Is your car an asset?
When you approach the bank for a loan of any type, they always ask you to complete forms covering your income, assets and liabilities.
Income: Money coming in
Assets: Investments that appreciate over time and brings money in
Liabilities: Debts and money owed, causing you to pay money out
At the end of the day, the accountant's definition of an asset simplified, is any item/investment whether tangible or intangible, that you own and control that can be sold and converted into money.
Technically your car is considered by the bank as an asset, however it's not the best type of asset to have. Its value depreciates(decreases) over time and it requires you to constantly pay money to maintain it and drive it around.
I never consider my car as an asset because it doesn't generate any income and it really is a big noose around my neck figuratively speaking in terms of all the upkeep expenses. I'll never know its resale value until I try to sell it so how can I include it as an asset when I'm unsure of its resale value?
Is your home an asset? Not according to Robert Kiyosaki.
Robert Kiyosaki (author of Rich Dad, Poor Dad) created an uproar when he wrote that your house is a liability.
Technically the banks consider your house to be an asset. So why did Kiyosaki write that your house is a liability?
He considers the house to be a liability because you live in the house, pay money to fix up and maintain the house AND it doesn't generate an income for you unless you rent out a few rooms or rent out the entire house.
The house is unlike a car because its value generally increases over time so personally, I use it in my calculations as an asset.
I know housing in the US and the UK has had a crash lately but at the end of the day, looking long term in a few decades time as population increases, housing price(particularly land value) will increase and someone will want to buy it from you. Whereas your car will be an utterly worthless piece of junk in a few decades time.
Although it sounds like I'm being anal and making a huge fuss over nothing, if you cruise the PF blogs and check out what other blogger's net worth is, you can't quite compare the bloggers because some omit the car and the house, some omit just the car and some include both.
All of them will tell you whether they include the car or the house because they're just as anal lol Anyhoo, just thought I'd do a bit of myth busting on the topic of cars and houses and whether they're assets or liabilities.
Cheers x
Showing posts with label Wealth. Show all posts
Showing posts with label Wealth. Show all posts
Sunday, June 19, 2011
Monday, May 16, 2011
Crying poor on a family income of $150,000
When the budget information was unleashed, suddenly the comments section on mainstream news sites were inundated with unhappy people writing in about how they can't survive on a family income of $150,000 and that they NEED the Government subsidies that were slashed(Baby Bonus, Family Tax Benefits and Paid Parental Leave). It was a very harsh budget for middle income families.
Can you survive on $150,000 per annum?
My question to families that will be affected: If there are families out there that can survive on less, then why can't your family survive on less too?
There are families living in metro and greater Sydney that are earning minimum income(around $30,000pa) or a family income significantly less than $150,000 per annum and if they can survive on $80,000 for example, then why can't the family on $150,000?
At the end of the day, the Government isn't there to subsidise anybody's lifestyle. If a family decides to live near the beach, harbourside or at inner city suburbs or to enrol their children at Private Schools with school fees of $20,000 per child each year, is that a really good reason as to why the Government should subsidise those choices? Should the Government be subsidising families that are going on annual vacations overseas or on skiing holidays?
If you think that the middle to upper class is getting the raw end of the stick, the latest budget is also bringing the stick out to lower income earners, the unemployed who will have to try harder to qualify for their unemployment money, the single parents and the disabled. Or the kids who are earning 'unearned' income.
As long as they don't dabble with Capital Gains Tax(CGT) concessions and Negative Gearing, then I don't care how many subsidies they cut.
A lot of the business owners and wealthier families who have plenty of investment assets have been keeping rather quiet on this budget. They have plenty of investment assets and as long as the budget or tax changes don't meddle with CGT or Negative Gearing, they probably won't care too much about the cut subsidies either. Sure, there's going to be a sense of regret because who doesn't want to get 'free money'(which technically isn't free because you paid taxes) from the Government?
Tuesday, April 19, 2011
Australian's per capita wealth is $266,600
What is per capita wealth and per capita income?
