Money Matters – Article 3 – May 2015

Money Matters 3

Dear Readers,

May 2015 is behind us; Was there anything significant that caught your attention this month?
We are following the Federal Government’s Annual Budget (on what, where and how they are going to spend our hard earned tax money).
In particular, we note Tax Incentives (discount in income tax to small business) and ‘Accelerated Depreciation’ Allowance (a ‘one off’ opportunity to spend upto $20,000 on business related capital expenditure, and avail immediate tax deduction).
What does it all mean?
How does it affect my business?
Why are they doing it?
To spend or not to spend?
Please contact us if it all means anything to you; We can discuss, debate and Assist you.

Now, moving to Money Matters:

This is Article 3, part of a series of monthly articles with the intention of discussing matters related to Money and Finance.

I am sure you have read our previous two articles with curiosity and interest.
We look forward to your active readership, participation, critique, feedback, comments and suggestions. Come, join with us, and let us explore this most important of subjects in detail.
We will be covering a wide range of issues – Income, Savings, Cash-flow, Debt, Finance, Property, Assets, Managed funds, Shares, Super, investments, and many more.
We plan to interact actively with you and will promptly respond to your queries and suggestions.

In our previous 2 articles we started a conversation on a fundamental question – What is Money?
Love it or Hate it, we know that Money is the other half of our lives, part of almost all transactions we conduct, big and small.

We discussed the Origin of money in our previous articles, as follows;
Hundreds of thousands of years ago we humans started to form a concept of ourselves as productive, purpose driven and objective beings; We started to observe, think, anticipate, react, understand and finally plan for our lives and future.
We started to live as families, then groups, then tribes, etc. We learnt to grow and cultivate crops and livestock.
We soon learnt that ‘some of us in the group are better at some things, and others are better at other things’. And we started to do more of ‘some activity’ and less of ‘other’.
(He is better at hunting, She is better at cultivating crops).

Today, we call this Specialisation.
We then started to be more productive, and we moved from survival mode to more comfort and security.

We started Producing Surplus and learnt to manage, store, and use these surpluses for a better life.
With more comfort and security came boldness and an adventurous spirit. We began to observe, think and explore; We began to form ideas and concepts.
We also began to travel and came more in contact with other groups, to interact with them, learn about (and from) them and exchange ideas.
We gradually evolved from being a ‘pack’ to a Civilisation.

We soon started to exchange surplus Goods and Services (grains, livestock, jobs, expertise) with others; ‘The Barter system’ had begun.

With more productivity, barter and trade came more prosperity. We soon started realising the limitations of ‘exchanging goods and services’.
Bartering now became more complex; Our potential to barter was very limited.
(“I have sheep, he has wheat, I need fish, and he needs salt”)
or, (“I have plenty of fish, need salt now, he needs grain now, but may have salt next year”).

How did we solve this problem?
We learnt to improvise, to nominate certain ‘Commodities’ (things which are less perishable, more in common, easier to store and transport, etc.) as the ‘Means of Exchange’.
These commodities started to be seen as more valuable; As a ‘Storage of Value’.

A lot of commodities, in various different places, across thousands of years were experimented with, for different reasons.
Metals in general, and Gold and Silver in particular, became more and more the choice.
Why? Gold is divisible, non-corrosive, exclusive, rare and desirable; A natural choice.
Gold became the natural storage of value, as means of exchange – As a Currency – As Money.

Now, our populations were getting bigger, we had started to form villages, towns, cities, kingdoms.
Specialisation had brought us surplus, leading to economic progress, leading to prosperity and power.
And one of the most important specialisation was to provide ‘safety, security, dispute resolution, administration; The ‘Rule of Law’; Religious and Political Power.
The Priest, Chief, King, Emperor; Government became more and more important, and powerful.
And rulers needed more and more money to maintain and increase political power …..
And Rulers, governments, do not produce anything (do not make things, or do jobs), or create economic value; Rulers Do Not Create Money; People, citizens Do.

As time passed even gold as the means of exchange became troublesome; storing it safely, carrying it over vast distances and keeping physical possession of it became dangerous; Theft, looting, confiscation, etc. became problematic.

An innovative Idea Of ‘offering to store (Banking) gold safely’ began to take shape.
(I have a secure place and armed men to guard your gold safely)
(You keep your gold with me. I will issue you ‘promissory note); (A piece of papyrus, silk, tree bark, stone or clay tablet, paper, etc. – A “NOTE” promising to safely hold your money in trust and storage, until you need it back).
(You will get back your gold, when you need it, on producing the ‘NOTE’ – For a small fee).
The Concept Of Banking and Notes had begun.
People soon realised that it was much easier to transport, carry, exchange and trade with these ‘Notes’ compared to the danger of carrying gold around.
(You steal my Gold (Money), I lose everything)………..
(You steal my notes (Currency only, NOT Money), it is worthless to you unless the banker accepts it and exchanges for Gold (Real Money).

The era of Banking And Notes as Currency had arrived.

And what was political power (Chiefs, Kings, Emperors, Government) doing in the meantime?????

We shall explore that in our next article.

Once again, we hope this article was of some value to you. We will continue with the story about the History of Money next month. We look forward to your active feedback, comments and suggestions.

Talk to you next month.

About the Author: Harish Narayana is a Sydney based Finance Professional and Adviser.
Contact: hari@harionmoney.com.au
Web: http://www.harionmoney.com.au

 

Money Matters – Article 2 – April 2015

Money Matters – Article 2

Dear Readers,

This is article 2, part of a series of monthly articles with the intention of discussing matters related to Money and Finance.

We look forward to your active readership, participation, critique, feedback, comments and suggestions. Come, join with us, and let us explore this most important of subjects in detail.

We will be covering a wide range of issues; Income, Savings, Cash-flow, Debt, Finance, Property, Assets, Managed funds, Shares, Super, investments, and many more.
We plan to interact actively with you and will promptly respond to your queries and suggestions.

In our previous article we started a conversation on a fundamental question; What is Money?
Love it or Hate it, we know that Money is the other half of our lives, part of almost all transactions we conduct, big and small.

We discussed the origin of money; The Barter system
We discussed evolution of the concept of Money; From exchange of simple goods, to nomination of certain ‘commodities’ as preferred means of exchange, to the narrowing down of this ‘preferred means of exchange’ to certain metals, and finally, widespread acceptance of Gold and Silver as the preferred means of exchange.

The concept of producing excess goods and services (more than what is needed for minimum sustenance of a Family, Group, Village, Community, Town, City, Region, etc.) was a revolution.
People could now have a wider variety of goods and services by more trading and exchange.
They could ‘store’ some of it for longer periods of time, ‘specialise’ and become more ‘efficient’ in producing particular goods and services
They could now save time and effort, lead more healthy and fulfilling lives.
Looking at it another way – They could ‘save’ and ‘liberate’ their ‘Time’, ‘store’ it, and use it for things they ‘wanted’ to do.
In short – Gold became a Storage of Value. Gold became “Money”

Let us now move forward ……… Why was Gold and Silver the natural choice?
Many commodities were tried and experimented, no doubt, including Grains, Livestock, Salt, Hides, Beads, Feathers, etc. in ancient times.
Gold is rare, divisible, non-perishable, cannot be replicated (counterfeited), and most importantly has high aesthetic value. It was logical and natural choice to select gold as a means of exchange and storage of value.

