A 3-Level Strategy to Spend Less on Living

In the essay “3 Ways to Make Your Portfolio Inflation-Proof” I introduced you to the late John Pugsley’s “Alpha Strategy.”

His idea is simple, yet important if you want to fight a rising cost of living. The best part about it is that you can start with any amount of capital, and better yet all your “gains” are tax-free!

Today we’ll take a deeper look into this important wealth-saving strategy including insight on all three levels…

Level One: Invest in the Means to Earn Your Keep

“The investment in a substantial personal wine cellar offers the best of everything: low risk, protection against inflation, no taxes on the gain and an interesting and pleasurable avocation”

“The greater the investment you make in education and tools,” Pugsley wrote in The Alpha Strategy, “the more you will produce and the higher your income and standard of living will be.”

By education, he was careful not to specify a college degree, whose value looks increasingly dubious in an era when the typical graduate enters the “real world” with a debt burden of $35,200. For purposes of the Alpha Strategy, education means “the acquisition of knowledge that will enable you to produce a product or service that will be in demand by others.”

Education might also entail learning a second trade. “No job, profession or business is timeless,” he wrote. “No product is invulnerable to change. Just the opposite. The competitive, inquiring, imaginative nature of man is such that almost all products eventually become obsolete.”

Meanwhile, think of the tools you use to earn your living. “Whether you are an accountant whose only tools are a calculator, an accounting pad and a pencil; a mechanic who uses wrenches, drills and hammers; or a manufacturer who needs warehouses, lathes, presses and automatic screw machines, the principle is the same.”

OK, the accountant of 1980 undoubtedly had to spend money on ever-increasing amounts of computer power in the decades since, but you get the idea: If it’s something that won’t go out of date quickly, stock up.

Level Two: Invest in the Goods You Use Every Day

“Once you have invested as much of your available capital as you can in education, tools, supplies and facilities for production,” Pugsley wrote, “the next logical place to put your savings is into those goods that you and your family will consume in future years.”

Whether it’s toothpaste, light bulbs or antifreeze, goods that have a long shelf life and won’t become obsolete before you use them are all fair game for the Alpha Strategy.

It might sound daunting at first. But it’s much easier to accomplish now than when The Alpha Strategy was published. Then, Pugsley had several pages of advice about how to dicker with retailers to get bulk discounts and how to seek out wholesale suppliers. In the age of the Internet and wholesale clubs like Costco and Sam’s, you don’t need resort to such measures.

So… Let’s run down a shopping list.

Food: “Foods are the No. 1 consumption item for most of us,” Pugsley wrote, “but because of their perishable nature, they must be carefully selected.” So forget about meat and produce. Even with a freezer, “the storage cost is high relative to other goods.” Consider instead…

Canned goods: Shelf life varies, but figure on using them up within 18 months. Even a one-year supply will insulate you against rising prices

Sugars: The shelf life of sugar is just on this side of forever. “Jams, jellies and other preserves will last indefinitely, as will most fruits that are packed in sugar syrups.” Honey and molasses will keep for years; even if they harden, just heat and stir

Grains and legumes: Wheat, rice, peas and beans will all last for 10 years or longer. Beware: If you grind the wheat into flour, that shelf life turns into mere months

Tea: A “near perfect” savings asset, Pugsley says. Bulk buying gives you significant savings, and tea takes up little space and suffers little if any loss of quality over time.

Pasta: It can keep for five years or longer.

If you follow a paleo or primal diet, no, there’s not much you can do under the food category. But you can always stock up on cases of canned fish and vegetables, if that’s part of your routine.

About coffee: At the time Pugsley wrote the book, there was a bitter dispute over its shelf life. A casual search of the Internet in 2013 reveals this is still the case. You might want to experiment.

Health and beauty aids: “Items such as deodorant, shampoo and toothpaste will keep indefinitely when stored in a cool, dry place, and mouthwash will keep up to three years under these same conditions… Don’t forget razor blades, toothbrushes, sanitary napkins, combs, brushes and first-aid supplies.”

Cleaning supplies: Depending on their chemical makeup, not all detergents will last indefinitely. “The best Alpha items in the cleaning equipment category are brushes, brooms, mops, vacuum bags, pot scrubbers, trash bags, compactor bags, sponges and scouring pads.”