An economic measure that is bandied around commonly by economists and statisticians.
But right now, our rate of savings are supposedly at record highs and we are taking out less new loans (credit card, car loans, mortgages, personal loans etc), making extra repayments on existing mortgages and paying down debt.
Craig James, CommSec's chief economist has crunched the numbers and have concluded that
* Our per capita wealth is $266,600
* Our per capita debt is $23,056
* Overall wealth per household is almost $700,000
Median wealth(ie: the centre of the bell curve or the wealth of househould in the middle) would have been a more useful figure but economists prefer to use per capita wealth (which is total wealth divided by population number).
The problem with averages and per capita numbers are many though. If there's a larger number of poorer households or very wealthy households, then this can skewer the average resulting in the per capita or average figure being a useless number on which to base any comparison for the majority of the population.
But why are households so gloomy and pessimistic?
Living costs are seriously inflating. Fuel prices are up, cost of fruit, vegetables and meat are up. Utility prices of gas, water, electricity are up. Interest rates are up crippling debt holders. Median rental prices are up which means struggling renters and low availability of rental properties. If Gillard can manage to execute her Carbon Tax scheme then it's game over for inflation control.
Electricity prices will be increasing as well starting 1st July this year:
* EnergyAustralia 17.9%
* Integral Energy 16.4%
* Country Energy 18.1%
Rental stress
Anglicare's Rental Affordability statistics alleges that 600,000 families live in serious rental stress. Rental stress is defined as when households spend more than 30 per cent of the family income on rent.
Per capita wealth of $266,600 is a misleading figure
It only takes a few billionaires and several millionaires to skew the per capita number resulting in a meaningless result that doesn't reflect the majority of the population. The number that skews the results is referred to as the 'outlier'.
I'll illustrate using two examples, assuming the population is a country with only 5 people in its population. Noting that there are limitations in having a population size of 5.
Example 1 where the outlier is a high wealth household:
If wealth of the five people are $10,000, $30,000, $35,000, $40,000, $500,000
Median wealth would be $40,000
Per capital wealth would be $123,000
The maths to calculate per capita wealth:
(10k+30k+35k+40k+500k)/5 (population number) = $123,000
The median wealth of $40,000 is a more accurate representation of the population than the per capita wealth (which is similar to average wealth).
Example 2 where the outlier is a low wealth household:
If wealth of the five people are $10,000, $300,000, $360,000, $400,000, $500,000
Median wealth would be $360,000
Per capita wealth would be $314,000
As mentioned, there are limitations to these calculations of mine too because of the small population size. Australia's population of 22 million means that the median wealth of the househould ranked at 11 million would have been more reflective of where the bulk of the household wealth value lies.
Using the median household wealth would have meant that the poorer households aren't dragging down the per capita wealth and the wealthier households aren't inflating the per capita wealth.
An economic measure that is bandied around commonly by economists and statisticians.
- Per Capita Wealth - Total wealth of the country divided by the country's population number
- Per Capita Income - Total personal income of the country divided by the country's population number
But right now, our rate of savings are supposedly at record highs and we are taking out less new loans (credit card, car loans, mortgages, personal loans etc), making extra repayments on existing mortgages and paying down debt.
Craig James, CommSec's chief economist has crunched the numbers and have concluded that
* Our per capita wealth is $266,600
* Our per capita debt is $23,056
* Overall wealth per household is almost $700,000
Median wealth(ie: the centre of the bell curve or the wealth of househould in the middle) would have been a more useful figure but economists prefer to use per capita wealth (which is total wealth divided by population number).
The problem with averages and per capita numbers are many though. If there's a larger number of poorer households or very wealthy households, then this can skewer the average resulting in the per capita or average figure being a useless number on which to base any comparison for the majority of the population.
But why are households so gloomy and pessimistic?
Living costs are seriously inflating. Fuel prices are up, cost of fruit, vegetables and meat are up. Utility prices of gas, water, electricity are up. Interest rates are up crippling debt holders. Median rental prices are up which means struggling renters and low availability of rental properties. If Gillard can manage to execute her Carbon Tax scheme then it's game over for inflation control.