Gold as Currency:
The next logical evolution was to use Gold as a ‘Currency’.
You could now produce anything, anywhere, trade it anywhere for a common store of value – a ‘Currency’ – Gold.
You could then transport Gold easily to anywhere, store it for any period of time, trade it for any other goods or service, anywhere and anytime of your choice.

There were wider effects; one of them political. Exchange and trade increased citizen’s wealth, and wealth increased their influence, leading to more knowledge and power.
The ruling establishment were not very happy with this.
They tried to regulate, control and manipulate the source of growing independence and power of their citizens by trying to manipulate the ‘Currency’.
There were various experiments, mostly by force & diktat, by various leaders, rulers, invaders, etc. to use other forms of ‘Currency’.
Peppercorns, Leather Coins, Tea leaves ……….. And Paper (ring a bell ????) were used at various times, by force, but Gold remained the most popular free-market choice of Currency.

There were a few problems as well, one of them being ‘Safety’ and ‘Security’.
Storing, handling, carrying gold all the time was not ideal.
There was a need to ‘own’ the currency but not having to have it physically all the time ………….. What was the solution?
We shall explore that in our next article.

Once again, we hope this article was of some value to you. We will continue with the story about the History of Money next month. We look forward to your active feedback, comments and suggestions.

Talk to you next month.

About the Author: Harish Narayana is a Sydney based Finance Professional and Adviser.
Contact: hari@harionmoney.com.au
Web: http://www.harionmoney.com.au

 

Money Matters – Article 1 – March 2015

Money Matters – Article 1 – March 2015

Dear Readers,

We have started a series of monthly articles with the intention of discussing matters related to Money and Finance.
We look forward to your active readership, participation, critique, feedback, comments and suggestions. Come, join with us, and let us explore this most important of subjects in detail.
We will be covering a wide range of issues; Income, Savings, Cash-flow, Debt, Finance, Property, Assets, Managed funds, Shares, Super, investments, and many more.
We plan to interact actively with you and will promptly respond to your queries and suggestions.

Let us start with an interesting question – What is Money?

There is an old saying “It’s only money ….. It can only lead to sorrow ………..
But is it? Money is the grease that makes our life run smoothly. Providence has provided us with Air, Water and Land ….. But everything else has to be provided for by ourselves in order to survive and thrive; And so we need Money.

But what is this Money? Where did it come from? Who decides its form (metal? Seashell? Barley? Paper?), denomination, name, value, availability?
Let us start with the standard dictionary definition: Money is “A medium of exchange, in the form of Notes and Coins”.
It is so simple and obvious ……… but is it?

Origin of Money: Barter system
Tens of thousands of years ago we humans moved on to a stage where we settled down, in little families or communities, and started to produce a little bit more than our daily minimum needs.
We soon discovered that one person, or family, or community was better at producing some ‘things’ but not other ‘things’.
Or we needed something which others had, and they probably needed things we had. We created a system of exchange of goods and services. We called it “Barter”.
The barter system was good, but not perfect.
Look at some of the dilemmas these groups and communities may have faced;
“I have sheep, he has wheat, I need fish, and he needs salt”
Or, “I have plenty of fish, need salt now, he needs grain now, but may have salt next year”.

Money as a concept of Value
AS time passed, and as more people and communities started interacting with each other, there grew a natural “Market” for goods and services.
Concepts of “Standard Weights & Measures”, of the “Relationship between Time, Effort and Output”, of “Quality and Quantity”, etc. started to be better understood and appreciated.
Some ‘things’ were easier to barter or ‘Trade’ compared to others.
Some things (staple commodities) stood out; They were most generally needed by all, they had longer shelf life (or even non-perishable), were easier to store and transport, etc.
In short, these ‘things’ were in higher demand, and so had more ‘Value’.

Money as storage of Value
Eventually, after a long period of time, commodities, generally, emerged as higher value items to generate (produce), stock and trade.
However, problems remained with direct barter of goods, whether between two parties or in common markets.
Over time, people came up with the concept of an ‘intermediary’, some ‘thing’ in common, that you could keep in store without losing value ………… and which, later in time, could be exchanged again for whatever goods or services needed in the future.

Gold as Storage of Value
Many commodities were tried and experimented in ancient times, no doubt, including Grains, Livestock, Salt, Hides, Beads, Feathers, etc.
But metals, especially rare metals, Gold and Silver in particular, were the natural choice in most communities, all over the world.
Gold is rare, divisible, non-perishable, cannot be replicated (counterfeited), and most importantly has high aesthetic value.

What happened next?
In our next article we shall concentrate more on a critical function of Money; As a store of Value.

Once again, We hope this article was of some value to you. We will continue with the story about the History of Money next month. We look forward to your active feedback, comments and suggestions.

Talk to you next month.

About the Author: Harish Narayana is a Sydney based Finance Professional and Adviser.
Contact: hari@harionmoney.com.au
Web: http://www.harionmoney.com.au

 

February 2014 – To buy, or to rent?

What’s happening in our economy … How are financial markets doing … And a question from one of our readers; “To buy, or to rent?”

Dear Readers,

Thanks to all of you for accepting our invitation, for accessing our blog, and for your participation and feedback. Your positive feedback inspires me to explore new ideas and topics. We look forward to more of your active participation.

We have all been conditioned by now to the paradigm of assigning names to different generations, then treating them as some homogeneous group with little or no individuality amongst them, then imposing generalities on their outlook, behaviour, motivation, etc.
First there was the ‘pre-war’ generation (pre 1914, ‘first world war’ era)
Then what is called the ‘lost’ or ‘silent generation’ (between 1922 and 1942)
Then came the ‘greatest generation’ (the war period, between 1942 and 1946)
Then came the ‘baby boomers’ (post second world war boom in population; 1946 onwards)
Then supposedly the ‘generation jones’ or ‘joneses’ (kids growing up to adulthood around 1960’s)
Then came ‘generation X’ (people born between the 60’s and late 70’s)
Then supposedly the ‘XY cusp generation’ or ‘MTV’ generation (kids born in mid 70’s to late 80’s)
Then came the phenomena loosely indicated as the ‘boomerang generation’ or ‘why generation’ (people growing up in the 70’s and 80’s) – Remember them (or the ‘boomerang phenomena’ itself, we shall come back to them again later)
Then there is you (dear ‘young’ readers) – ‘Generation Y’ or the ‘millennium generation’ (born in the 90’s and beyond, closer to the millennium).
Then there is a grouping of the ‘iGeneration’, all of you fitness challenged, internet and gizmo obsessed ones (only joking); people growing up around the millennium and beyond (late 90’s to date).
And finally (but not the last), ‘generation Z’; the youngest of you all.