Paper products: Yes, they last forever as long as they’re not exposed to light, bugs or mice. But there’s a catch: “The biggest drawback to some of these goods is their low cost per cubic foot, as this makes them costly to store.” More about this later…

Clothing: Yes, fashions change. But men in particular could easily load up on 10 or 20 years’ worth of socks, underwear and T-shirts.

Automotive: “Storage space and styling taken into account,” Pugsley wrote, “you may decide to buy an extra new car this year and put it up on blocks.” Five years on, you might be very satisfied with the purchase. If that’s too out there, consider stockpiling replacement parts, motor oil and tires.

Around the house: Here too, spare parts for furnaces, water heaters and such might be useful. At the very least, consider small hardware items and garden supplies.

Wine: Like us, Pugsley was an oenophile. He waxed eloquent about wine storage for four pages. “The investment in a substantial personal wine cellar,” he wrote, “offers the best of everything: low risk, protection against inflation, no taxes on the gain and an interesting and pleasurable avocation — in other words, it is the perfect asset for saving.”

Don’t take this up without some basic knowledge about which wines store well and which don’t. Alas, our pinot grigio does not.

Also beware the temptation to deplete your stash faster than you expect: “My first adventure into stockpiling,” Pugsley wrote, “came when I bought what I thought would be a two- to three-year supply of wine. The convenience of having it on hand each time we had a nice meal turned it into a one-year supply.” Which defeats the purpose of keeping your cost of living low…

Most hard liquor, by the way, can last 10 years or more if you store it properly. Beer? Forget it.

So where do you put everything? And how much room do you need in the first place? “The amount of room you need,” Pugsley wrote, “will depend on the amount of money you have to invest and the type of goods you decide to stockpile.”

A helpful tool is to figure the cost of an item relative to the amount of space it takes up, the value per cubic foot. This is why we encouraged you at the start of the article to stock up on razor blades — a large supply takes up little space — so you wouldn’t find the idea intimidating!

Nearby is a table taken straight from The Alpha Strategy. The dollar amounts are vastly out of date, but they’ll get you thinking about which items give you the most bang for your buck if you have limited space.

The Value of Various Goods Per Cubic Feet of Storage Space

At 1980 prices, Pugsley reckoned the average value per cubic foot of the goods you’d store would be $25. Thus, a $10,000 stockpile would require 400 cubic feet of space. “It could be kept in a space 4 feet deep by 7 feet high by 14 feet long, or roughly a 4-foot-deep storage area built along the wall of your garage.” That said, a garage might not be the ideal choice, he said: You want a space that’s cool, dark and dry.

Don’t forget to think about insurance if loss of the goods would affect your standard of living for the worse.

Level Three: Saving Real Money

Still have some cash left after building up your stash? “You are ready to explore the third level of the strategy: the accumulation of real goods that you can eventually sell or exchange.”

Pugsley’s preferred vehicles were raw commodities. Granted, pork bellies and barrels of oil are problematic… so he leaned mostly toward metals, and not only the precious variety. “Copper, zinc, lead, tin, nickel and aluminum are all metals that can be stockpiled, are universally used, and can be expected to be in demand for centuries to come.”

Now’s the time to act: The scary thing to think about right now is that the Federal Reserve believes we don’t have enough inflation. The Fed, Currency Wars author Jim Rickards suggested at the Agora Financial symposium in Vancouver last summer, is “desperate” to achieve 4% inflation, the better to encourage tightfisted consumers to get out and spend.

Problem is the Fed’s goal has a careful-what-you-wish-for quality: Rickards says 4% inflation, once achieved, can easily turn into 9% in no time. But even if that doesn’t happen, Jack Pugsley’s Alpha Strategy will help you defray your ever-rising cost of living.


Addison Wiggin
for The Daily Reckoning

Ed. Note: The Alpha strategy boils down to three levels — Invest in the means to earn your keep, invest in the goods you use every day, save real money. Now’s the time to act on this wealth-saving strategy. The Daily Resource Hunter email edition can show you how. Sign up for FREE, right here, to learn about specific opportunities to grow and maintain your wealth, every day.

Original article posted on Daily Resource Hunter

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Addison Wiggin

Addison Wiggin is founder and executive publisher of Agora Financial LLC, an independent economic forecasting and financial research firm. He and Bill Bonner began writing the firm’s flagship Daily Reckoning in the midst of the tech boom and bust. It was one of the first widely distributed email newsletters on the Internet. The publication’s...

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