Electricity prices will be increasing as well starting 1st July this year:
* EnergyAustralia 17.9%
* Integral Energy 16.4%
* Country Energy 18.1%
Rental stress
Anglicare's Rental Affordability statistics alleges that 600,000 families live in serious rental stress. Rental stress is defined as when households spend more than 30 per cent of the family income on rent.
Per capita wealth of $266,600 is a misleading figure
It only takes a few billionaires and several millionaires to skew the per capita number resulting in a meaningless result that doesn't reflect the majority of the population. The number that skews the results is referred to as the 'outlier'.
I'll illustrate using two examples, assuming the population is a country with only 5 people in its population. Noting that there are limitations in having a population size of 5.
Example 1 where the outlier is a high wealth household:
If wealth of the five people are $10,000, $30,000, $35,000, $40,000, $500,000
Median wealth would be $40,000
Per capital wealth would be $123,000
The maths to calculate per capita wealth:
(10k+30k+35k+40k+500k)/5 (population number) = $123,000
The median wealth of $40,000 is a more accurate representation of the population than the per capita wealth (which is similar to average wealth).
Example 2 where the outlier is a low wealth household:
If wealth of the five people are $10,000, $300,000, $360,000, $400,000, $500,000
Median wealth would be $360,000
Per capita wealth would be $314,000
As mentioned, there are limitations to these calculations of mine too because of the small population size. Australia's population of 22 million means that the median wealth of the househould ranked at 11 million would have been more reflective of where the bulk of the household wealth value lies.
Using the median household wealth would have meant that the poorer households aren't dragging down the per capita wealth and the wealthier households aren't inflating the per capita wealth.
Tuesday, April 5, 2011
Do poor families have the same opportunies as affluent families?
Inequality in our education system
There is a lot of inequality in Australia. Despite being classified as an advanced and wealthy nation, we still have a lot of poor and financially struggling familes as opposed to super wealthy families.
During a dinner catchup with a friend, one of the conversation topic was, "everyone has equal opportunity to change their life", regardless of whether you're from a poor or an affluent background.
Although the concept of equal opportunity sounds reasonable, in reality the application is significantly unequal. Poorer families live in disadvantaged neighbourhoods where there are thugs, druggies, a higher ratio of unemployed adults, people bumming around on the street, a lot of theft, car burglars and generally unsavoury characters milling around the area.
Affluent families send their kids to after school and/or weekend tutoring, music lessons, a lot of extracurricular sports such as rowing and snow sports.
Teens drop out of school a lot earlier, a lot of them don't continue onto higher tertiary education.
Have a look at the school fees that Private Schools charge per student, although there may be family discount that applies if there are at least two or more siblings enrolled.
If you had the typical two kids, you would have to pay around $324,000 more or less, before they finished high school. A lot of these Private Schools provide iPads for their students. A lot of them also list laptops as compulsory.
Money still can't buy intellect or academic superiority, it does buy contacts though and networking. At the end of the day, it is still the selective schools that dominate the rankings in terms of academic performance and ranking. Selective schools are free if parents elect not to pay the voluntary $150(or thereabouts) school fees.
There is a lot of inequality in Australia. Despite being classified as an advanced and wealthy nation, we still have a lot of poor and financially struggling familes as opposed to super wealthy families.
During a dinner catchup with a friend, one of the conversation topic was, "everyone has equal opportunity to change their life", regardless of whether you're from a poor or an affluent background.
Although the concept of equal opportunity sounds reasonable, in reality the application is significantly unequal. Poorer families live in disadvantaged neighbourhoods where there are thugs, druggies, a higher ratio of unemployed adults, people bumming around on the street, a lot of theft, car burglars and generally unsavoury characters milling around the area.
Affluent families send their kids to after school and/or weekend tutoring, music lessons, a lot of extracurricular sports such as rowing and snow sports.