A whole school (several of them) of psychobabble have devoted lots of time and effort, over the past 100 years or more, with enormous outputs of literature, on this subject. Fortunately this is not our ‘subject of the month’.

We shall look at the “boomerang effect”, at “boomerangs” and ‘kippers”, at the property markets, prices, affordability, supply and demand perception, etc.; and think aloud on the dilemma of whether to buy your own home or to rent for the rest of your life ….. But first …..

The Big Picture

Global Overview: We have consistently maintained our views on the global challenges we face in term of a fundamentally flawed monetary system, and its effect, over the last 100 years or more, on all aspects of global economy and finance.
Pl take time to browse our ‘Global Overview’ section, in our previous 20 blogs (since April 2012) for more information and views.
In spite of enormous availability (some would say deluge) of ‘money’ in global financial markets, and continuation of creating (some would say ‘out of thin air’) even more ‘money’ by most central banks, the demonstrable positive effects of this ‘stimulus’ is hard to see.
It seems that a lot more (and ever increasing) ‘bang’ (stimulus, or money printing) is being needed to produce little or no ‘buck’ (meaningful, sustainable, productive growth in the economy).
People, businesses and even nations are either reluctant to borrow more, or do not have the capacity and rating to do so.
The ‘velocity effect’ is just not happening. Meanwhile gross distortions and bubbles in various asset markets are being seen; and savers, the most productive and prudent section of any prosperous economy, are being driven towards higher risks for lower and diminishing returns.

Local Impact: Please take time to browse our ‘Local Impact’ section in our previous blogs to get a consistent view of the local impact on our economy.
A stable federal government, with indications of responsible budgeting and governance is a positive sign of hope, at this point in time.

Topic of the Month:
I have recently been working with a lot of ‘youngsters’, what is loosely called ‘Gen Y’ clients, in relation to property and first home purchases. It has been a set of very lively and interesting conversations.
Several interesting points came up, which most of us may have not thought of, or connected together as a bigger picture.
I have attempted to do so in this month’s blog.

Of ‘kippers’ and their ‘boomerangs’: There used to be a golden time, when kids would be independent and leave home at the age of 18-21, find jobs, make (or buy) a home, and look after themselves ever after ……. At least in most cases.
The 70’s and 80’s came to be known for a growing trend; of kids leaving home in their late teens, seeing the world, doing their bit to change (or save) the world ….. And then return back to ‘the nest’, to the comfort of ‘mum and dad’.
Why? There are many theories and voluminous observations written and talked about, over 50 years or more, about this. Fortunately, this is not the subject of our discussion today.
But one aspect of this trend is relevant to our topic, the financial/economic angle.

The “It’s too hard” syndrome: For many reasons, and probably because these ‘golden children’ were brought up in ‘good times’;
With parents pandering (some would say overtly) to their whims and fancies;
With the economy not doing very well;
With inflation – and property markets being hard to enter;
With unemployment high and jobs not stable;
Some kids tended to ‘boomerang’ back to the parent’s home, as a comfort zone, a sanctuary.
And many of them reconciled to the concept of ‘renting’, rather than owning their home.
And this trend is felt acutely even today; The question “to rent or buy” is as much relevant today as it was 50 years ago, probably ever more so.

But there are some sobering, long term, financial questions to answer;
‘Where are we today’?
‘Where do we want to be in 15-20 years’ time’?
‘What if we just keep renting’?
‘What are the advantages of renting’?
‘What are the advantages of buying’?
‘What should we do’?
And a thousand more “what if’s”.

Well, bunkering down in ‘mum’s’ place is not a long term option.

We leave the forum open to you now.
What are your thoughts on all of this?
What is your experience?
Come, join the discussion, and share your ideas and experiences.
I look forward to your opinion, counter argument, response, constructive criticism, feedback, etc.

Looking forward to hearing from you

Hari

 

January 2014 – Further Education; How do you pay for it?

Welcome to the New Year …. and wishing you Healthy, eventful and prosperous times ….

What’s happening in our economy … How are financial markets doing … And a question from one of our readers; “How do I pay for my (or my kids) further education?”

Dear Readers,

Thanks to all of you for accepting our invitation, for accessing our blog, and for your participation and feedback.  Your positive feedback inspires me to explore new ideas and topics. We look forward to more of your active participation.

I am sure you had an interesting holiday break, lots of food and beverages, hectic shopping and swiping of credit cards, lots of travel, fun and frolic, and some interesting get-togethers with friends and family.

One such chat I had made me think of the subject of this month’s blog;
“Higher education is a must these days, or so they say”
“It could take anything between 3 to 10 years to complete University”
“How will I fund my education (or my kids, or grandkids, or family members)?”
“How much will it cost?”
“How do we pay for it?”
“When do we pay for it?”
“How do we decide?”

It was a lively and emotional chat, let me tell you. I have tried to address some aspects of it, but first …..

The Big Picture

Global Overview: We have detailed our views on global monetary situation, compounded by flawed fiscal and monetary ‘remedies’ (more like magic bullets) to ‘solve’ these problems. Please read our October blog, and previous ones, for details – http://tinyurl.com/l4hn9u4

We have reiterated, enough times, our view on the concept of ‘Money and Credit’, and the importance of gold as the basis of money (ultimately, we believe, gold is money). Pl read our August 2012 blog ‘What is Money?’ – http://tinyurl.com/lshbsjs

With the US FED becoming a gigantic ‘money printing enterprise’, and most other major central banks following this lead, attention has turned to the supply, availability, exchange rates, fluidity, etc. of currency and money between banks and institutions, within various economies, and between countries.

And a lot of attention is paid to Gold – The demand and supply situation for gold; It’s price and availability; How much of it is available? Where is it stored? Who does it actually belong to?
There has been talk of higher demand for ‘physical gold’ from some Asian countries, by the public, corporates and governments.
There has been talk of some governments putting restrictions on their citizen’s ability and ease to convert their paper money to gold, to trade in gold, to import and store gold, etc.
Seems a South American government recently repatriated significant amount of its physical gold holdings stored in US vaults, after much difficulty.
We hear recent news of some European government’s request for a substantial part of its physical gold holdings stored in US vaults to be returned back for ‘safe storage’ within their own place.
What is the significance of all this?
Is the unprecedented pace and volume of “money printing” by central banks; and the related inflationary pressure (bubbles) in various asset markets; the ‘competition between nations to devalue their currencies (currency wars), etc. hurting confidence in all “Paper Money” and “Fiat Money” systems, and the US Dollar in particular?
We would like your thoughts on this.

Local Impact: We briefly mentioned the disincentives of the global impact on our economy. Please read our October blog, and previous ones, for details – http://tinyurl.com/l4hn9u4
Our national debt figures are a worry; Unemployment, and the type of new jobs being created, is not rosy.
Asset price inflation (read property bubble – high prices for homes) – fuelled by record low interest rates, and desperate investors (both local and overseas – especially baby boomers) looking for a decent return on investment and safe parking space for their savings – is making it ever harder for first home buyers to enter into the market.
A newly elected government with indications of responsible budgeting and governance is a positive sign of hope.

