You have your tracking set up, you have no unsecured debt, you have your emergency fund. You are pretty much bullet proof. Financially anyway. However, if you were to decide to sell everything you own? How much would you get? This is your net worth. Assets (what you own) minus Liabilities (what you owe). Your collection of 1 Direction singles is not an asset, but your collection of David Bowie 7 inchers in pristine condition may be. Anyway, exactly what constitutes an asset and a liability is for another day.
This stage is simply about getting the gap ( your net worth) between your assets and liabilities as big as possible. Buckle up, you’re in for a long ride. At least a decade.
You have to speculate to accumulate. A classic piece of disinformation. True – you do have to speculate to accumulate shit loads of cash quickly, but a patient careful approach will result in accumulation without any speculation or even day to day management.
You should now have two things. A nice cushion to prevent using any credit facility. A nice chunk of your monthly budget you can keep for yourself.
There are two main parts of this accumulation stage both working simultaneously.
Get rid of your mortgage(s)
As mentioned this is by far the longest stage of all. Your mortgage payment will be the biggest single payment you make any month. You cannot leave stage 3 with a mortgage. Thems the rules.
You are probably on some sort of fixed rate deal and you should have a mortgage that allows overpayments during this deal. Most allow 10% of the outstanding balance per annum.
Your mortgage will have a sort code and account number. Get it and do two things. Firstly, set up a monthly standing order for the day after payday to send a % of your savable income to your mortgage account. This is in addition to the contractual obligation. Secondly, set up your mortgage account as a payee on your internet banking. Every time you have a spare quid or two, send it that way. Every time you walk past Costa and resist the urge for a latte, reward yourself by whipping out your phone and throwing the £2.65 towards your mortgage account. Other coffee shops are available. If you have 53p left at the end of the month. Send it to your mortgage account. Return your current account to zero and start afresh next month.
Invest the rest
We pay £10.64 a week to United Utilities for our water. That’s ok – we own United Utilities.
We buy our petrol from shell and BP. We own both.
We get our energy from Eon. We own them.
Our mortgage is with HSBC. We own the bank.
We own every supermarket and every clothes shop we shop in. Including the ones we don’t. Louis Vuitton. Yeah we own that too.
Walk through any shopping centre or financial district in any city in any free market economy in the world. Chances are we will own nearly every business. We may probably own the building that they all pay rent to.
Oh and guess what – every penny of profit we get from all these businesses we own is tax free for the rest of our life. I don’t have time to decide which businesses to buy, nor the expertise so we buy them all and pay someone to do this for us.
I wish we owned 100% of all of them! If so, you would definitely know my name and I definitely would have quit teaching by now! We would own more than any other human being on the planet put together. I would know every president and every celebrity. Life would be good. I would also be a big assassination risk.
Thankfully I don’t own all this stuff. That’s just sheer greed. But we both own a tiny tiny teeny bit of more than 7,500 companies. Most of them global corporations.
So what is happening? I’m going to be quite controversial here and say that I think Unit trusts are as close to socialism as capitalism can get. Certainly unit trusts with Vanguard are pretty much as close to socialism as capitalism can get. Yes we can debate the ethics of global corporations with regard to this, but that’s for the politicians to thrash out. As a member of a unit trust we share the costs and risks of investing our money with everyone else in the fund and we share the rewards. We, as a collective buy shares of every company in the world. Some will succeed and some will fail but as a whole, the value of all these holdings will rise over time. Of course these values may fall, sometimes sharply (think 2007/8), which is why this is a bad home for your emergency fund. I only hold passive vanguard funds and will detail my strategy and holdings in another post.
So go into your ISA and arrange the rest of your savable income to go into passive low cost unit trusts on the day after payday. Again, further detail will be for another post.
Congratulations – you will now easily own a share in nearly every major corporation in the world. Maybe you’ll have to settle for not having a piece of the Chinese state energy company. Sorry – Warren Buffet can’t get that one, or can he? But these holdings will rise over time to such an extent to which you will be able to live off the profits YOUR companies make for YOU. Every minute of every day. While you sleep, drive, wee, cook, clean, exercise. YOUR companies are taking money off global wage slaves and making profits for YOU.
Other assets are available. We own some rental property but are currently over exposed in this area, so for us stocks and shares are the way to go. Wine. Fine art. Precious metals. All options but not for a plebeian like me.
As well as having no residential mortgages you can’t exit stage 3 unless you have 25x your annual living expenses in cash/bonds/stocks. I’ll explain why on another post. Anyway, we personally are in stage 3 and will be for a long long time!