Governments Say Stock Up. Your Emergency Kit Is Missing One Thing

Derek Whitaker opened this week's Greater Wealth with the news everyone had half noticed: "governments are telling us to prepare for disruptions." Food, water, a kit by the door. Then he asked the question the advice leaves out:

"The question I have is how much preparation have we put into our financial lives?"

In this episode (16 chapters)

1. 00:00Governments say prepare. Is your money ready?
2. 00:51What governments are asking households to do
3. 02:02Why now? Pattern recognition
4. 03:18Applying it to household finances
5. 08:58What the Reserve Bank actually does
6. 14:30A debt-based system
7. 15:56The Binance hack: who holds your money?
8. 16:50Centralised vs decentralised finance
9. 18:08The day my bank accounts were frozen
10. 19:29Frozen by association
11. 22:09Use the banks, but have a backup plan
12. 27:11Prepare to Prosper: the simple idea
13. 28:44A wise man perceives danger
14. 30:42From emergency fund to opportunity
15. 31:29Cash flow vs equity
16. 37:37Final thoughts: prepare while it's easy

What actually happened

Why are governments telling people to prepare?

Derek's first reaction wasn't alarm. It was to look at the pattern:

"You look at the dates on these articles, they're very, very recent, okay? You see a pattern happening here. I think one of the things that's really, really important is pattern recognition."

Some of it is simply the season: bushfires and cyclones in Australia, earthquakes in Japan. He is careful not to overstate it: "we're not trying to invoke fear." His interest is in applying the same logic closer to home:

"We understand, of course, the whole idea of keeping supplies from interruption. But what about the whole situation of assumptions supporting our income, repayments, access to money?"

To be fair to the official lists, some do touch on money. The NSW SES checklist includes cash, because ATMs and EFTPOS may not work. That's a useful start for a few days without power. It doesn't answer what happens if the account behind the card stops working for six months.

What happens when your bank account is frozen

Derek's accounts were frozen after he changed the governance on a couple of his entities with his accountant. Most of his banks accepted the new paperwork. One didn't, and insisted on new accounts, the ones his customers paid into:

"I had to call clients for the first time and say, you're never going to hear this from me again, but please stop paying me until I get this mess sorted out."

A second entity was frozen even after every identity check had been done, with a trustee flying in from overseas to identify themselves at the bank. His conclusion is the line the whole episode turns on:

"You think it's your money until it's not."

The complaint process took six months, in a period when Derek's father had died and he was attending funeral after funeral. It's the last thing anyone wants to be dealing with.

Can your account be frozen because of someone else?

Travis Carter's experience went further. A client of an associate of his claimed a transaction was fraudulent. The associate had done nothing wrong, but the bank froze his accounts while it investigated. Then it went to everyone he had paid, including Travis:

"So not only did I get my bank accounts frozen for something that I had nothing to do with, it went through to all the people that I'd sent money to. And as far as I'm aware, I went down the line to seven different people."

More than six months later, he says, it's still being resolved. And he sees the knock-on risk clearly: if the account holding your pay is locked and a different bank holds your mortgage, "you can't buy food. You can't do shopping."

Who really holds your money?

Binance's customers met a version of the same problem, as Derek described on air:

"Customers, they could still see their balances. They couldn't touch it. And when your money sits on someone else's platform, that could be an exchange, a bank, or even a super fund for that matter. You've got to ask the question, who really is holding it? Who has the keys to it?"

Derek draws the line between centralised finance, "when an intermediary can interrupt you moving money around", and decentralised finance, which runs on smart contracts rather than on someone's approval. Neither is free of risk. People who hold digital assets themselves take on lost recovery phrases, scams and mistaken transfers, and no genuine exchange will ever ask for a recovery phrase.

Use the banks, but have a backup

Neither man is suggesting anyone walk away from banking. Travis:

"You have to have a bank in the system that you can use. But I also highly encourage other people to have a backup plan as well."

What that backup looks like differs from one household to the next. Travis's own arrangement spreads accounts across several countries; Derek's took him in another direction. The shared point is that a backup is something people build before they need it.

Why an emergency fund comes before investing

Derek's point here is about order. Without a buffer, there's nothing to fall back on and nothing to act with:

"This is the problem with people who spend from paycheck to paycheck. They don't have any capital to deploy when the opportunities come."

He described how a household might think about it, with six or twelve months of living expenses set aside, "whatever that number might be, which is different for every household." Past that line, some of it can start to be considered as investment. "We kind of cross that border, that line."

Cash flow vs equity: why a big house price isn't a plan

Derek's point on air: "The problem is you can't eat that $1.2 million. It's all locked up in the house." Travis finished the thought:

"If you sell that house, you've still got to buy another one… So you don't have a $1.2 million house. You have a home."

Equity in a home can't pay this month's bills. For anyone whose whole plan is the value of the house, that's worth thinking about while rates are rising.

Prepare while it's easy

Derek quoted Proverbs 22:3 on air: "a wise man perceives danger and makes preparations beforehand." The NIV puts it this way: "The prudent see danger and take refuge, but the simple keep going and pay the penalty." Preparation looks excessive right up until it's needed, or, in a line Derek credits to Dr Kevin Zadai, "in an emergency, you look like a hero."

His final thoughts were short:

"Prepare. Prepare now. And prepare when it's easy to do so… we don't know what's around the corner, but we do know one thing that's around the corner, and that's change."

Three questions to ask this week

1. How many months of living costs could my household cover today?
2. If my main account were frozen tomorrow, how would the mortgage and the groceries get paid?
3. Who actually holds the money I'm counting on, and what could stop me reaching it?

Education only. Nothing here is personal financial, tax or legal advice.