Topic of the Month:
I had a stimulating conversation with a group of friends over the holiday break on university education expenses, in general, and how to best pay for it, in particular.
There were a wide variety of points, and opinion, made, such as;
“Is there a need for kids to go to university right after school?”
“What are the choices available?”
“Is there pressure – from parents, peers, fear of being left out?”
“How do we pay for it, and who pays for it?”

We could probably write a whole book trying to tackle all these issues, which is not our goal at this point in time.
I have limited this exercise to working out few possible ways of funding university fees and related (limited) expenses – Here we go;
Some assumptions;
We limit our costing to university student fees only, not living and travel expenses.
We assume that student is a citizen, permanent resident, and enrolling in an authorised institution.
We work on three amounts (total debt/cost incurred to complete a given course/degree) – $30,000, $60,000 and $120,000 respectively.
We assume (to keep things simple) that funds (loan amount) is withdrawn in full, at the day of drawdown, and will incur periodic monthly repayments (principle & interest) for a maximum period of the term of the loan. HECS debt is an exception (as detailed below).

Scenario 1:
You have enrolled into university and estimated your total fees and charges to be approx. 30k, by the time you have finished study. You have made other arrangements to cover your living expenses.
What If; you (or your parent/s, or grandparent/s, or family member/s) funded this using a credit card?
1. The debt/liability is a personal debt, will register on your ‘credit file’, will limit your ‘borrowing capacity’ in future when you apply for other credit/loans (reduces your borrowing capacity).
2. Repayment obligation will start immediately, first payment due one month after funds are withdrawn.
3. Your minimum monthly repayments for the first month would be approx. $600.
4. Your obligation would be limited to only paying ‘minimum payment due’ (calculated at 2-3 percent of monthly balance).
5. You could end up repaying upto 163k, over a period of 83 years, if you only repaid the minimum amount.
What If; you (or your parent/s, or grandparent/s, or family member/s) funded this by taking a personal or consumer loan?
1. The debt/liability is a personal debt, will register on your ‘credit file’, will limit your ‘borrowing capacity’ in future when you apply for other credit/loans (reduces your borrowing capacity).
2. Repayment obligation will start immediately, first payment due one month after funds are withdrawn.
3. Your minimum monthly repayments will be approx. $700 per month (based on a fixed interest rate of 14% p.a. and 5 year term) for the next 5 years.
What If; you (or your parent/s, or grandparent/s, or family member/s) funded this by ‘topping up’ your home/property loan (borrowing against equity in your home/property)?
1. The debt/liability is a personal debt, will register on your ‘credit file’, will limit your ‘borrowing capacity’ in future when you apply for other credit/loans (reduces your borrowing capacity).
2. Repayment obligation will start immediately, first payment due one month after funds are withdrawn.
3. Your minimum monthly repayments will be approx. $200 per month (based on a fixed interest rate of 7% p.a. and 30 year term) for the next 30 years, or until the debt is paid off.
What If; you applied for HECS loan (A federal Government initiative)?
1. The Government (Taxpayer) will fund your education to the limit of 30k.
2. You do not sign a loan contract, only an obligation to repay in the future.
3. Your loan repayments do not start until you find gainful employment within Australia, and your income/salary does not reach a ‘satisfactory’ level (approx. 50k per year, as per current ceiling – is indexed/increased annually).
“Is there any time limit as to when I need to start working?” = No
“What if I choose not to work at all?” = That’s your choice
“What if my income never crosses 51.3k (or the indexed amount, in the future)?” = No repayments
“What if I live/work overseas?” = No obligation to repay
“Is this a loan?” = It is an obligation to repay based on conditions
“Will I be charged interest?” = No, but your HECS balance is ‘indexed’ (will go up by 2-3% p.a.) to consumer inflation figures as per RBI/Government index (roughly 2 to 3% per year).
“How much will I have to pay back per month?” = Assume your ‘calculable income’ for 2014 is 52k; your HECS ‘repayment rate’ is 4%, per year, of your income; this works out as 4% of 52k, which is approx. $2080 per year, or approx. $174 per month.
Your repayments do not depend on your initial loan amount, or what date you choose to start work, or what date you reach the minimum income threshold (to qualify for repayment deductions from your income); If and when you reach the ‘threshold’, and based on your ‘income band’, you repay a set amount (a percentage of your income divided by 12) per month.

Scenario 2:
You have enrolled into university and estimated your total fees and charges to be approx. 60k, by the time you have finished study. You have made other arrangements to cover your living expenses.
What If; you (or your parent/s, or grandparent/s, or family member/s) funded this using a credit card?
1. A huge amount to put on you plastic, but if you are willing, and the bank too …..
2. The debt/liability is a personal debt, will register on your ‘credit file’, will limit your ‘borrowing capacity’ in future when you apply for other credit/loans (reduces your borrowing capacity).
3. Repayment obligation will start immediately, first payment due one month after funds are withdrawn.
4. Your minimum monthly repayments for the first month would be approx. $1200 or more.
5. Your obligation would be limited to only paying ‘minimum payment due’ (calculated at 2-3 percent of monthly balance).
6. You could end up repaying upto 320k, over a period of 102 years, if you only repaid the minimum amount.
What If; you (or your parent/s, or grandparent/s, or family member/s) funded this by taking a personal or consumer loan?
1. The debt/liability is a personal debt, will register on your ‘credit file’, will limit your ‘borrowing capacity’ in future when you apply for other credit/loans (reduces your borrowing capacity).
2. Repayment obligation will start immediately, first payment due one month after funds are withdrawn.
3. Your minimum monthly repayments will be approx. $1400 per month (based on a fixed interest rate of 14% p.a. and 5 year term) for the next 5 years.
What If; you (or your parent/s, or grandparent/s, or family member/s) funded this by ‘topping up’ your home/property loan (borrowing against equity in your home/property)?
1. The debt/liability is a personal debt, will register on your ‘credit file’, will limit your ‘borrowing capacity’ in future when you apply for other credit/loans (reduces your borrowing capacity).
2. Repayment obligation will start immediately, first payment due one month after funds are withdrawn.
3. Your minimum monthly repayments will be approx. $400 per month (based on a fixed interest rate of 7% p.a. and 30 year term) for the next 30 years, or until the debt is paid off.
What If; you applied for HECS loan (A federal Government initiative)?
1. The Government (Taxpayer) will fund your education to the limit of 60k.
2. You do not sign a loan contract, only an obligation to repay in the future.
3. Your loan repayments do not start until you find gainful employment within Australia, and your income/salary does not reach a ‘satisfactory’ level (approx. 51k per year, as per current ceiling – is indexed/increased annually).
“Is there any time limit as to when I need to start working?” = No
“What if I choose not to work at all?” = That’s your choice
“What if my income never crosses 51.3k (or the indexed amount, in the future)?” = No repayments
“What if I live/work overseas?” = No obligation to repay
“Is this a loan?” = It is an obligation to repay based on conditions
“Will I be charged interest?” = No, but your HECS balance is ‘indexed’ (will go up by 2-3% p.a.) to consumer inflation figures as per RBI/Government index (roughly 2 to 3% per year).
“How much will I have to pay back per month?” = Assume your ‘calculable income’ for 2014 is 65k (let us assume you got a better paying job for the 60k you spent on your degree); your HECS ‘repayment rate’ is 5%, per year, of your income; this works out as 5% of 65k, which is approx. $3250 per year, or approx. $271 per month.
Your repayments do not depend on your initial loan amount, or what date you choose to start work, or what date you reach the minimum income threshold (to qualify for repayment deductions from your income); If and when you reach the ‘threshold’, and based on your ‘income band’, you repay a set amount (a percentage of your income divided by 12) per month.

