next, they buy it for less than the silver is worth. Spot is at $30; they buy it back at $29.
That’s the reality, but it continues.
Some sellers will have a very high markup. I found one seller advertising a ten-ounce silver bar for $550 when silver was at $30 an ounce. That was a markup of $25 an ounce!
Rip-off #5, Almost
The next almost rip-off is paying too many fees. On-line dealers will require you to pay for shipping and insurance, so you need to figure this into your cost, too. Let me give you two examples.
You and your family buy an ounce of silver at $30 an ounce. It cost $5 to ship and insure it. Your price is now $35 for that ounce of silver. If you purchase one hundred ounces, the shipping and insurance will run, to make it easy, $50. (Remember, 100 ounces of silver is about six pounds, and it’s worth $3,000, at $30 an ounce.) Your price is now $30.50 an ounce.
Now, here comes the almost rip-off. Some companies are going to require you to ‘wire transfer’ the funds for your purchase. Yep, no credit cards, allowed. This wire transfer will cost you $20 to $50, ouch. Now, you price has increased to $30.70 to $31.00 an ounce.
As you can see, you and your family need to do your due diligence to find the actual cost of the silver and gold; you will buy.
What to Purchase
Here in the United States, I would recommend staying with junk silver, the 10¢, 25¢, and 50¢ coins. They are currently the cheapest and not worth counterfeiting, like the Morgan silver dollars. If you live in another country, you and your family need to do the research and identify the most common, recognizable, and cheapest form of junk silver coins, in your country.
Next, I would recommend the Silver Eagle and Silver Maple Leaf coins. They are legal tender, so the Canadian and the United States’ governments have a responsibility to investigate counterfeit coins. If you live in another country, I would suggest the international legal tender coins, such as the Chinese Panda, Australian Kookaburra, or … that are near your home country.
What to Avoid
I would avoid the private mint rounds, bars, and expensive coins, such as ancient Roman silver and gold coins. I say this for two reasons. First most people have no idea what the value of silver is much less silver coinage, so you will have to educate them. Instead of trying to educate them about the value of silver then the value of a silver bar. If you use a common silver coin, all you need to do is educate them about the value of the common silver coin.
Next, how can you tell if the one ounce, ten ounce, or the one hundred ounce silver bar is real? Plus, you might have to pay to have it assayed. Look it up, if you’re interested.
Lastly, commemorative, ancient, collector, and other expensive coins are considered coin collecting. You and your family are trying to amass a hoard of silver and gold coins to financially protect your family during tough times, after the emergency fund, water filters, long-term food, SKS rifle with 500 rounds of ammunition, wool blankets, and all the other stuff you may need to survive an event.
Gold
You may have noticed; I focused on silver. There are a couple of reasons for that. First, it seems the same group of banks that manipulated the LIBOR interest rate, may have been manipulating the price of gold.
Next, gold is a compact form of wealth storage. It may be difficult to divide a gold coin for smaller purchases. With that said, it’s a lot easier smuggling a one ounce gold coin in your arse then 55 silver coins or carrying the 55 silver coins to the store, in your pocket. There is a reason the United States issued a silver certificate; they’re a lot easier to carry then a pocket full of silver.
Third, all the things, I wrote about silver can be considered the same for gold, almost.
Copper
There are some folks that suggest preppers also store copper coins in the form of United States’ nickels and pre-1982 pennies. It seems, just like pre-1964 silver coins, that pre-1982 pennies and current U.S. nickels are worth more in copper and nickel then their face value. According to one source, Coinflation.com, a 1980 copper penny, as of this writing, contains 2¢ worth of copper. So, if you have 100 pennies, you have $2.00 in copper.
The reason, these folks suggest also storing copper coins, is the possibility of these copper coins becoming more valuable, in the near future. They believe the United States is headed towards a possible hyperinflationary period, so these copper coins would be a very inexpensive method of preserving some of your wealth.
So, if your threat analysis includes a possible hyperinflation, you and your family may want to store copper coins, in the form of United States’ nickels and pre-1982 pennies, if you don’t have the money to purchase silver or gold coins.
The easiest method of buying copper is to buy nickels from the local bank or credit union. To acquire these nickels, go to your local bank or credit union and ask the teller for $1 to $20 in nickels. These coins will be in rolls of forty nickels for $2.00, each. If you want to store a greater amount of nickels, you will need to contact the bank manager or ask a teller how to buy the amount you want. There is one rumour, floating around the internet, that a multimillionaire purchased $1,000,000 of nickels from his local bank.
Pre-1982 pennies are going to be a lot harder to acquire. The zinc penny, minted during and after 1982, has become so common; it makes up most of the pennies in circulation. So, buying a roll of pennies, for the copper, is a waste of time. The only method, without sorting through a roll of pennies from your local credit union or bank, is to look at your change, every day, remove the pre-1982 pennies, and place them in a safe place.
And that brings up my next point.
Storing Silver and Gold
Not in a safety deposit box
Not in a custodian account
Especially, not as a piece of paper from some exchange traded fund (ETF)
But, …
Only in your home or place of business, hidden or locked in a safe, bolted to the floor.
Storing Copper
Copper is very heavy for a large amount, so you will need a sturdy place to store it. Some folks suggest storing the nickels in small ammunition cans. Like wire transfer fees, shipping and handling, using small ammo can to store your rolls of nickels and loose pennies will increase you costs. I suggest storing your nickels and pennies in small cardboard boxes. If you use a large box, it will be so heavy; you may not be able to lift it.
How Much Silver, Gold, and Copper to Have
That is going to be up to you and your family because, I believe, silver, gold, and copper are more of an investment then a survival need such as a water filter, canned foods, a .357 magnum revolver, sleeping bags, or ...
Caveats
Caveat #1: Private Mints
Yes, the private mints are reputable and their products are bought and sold worldwide. I have even bought some of their products, in the past, and I had no trouble selling the silver bars and rounds, either. And, I would suggest them, especially the Engelhard one ounce silver bars and one ounce silver Prospector rounds because I have owned these in the past
But, like I said, the private minted rounds and bars will have the added uncertainty of their content and being able to use them during an economic disaster for their full value.
Caveat #2: Storing Nickels and Pennies
To me, storing nickels and copper pennies is investing, and investing is outside the scope of this chapter.
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