Thursday, October 8, 2009

Stuck on a hamster wheel running round and round?

Life is bit like that. We are always so busy working and running around. But if you stop to take a look, did the world change and you haven’t changed with it?

You may find yourself thinking after a few years of working…have you really achieved anything? You’ve found your partner, had your kids, did the obligatory thing and sold your apartment to buy a house so that you could have children. Then when the house got crowded, you sold that one and upgraded to a bigger one with a bigger mortgage.

Now you find yourself working harder than ever and wondering what happened and how did you find yourself working like a dog 9-5 or even longer hours than that. And yet, your mortgage is bigger than ever, time is passing furiously and you’ve got stacks of bills to pay, a family to look after and the thought of retirement is scaring you because you know you need to start saving for retirement but how can you when there’s just nothing left at the end of the month?

This is probably one of the most common situation people find themselves in, because they’ve taken the common route in life. Go to school, go to university/college, study hard, get a job, get married, buy a place to stay, have some kids, sell the small place and upgrade to a bigger house, pay the mortgage for 25-30 years, retire and then die.

Sometimes it’s not perfect. That is, you can’t find a partner, you don’t have kids, you married but then you divorced, you divorced and remarried with stepchildren, you can’t afford to buy any property at all, you didn’t study etc

The problem with life is that it demands us to know what we want to do when we’re 18 years old and by the time we’re in our twenties or thirties, we have a ghastly suspicion that we may be working in the wrong job or not doing something that we really want to do such as philanthropic work, starting your own business or contributing more to society.

If you have not had kids yet, you should be saving as much as possible while you still can. When you have kids, you will find yourself with many more expenses than ever before and find saving anything a very difficult thing to do.

We’re all on the hamster wheel to some extent. When we were students, we earned very little, but our expenses were also low. As you get older, you typically (hopefully) earn more, but as the income increases, you will find your expenses grow to match the income. How? You end up spending more, buying more, eating out more, living more lavishly, renting a bigger apartment, buying a bigger house.

With expenses increasing as your income increases, there’s not really much left over to save and invest. So you can find yourself on a hamster wheel, running harder than ever, but going around in circles.

Once of the biggest problem I’ve noticed happening with a lot of couples, is that they have kids and then they buy a bigger house. Their mortgage is so big (we’re talking $400,000 to $800,000) that all they do is just barely scrape through with the monthly mortgage repayments. The problem with just barely making the mortgage payments means there is not much left over to make extra repayments. If you read my articles under the “All about mortgage loans” label, then you will see how devastating the effect is when you can’t make extra repayments.

If your mortgage loan is $300k, interest is 8%, the term is 30 years and you make the required monthly repayments of $2201…. You are slaving at work to pay the bank about $2000/month and only knock about $201 off the loan principle…you are in effect, building up your equity and net wealth by only a measly $201/ month. Of course, the ratio changes as you progress through the months and your property may rise in value(capital appreciation) but the amount that borrowers pay in mortgage interest is one of the secret destroyers of wealth. Particularly when it’s a loan on a home they live in and the interest is not tax deductible.

The best time for any of this self realization to occur is in our twenties, and if you’re past your twenties, then the best time is today. By starting today, we’ve got time to take note of how far we’ve come, where we would like to go, and then make plans on how we achieve that. You can be happier.

Whenever you feel that you’re on a hamster wheel going round and round, all you have to do is get off it. Take a step back, do a bit of meditation or contemplation, take a day off or find some ‘alone’ time with yourself to evaluate your life and the directions you would like to head towards. Write it all down so that you can take the weight off your mind.

It’s all about reconciling our inner dreams and desires with our practical reality. The reality of life is that things aren’t handed to us on a platter. If we want any dreams to come true, we have to figure out a way to achieve it. It’s just like when you were younger, you believed in the tooth fairy (which is the dream) and your parents made it come true (which is the reality). When you grow up though, you are now the adult or the parent and you will have to create your own reality.

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