Scenario 3:
You have enrolled into university and estimated your total fees and charges to be approx. 120k, by the time you have finished study. You have made other arrangements to cover your living expenses.
What If; you (or your parent/s, or grandparent/s, or family member/s) funded this using a credit card?
Forget it, very unlikely and not practical.
What If; you (or your parent/s, or grandparent/s, or family member/s) funded this by taking a personal or consumer loan?
1. The debt/liability is a personal debt, will register on your ‘credit file’, will limit your ‘borrowing capacity’ in future when you apply for other credit/loans (reduces your borrowing capacity).
2. Repayment obligation will start immediately, first payment due one month after funds are withdrawn.
3. Your minimum monthly repayments will be approx. $2800 per month (based on a fixed interest rate of 14% p.a. and 5 year term) for the next 5 years.
What If; you (or your parent/s, or grandparent/s, or family member/s) funded this by ‘topping up’ your home/property loan (borrowing against equity in your home/property)?
1. The debt/liability is a personal debt, will register on your ‘credit file’, will limit your ‘borrowing capacity’ in future when you apply for other credit/loans (reduces your borrowing capacity).
2. Repayment obligation will start immediately, first payment due one month after funds are withdrawn.
3. Your minimum monthly repayments will be approx. $800 per month (based on a fixed interest rate of 7% p.a. and 30 year term) for the next 30 years, or until the debt is paid off.
What If; you applied for HECS loan (A federal Government initiative)?
1. The Government (Taxpayer) will fund your education to the limit of 120k.
2. You do not sign a loan contract, only an obligation to repay in the future.
3. Your loan repayments do not start until you find gainful employment within Australia, and your income/salary does not reach a ‘satisfactory’ level (approx. 51k per year, as per current ceiling – is indexed/increased annually).
“Is there any time limit as to when I need to start working?” = No
“What if I choose not to work at all?” = That’s your choice
“What if my income never crosses 51.3k (or the indexed amount, in the future)?” = No repayments
“What if I live/work overseas?” = No obligation to repay
“Is this a loan?” = It is an obligation to repay based on conditions
“Will I be charged interest?” = No, but your HECS balance is ‘indexed’ (will go up by 2-3% p.a.) to consumer inflation figures as per RBI/Government index (roughly 2 to 3% per year).
“How much will I have to pay back per month?” = Assume your ‘calculable income’ for 2014 is 100k (let us assume you got a better paying job for the 120k you spent on your degree); your HECS ‘repayment rate’ is 8%, per year, of your income; this works out as 8% of 100k, which is approx. $8000 per year, or approx. $667 per month.
Your repayments do not depend on your initial loan amount, or what date you choose to start work, or what date you reach the minimum income threshold (to qualify for repayment deductions from your income); If and when you reach the ‘threshold’, and based on your ‘income band’, you repay a set amount (a percentage of your income divided by 12) per month.

Now, dear readers, you tell me ….. which one would you chose and why?

I will leave the forum open to you now.
What are your thoughts on all of this?
What is your experience?
Come, join the discussion, and share your ideas and experiences.
I look forward to your opinion, counter argument, response, constructive criticism, feedback, etc.

Looking forward to hearing from you

Hari

 

October 2013 – Points to Ponder

What is happening in our economy … How are financial markets doing … And a question from one of our readers; “How do I know if I have made or lost money on my property?”

Dear Readers,

Thanks to all of you for accepting our invitation, for accessing our blog, and for your participation and feedback. Your positive feedback inspires me to explore new ideas and topics. We look forward to more of your active participation.

You have read our discussion on the most important asset we are likely to buy in our lifetime – “Our Home” – And some thoughts on how to go about decision making – July 2012 Blog; “Is it the right time to buy property?” – http://tinyurl.com/n9x3yqq
You have noted our thoughts on the subtle difference between “Price and Value” of any asset, especially your family home – November 2012 Blog; “What is the Value of My Property?” – http://tinyurl.com/lxu33n8
You are now familiar with the young couple Shaun & Sarah, who share and benefit from our stories and thoughts – December 2012 Blog – http://tinyurl.com/ljl4lke
You have read our thoughts on ‘what to look for’ when buying a property – August 2013 Blog; “True costs of owning your home” – http://tinyurl.com/l7v6ckn

This month’s blog is a response to conversations I am had with readers in response to our September blog. But first ….

The Big Picture

Global Overview: We do not see any substantive positive change from our September 2013 outlook.
The mega drama that went on re; “Debt Ceiling” in the US, the absurd theatre performed by US lawmakers of both parties, and the repeated broadcast of this epic all over the world, has not changed a fundamental fact;
The US government is deeply, some would say fatally, in debt to the tune of around 17 trillion USD (how many zero’s in a trillion ….. anyone?).
Some go as far to say it is closer to 60 trillion, if you take into account all the “unfunded liabilities / promises” that the US government has to fund (The ‘cradle to grave’ welfare and other programs).
So the battle has been postponed for a few months (‘the can kicked further down the road’); and the business of “over-spending money that they do not have” (created out of thin air) continues.

Local Impact: A mind boggling USD 85 Billion is being printed by the US ‘FED’, every month, and is flooding (and distorting) global financial markets; creating asset bubbles, mal-investment, risk-return-distortions, etc.
It is harming the most productive and prudent section of any prosperous economy – The people who produce (earn) surpluses, who plan long term, who save for the future (these ‘savings’ being the vital capital needed to build and sustain our economy, in the long term).
Please read our July 2013 Blog – http://tinyurl.com/m3z736t – for details on this subject.

Topic of the Month:
I had a stimulating conversation with one of our readers based on our September blog, and the question was; “How do we know if we have made or lost money on our property?”
Good question.
How many times have we not heard, (on most social occasions when the conversation eventually turns to ‘property and prices’);
Did you hear … seems xyz bought property five years ago for 500k … recently sold it for 650k … that’s a cool 150k in the pocket, right? …

Let us stop right there and consider a scenario; Say a couple (typical family) bought investment property 5 years ago; they paid 500k purchase price; it cost them approx. 25k to purchase; total outlay 525k.
Say they (as usually happens) borrowed 525k to fund this purchase (they had equity in their home and used it to borrow the full amount);
Property was rented out through an agent; rental yield (income) was reasonable and steady.
Now fast forward 5 years … let us say they sold the property recently for 656k …
Well, there it is … 156k profit … right?
Wrong …
Let us consider costs of buying property (purchase costs), of keeping it (debt servicing and maintenance costs), and of disposal (selling costs).
It works out about 156k.
“What do you mean? We have not made any money over the last 5 years”? You may ask.
You are right; this is break even (before tax – remember capital gains tax), no actual profit made.

One important NOTE: We have deliberately not considered ‘negative gearing’ aspect (or what we call “getting some of our tax money back” …)
But you may say; “why not … We do get some tax benefits … silly to ignore this fact” …

There is a reason why I play devil’s advocate here. Some sobering facts for us to consider;
70 – 80% of investment property owners have, on an average, total family income of less than 100k.
A typical working family may have one full time and one part time income.
A majority of investment property owners seem to not use their ‘negative gearing’ benefits for future investment (savings and wealth-creation) purposes; it is more likely to be used for discretionary spending (‘a reward or treat for the family’).

So, let us assume this couple are an exception; say the couple have annual income of 60k and 30k each (total 90k).
Let us take full ‘negative gearing benefits’ into consideration.
They bought for 500k five years ago, borrowed 525k, sold for 656k recently.
Total cost (costs of buying + costs of keeping + costs of disposal) = Approx 127k.
Actual profit made = 29k (before tax – remember capital gains tax).

All above calculations are based on sound/practical assumptions. Your individual circumstances are different, and calculation will vary based on your particular circumstances.

We are more than happy to work out numbers and discuss your particular needs, wants and goals.

I will leave the forum open to you now.
What are your thoughts on all of this?
What is your experience?
Come, join the discussion, and share your ideas and experiences.
I look forward to your opinion, counter argument, response, constructive criticism, feedback, etc.

Looking forward to hearing from you

Hari

 

September 2013 – Points to Ponder

What is happening in our economy … How are financial markets doing … And a story on “Think and Plan before buying your Home”

Dear Readers,

Thanks to all of you for accepting our invitation, for accessing our blog, and for your participation and feedback. Your positive feedback inspires me to explore new ideas and topics. We look forward to more of your active participation.

You have read our understanding of the meaning of “Money” and a brief history of its evolution over time – August 2012 Blog – “What is Money” – http://tinyurl.com/lshbsjs
You have read our thoughts on how the concept of money has been distorted and manipulated, over time, and the unsatisfactory “Paper Based Fiat Money” we currently have (Various Blogs – Nov 2012 to April 2013)
You have read our discussion on the most important asset we are likely to buy in our lifetime – “Our Home” – And some thoughts on how to go about decision making – July 2012 Blog – “Is it the right time to buy property?” – http://tinyurl.com/n9x3yqq
You have noted our thoughts on the subtle difference between “Price and Value” of any asset, especially your family home – November 2012 Blog – “What is the Value of My Property?” – http://tinyurl.com/lxu33n8
You are now familiar with the young couple Shaun & Sarah, who share and benefit from our stories and thoughts – December 2012 Blog – http://tinyurl.com/ljl4lke
You have read our thoughts on ‘what to look for’ when buying a property – August 2013 Blog – “True costs of owning your home” – http://tinyurl.com/l7v6ckn

This month’s blog is a response to conversations I am having with clients who are getting impatient while searching for property. But first ….

The Big Picture

Global Overview: We outlined a major concern re; creation, printing and oversupply of ‘Fiat Money’ into global financial markets; we explained how this is affecting us directly – Global impact, National consequences, and damage to your hip pocket – July 2013 Blog – http://tinyurl.com/m3z736t

We do not see any substantive positive change from the July 2013 outlook.
Even a hint, from the US central bank (the FED), of just thinking of reducing the monthly 85 Billion US Dollars (how many zero’s in a billion, anyone?) being “created out of thin air” and dumped into financial markets (to prop up collapsing bond markets), let alone stopping it, was enough to send panic spasms all over the world.
Asian and sub-continent currencies (national paper money prices compared to USD) dropped 10-30%.
Our (Australian) Dollar has fluctuated around 6-8%.
Putting it in a simpler way; it is near impossible to de-addict global financial markets from this “drug” called “Money created out of thin air”.

And one of the ways this has been possible is to keep “official” interest rates artificially low.
US short term lending rate (FED rate) is a mind boggling 0.25%.
Australian short term lending rate, currently 2.5%, is the lowest in decades.
You may be enjoying lower home loan rates for now (5-6%).
But this may have created gross distortion of the ‘risk and return’ balance.

Topic of the month: Think and Plan before buying your Home

Scenario: Let us say you have savings of $100,000; you want secure investment option with minimum risk. Few years ago you may have got a decent return with minimum or no risk to your capital, say 6-8%. Nowadays you get 3-5%; you are not happy; you are now forced to consider other investment options with higher risks.
If you think it is bad enough here consider what is happening to savers in the US. They are looking at 0.5% to 1.5% returns on ‘safe, minimum risk’ investments.

But how does all this relate to the property market?
Good question; have you heard of property market bubbles?
When a lot of people, from all over the world, are not happy with how things are going with their economy; with how their currency value is ‘dropping’; with their governments hounding them, trying to extract more from them, in the name of welfare of the people; with not getting good returns from safe, ‘low risk’ investments; with having to lower their lifestyles or start spending their hard earned savings; and having waited for 2-3 years, or more, to enter the property market.
A lot of people may start looking at ‘Bricks and Mortar’, property, as a safe, ‘risk free’ investment.
And the best option they see is residential property – Homes, units, villas, etc. as investments.
And they would like to ‘diversify’, keep some of their hard earned money from the clutches of their governments.
And you understand how ‘supply and demand’ works; lot more buyers bidding for limited supply of ‘products’.
And remember, many of them are doing it out of concern, or even panic; they may have big sums of money to spend, or ‘park’ safely; they may not consider ‘todays fair value’; they may want to ‘get it’ at any price, hoping its value will go up in the ‘future’.

And remember, there is no one single ‘property market’; there are national markets (different countries), States, Cities, Towns, Villages, Suburbs; each has its own complex dynamics; reasons for different prices for similar properties; even different streets in the same suburb have big variation in prices.
Read our June 2012 blog – http://tinyurl.com/n9x3yqq – for a detailed analysis on this subject.

Are you saying we are in a property bubble?
Yes, we are seeing some irrational behaviour, in some parts of residential property markets, in some suburbs of major cities and towns.

Are you saying current prices do not justify fair value?
‘Beauty is in the eye of beholder’; we have tried to explain, in detail, relationship between supply, demand, price, value, and buyer behaviour in Nov 2012 blog – http://tinyurl.com/lxu33n8

So what should we do? When is the right time? How do we decide?
Good questions; each of our individual circumstances are unique; there is no one ‘simple’ solution;

We have listed some points to keep in mind while buying property;
Property is a long-term investment, not a way to make a quick buck; there is high cost of entry (purchase costs), high cost of ownership (loan interest, fees, maintenance, utilities, government costs, etc.), and cost of disposal (selling agent charges, tax, moving and relocation, etc.)
Property is a ‘lumpy’ and ‘illiquid’ investment; you cannot buy or sell a window, door, garage or room.

First ask yourself; are we ready to enter this market; is our relationship, health, employment, income, etc. stable.
Then ask yourself; are we managing our income and spending wisely; are we saving; how much do we have in funds;
Then ask yourself; do we have a goal; do we have a plan to get there; how much money do we need to buy property; how do we go about it;
Then, find a professional Finance / Credit Adviser; make sure you are comfortable working with them; explain your current situation; discuss your plans and goals; ask a lot of questions; ask for possibilities and options; think carefully and decide an option that suits you, not the lender, bank or broker.
Then, and only then, ask your Credit Adviser to help you get finance approval.
Then, ask your Credit Adviser to assist you; with information; tools; analysis; scenarios; so that you can make informed choices on where to buy, what to buy, how much to pay, how much to borrow, etc.
Then, ask your Credit Adviser to assist you; with information; tools; to help you setup your finance/loans in the best way; to help you manage it efficiently.

Bottom Line: There is no such thing as “finding a bargain”; or, “timing the market”;
You buy property only when you are ready and capable; you stick to your plan and budget; you choose wisely; you look after your property and hold on to it long-term; and you manage debt wisely.

I will leave the forum open to you now.
What are your thoughts on all of this?
What is your experience?
Come, join the discussion, and share your ideas and experiences.
I look forward to your opinion, counter argument, response, constructive criticism, feedback, etc.

Looking forward to hearing from you

Hari

 

August 2013 – Technology and Your Money

Dear Readers,

A brief article on the evolution of technology, money and its effects on us.

Our regular monthly article “Points to Ponder” will follow shortly. Happy reading.

New wonderful technologies and the battle to take your money off you, new and easy ways of spending it, and the future of money itself ….

I was intrigued by Edward Ho’s (thanks Ed) link to an article discussing “Amex wants your phone to be your wallet”. I made a brief comment on LinkedIn on 15/08 (http://tinyurl.com/mb9sdot)  

A few more thoughts came to my mind;

The ‘wave’ and ‘pass’ of your plastic (our Credit & Debit Cards) is now passé

There is now talk of ‘plastic’ itself becoming extinct.

‘Biometrics’ is the new buzzword

Will Iphone5 have fingerprint readers?

Are other phone makers far behind this path, if not ahead?

Your watch, ring, any other ‘accessory’ will do, why just your phone?

We are talking about MONEY here, our ‘Hard Earned’, ‘After Tax’ leftover bits we call ‘Net Income or Salary’.

As we have said in earlier articles (August 2012 Blog – “What is Money”), thousands of years ago there was barter system of exchange (I have surplus cows, you have surplus grain, let us exchange). Over time, barter evolved into a more efficient system where gold & silver become the standard of exchange – The Currency.

Economies evolved from communities, to villages, to towns, to cities, to kingdoms ……Time and distance complicated trade and commerce and eventually political power started to dominate economic power. Rulers, Kings, Emperors and eventually Governments monopolised the creation, administration, supply and control of Money.

This is money by ‘Fiat’, and it soon evolved into ‘Paper Money’ – Currency denominated mostly in paper notes, which we call paper money.

Money, and its sibling, Credit then transferred into electronic ‘Bits & Bytes’, parking itself in ‘ether’ (thin Air) – It can now have no physical form (not even paper) – And unimaginable amounts, Trillions, (how many zeroes in a trillion, anyone?) moves around the globe every hour of every day …..

Money is now ‘Bits & Bytes’, electronic information, embedded into pieces of plastic cards (our Credit & Debit Cards), which are used, and money transacted, by being authenticated (verified) in various forms – Signature, PIN, Wave, Pass, etc.

This is our money, our means of exchange to buy and trade – to essentially survive and prosper – transforming itself from a physical form (first Commodities, then Gold & Silver, then Paper) to electronic ‘blips’ in ether……

We have some contrarian thoughts to share with you;

Many of us are already drowning in debt (spend first, pay later).

The temptation to ‘Have, Possess, Buy, Own’ stuff (things, toys – call it what you want) is inescapable, right in your face, everywhere we go.

The means of exchange (pay money, get goods or services) is becoming almost unconscious.

What damage can this do to our ‘Cash Flows’ and ‘Balance Sheets’?

What about Security, Misuse, Privacy, Fraud, mistaken identity, Disputes, etc.?

Looking at the Macro picture, what effect can these developments have on our ‘already creaking and jaded’ national and global banking systems?

What about long term viability, integrity, feasibility of our current concept of ‘Fiat’ money?

And the ‘monopoly & control’ of money by our governments?

Are we seeing new forms of ‘Money’ emerging?

Will they emerge from ‘We the People’, ‘Private Enterprise’ and the ‘Free Market’?

Will they be allowed to compete with current ‘Fiat’ money systems in place?

A lot of ideas to think about. Let me throw the field open to you. What are your thoughts on all of this?

What is your experience?

Come, join the discussion, and share your ideas & experiences …….

I look forward to your opinion, counter argument, response, constructive criticism, feedback, etc.

Hari

 

July 2013 – Points to Ponder

What is happening in our economy … How are financial markets doing … And a story on “True Cost of owning your Home”

Dear Readers,

Thanks to all of you for accepting our invitation, for accessing our blog, and for your participation & feedback. Your positive feedback inspires me to explore new ideas & topics. We look forward to more of your active participation.

You have read our understanding of the meaning of “Money” and a brief history of its evolution over time (August 2012 Blog – “What is Money”)
You have read our thoughts on how the concept of money has been distorted and manipulated, over time, and the unsatisfactory ‘Paper Based Fiat Money” we currently have (Various Blogs – Nov 2012 to April 2013)
You have read our discussion on the most important asset we are likely to buy in our lifetime – “Our Home” – And some thoughts on how to go about decision making (July 2012 Blog – “Is it the right time to buy property?”)
You have noted our thoughts on the subtle difference between “Price and Value” of any asset, especially your family home (November 2012 Blog – “What is the Value of My Property?”)
You are now familiar with the young couple Shaun & Sarah, who share and benefit from our stories and thoughts (December 2012 Blog)
This month’s blog is a response to recent “News” in Media about “Advantages of Owning newer Units/Apartments in preference to individual houses”.

The Big Picture

Let us quickly look at the global and local (Australian) outlook on the economy and property market. We see not much cheer in Europe and the US economy.
The huge and unprecedented “Money supply/Printing” by Central Banks (Mainly the US Fed, the EU and Bank of England programmes) have resulted in very little benefit to the “Real Economy”, while creating new bubbles (and further inflating and distorting existing bubbles) in various asset classes (Bond Markets, Property Markets, etc.).
More worrying is the recent “Competitive Currency War” being subtly played out by China, Japan and other BRICS countries – A downward spiral game of “Beggar Thy Neighbour’s Competitive Trading advantage”.
On top of all the Trillions of Dollars “Created out of Thin Air” and pushed into the global markets, the US Fed has been (since last few months) pumping an additional 85 Billion Dollars, Monthly, to add fuel to the monetary fire waiting to spread out of control.
Even a hint of “Possibly thinking of, maybe, reducing this “85 Trillion per month” in future, set off a minor earthquake in global asset markets.
And all this “Money” is not doing much (some would say nothing) for the real economy – The Banks do not want to take risks and lend it out ……

But how does this affect me? What is the connection?
The GFC (Global Financial Crisis) which hit us in 2007-08 has not been, in our view, properly understood. The panic reaction in 2008 was to throw money (Literally – Think of Billions of dollars of handouts to the car industry, handouts to various other manufacturers and exporters, disastrous Govt programmes – like ‘Pink Batts’, Building the Education Revolution’, etc., – Direct cash transfers to families and children, and much more).
Our (Australian) economy is a lot more unhealthy today compared to 2007-08. Producers and consumers are low on confidence. Investors and entrepreneurs (both local and overseas), who create wealth and jobs, are closing shop and paying off their debts.
Our national debt looks to be around 260 Billion (A record) and growing. This debt is in our name and we are all, indirectly, paying interest on this debt. How and when are we going to repay this debt?
And now, well, they are hoping that we mugs (consumers) will go out and borrow more and more (We are already drowning in debt) and, somehow, magically, “All will be well again”.
(Please read December 2012 and January 2013 Blogs for more details)

Topic of the Month – True Cost of Owning your Home

We have discussed, in detail, our thoughts on Price and Value of your property, including some thought provoking questions in our November 2012 Blog – “What is the Value of My Property”. Please read this for more details.
In our December 2012 blog “Is your home your ATM” we discuss the story of Shaun & Sarah, and some facts of real costs of ownership of your home / property.

Recently, I had an interesting conversation with a couple wanting to buy their first home. They had been enticed to look at buying a recently built unit in a block with extra amenities like security cameras and access, lift, “elaborate recreation area”, gym, pool, sauna, etc.
They requested my assistance in comparing this unit with an simpler unit without all these “fancy” add-on’s.
Location, size, access (to recreational venues, shopping, major roads and public transport, etc.) quality, etc. of both units were broadly similar.
There was one major difference – Quarterly Strata cost for the older unit was upto $300, for the ‘fancy’ unit – upto $1200.

‘How does this affect us over the long term’? Was the obvious question; Here are some numbers;

This is an extra cost of $900 per quarter (ongoing and possibly increasing, over the long term).
This worked out at upto $3600 per year ($1200 minus $300 times four).
Assuming that you own this ‘fancy’ unit and live in it for 10 years;
And you would have used this surplus $3600 towards additional repayments towards your mortgage;
And your average mortgage interest rate, over the next 10 years, would be 7% per year;

The total cost, compounded, over the 10 years of owning and living in this property would be upto $53,000 ……… (And we are ignoring inflation and other factors).
This works out Approx. $445 per month.

Several interesting questions / responses (some of them emotional) were raised;
Why are some properties, built recently, comparatively more ‘Expensive’?
Why are strata charges on some properties, built recently, comparatively higher?
Do the “Add-Ons” not enhance appreciation of property values over the long term? Will we not get a higher resale price for our property in the future?
Will we not use the “Add-On” – The swimming pool – and will it not add value to our lifestyle?
Will we not use the “Add-On” – The Sauna – and will it not add value to our lifestyle?
Will we not use the “Add-On” – The Gym – and will it not add value to our lifestyle?
How can this affect our long term financial goals?

Watch out for next month’s blog for some lively feedback and answers to points raised above.

I will leave the forum open to you now ………… What are your thoughts on all of this?
What is your experience?
Come, join the discussion, and share your ideas & experiences …….
I look forward to your opinion, counter argument, response, constructive criticism, feedback, etc.

PS: ‘Tax Returns’ time, end of year, I am sure you are all going through the process. Where is that ‘Tax Return Cheque’? Would you rather spend it or save?

Looking forward to hearing from you

Hari

 

April 2013 – Points to Ponder

What is happening in our economy … How are financial markets doing … And a story on  “Risk & Protection”

Dear Readers,

Thanks to all of you for accepting our invitation, for accessing our blog, and for your participation & feedback.  Your positive feedback inspires me to explore new ideas & topics. We look forward to more of your active participation.

One of our readers, an ‘experienced blogger’ and ‘twitterati’ (yes, he does have crooked thumbs, and is prematurely hunchbacked … Ha Ha) recently commented that the normal attention span of ‘online content scanners’ (people who browse & read online content) is getting shorter and focus is on single subjects, rather than a wider range of comments.

I also attended a Google seminar recently, which backed this observation …

We have taken this hint … and will focus on single subjects in our monthly blog.

A recent real event within my professional circle has made me write this article.

Topic of the Month – Risk & Protection

I introduced a young couple, Shaun & Sarah, to you in the December 2012, Jan 2013 and Feb 2013 blogs. Let us use these characters as the main players in this story.

Act 1

Picking up the story midway from the Feb 2013 blog (see Feb 2013 Blog for details) ……

A friend/family member/well-wisher introduces them to this guy Hari. They listen to what Hari has to say, ask a lot of questions, discuss various options, and decide on a course of action………

Hari has brought up the subject of Risk Protection and posed a few questions to think about …

Do you have financial liabilities ? (mortgage, debts, etc.)

Is your current lifestyle funded by your income/salary producing activities ?

What if, for some reason, you are unable to work/function normally ?

How would you fund your debt obligations and daily lifestyle ?

Bottom line – How many days, weeks, months can you financially cope without having to sell your hard earned assets ?

Shaun & Sarah have a chat …..

We have been Ok so far ……

Nothing will happen to us …..

Why pay for insurance …. dead money ….. can do better things with our money …..

Did you say something about insurance in our super ? ……

We’ll be all-right …..

Time goes by, life goes on, till one day Hari gets a call from Sarah …… Shaun is in hospital, We need to talk

Now let us rewind ………. Pretend we are back where Shaun & Sarah are having a frank discussion on Risk Protection ……….

Act 2 – Shaun & Sarah have a rational discussion on what Hari has brought up – Risk Protection …..

Yes, we have a mortgage and other commitments.

Yes, our current lifestyle is solely funded by our income/salary.

Yes, We will have to use up our hard earned savings, if We are unable to work/function normally.

No, our savings would not last us for more than a few months.

What about our long term goals, if we use up our savings ?

Bottom line – Hari is right, We need to have suitable protection …..

Shaun & Sarah Discuss their needs with Hari and decide on adequate Risk Protection. Hari organises cover and helps set it up for Shaun & Sarah.

Time goes by, life goes on, till one day Hari gets a call from Sarah …… Shaun is in hospital, We need to talk

Hari assists Sarah and helps them with their claim. Financial assistance from the claim helps Shaun & Sarah to cope well. Life goes on, with minimum disruption ….. A satisfactory outcome.

Moral of the story – We cannot predict what tomorrow will bring, but We can try and take sensible action to cover and mitigate.

As the famous saying goes ….. Wishing, and hoping, and crying, and praying will not help …. But your Insurance Policy just might …..  

 Looking forward to hearing from you

Hari