Teens drop out of school a lot earlier, a lot of them don't continue onto higher tertiary education.
In NSW we have four types of schools:
- Public Schools - government run
- Private Schools - privately operated
- Selective Schools - government run for academically gifted students
- Catholic, Christian, Muslim etc Schools - religious denominational schools
Can you afford to send your kids to Private School?
Have a look at the school fees that Private Schools charge per student, although there may be family discount that applies if there are at least two or more siblings enrolled.
If you had the typical two kids, you would have to pay around $324,000 more or less, before they finished high school. A lot of these Private Schools provide iPads for their students. A lot of them also list laptops as compulsory.
Money still can't buy intellect or academic superiority, it does buy contacts though and networking. At the end of the day, it is still the selective schools that dominate the rankings in terms of academic performance and ranking. Selective schools are free if parents elect not to pay the voluntary $150(or thereabouts) school fees.
| School Name | School Fees for 2011 |
|---|---|
| Scotts College | $28,296 |
| Kambala | $27,700 |
| SCEGGS Darlinghurst | $27,405 |
| Cranbrook | $26,904 |
| Ascham | $26,475 |
| King's School | $26,091 |
| Sydney Grammar | $25,776 |
| Trinity Grammar | $25,330 |
| SCECGS Redlands | $25,300 |
| Newington | $24,696 |
| PLC Sydney | $24,110 |
| Pymble Ladies College | $23,700 |
| Knox Grammar | $23,430 |
| Barker College | $23,370 |
| St Andrews | $23,133 |
| MLC Burwood | $22,420 |
| Kincoppal Rose Bay | $22,290 |
| Roseville College | $21,105 |
| Loreto Normanhurst | $18,256 |
Friday, February 18, 2011
Peform monthly or fortnightly financial health checks for optimum results
Everyone should perform a financial health check at least once a month, if not fortnightly.
The benefits are vast:
1) You can see what bills need to be paid, what you've paid, tally up any expenses if you track them and update accounting or financial management software if you use them
2) If you have a budget then you can see how your actual income and expenditure measures up against your budgeted ones
3) If you've got savings in high interest accounts, in term deposits or whatever, then you can have a quick hunt around to see if there are better rates on offer, negotiate for them with your existent bank or set up new accounts and transfer your funds into them
4) You can check to see if you've been meeting your liabilities and have been making payments against outstanding debts
5) If you've got funds in transactional accounts not earning any interest, then move them into a high interest account
6) If you've got debts or bills to pay, you can figure out how you're going to allocate your income to pay them, instead of waiting until the due date comes around and then panicking about how to pay them
Recently I just performed mine. It involves doing the following:
1) Checking the interest rates on my online saving accounts and ensuring that I'm receiving a competitive rate on my savings
2) Pay my bills, check for future bills that may be forthcoming, check my expenditure for the month, compare with previous month and if I can be bothered, compare with last years
3) Recurring bills such as insurances, checking to see other offers out there and requesting or changing to something more competitive if I can't get a better deal
3) Finding out the balance of my superannuation retirement funds, the balance of my HECS student debt, checking the market value of my portfolio of stocks (although the iphone Bloomberg app is fantastic for this - it will automatically update the prices whenever I'm on the WiFi)
4) Check the social events that are coming up and the gifts that I have to buy (birthdays, baby showers, special events) or give (most wedding gifts require money to be given as gift since most couples are already living together)
The results of my recent financial health check:
1) (good) Savings account were good, all up for 2011
2) (good) Interest and dividend incomes were good, also all up for 2011
3) (good) Stock portfolio was good (capital gains), up for 2011
4) (good) Superannuation retirement fund was good, also up for 2011
5) (good) Expenses for Jan/Feb 2011 was down from Jan/Feb 2010, which is good
6) (good) Investment loan liability balance for Feb 2011 is down from Feb 2010, which is good
7) (stable) My HECS student debt is pretty flat, have been contemplating making another lump sum payment in April. I had the plan to make an additional lump sum payment in April off my HECS / HELP debt to drop the balance to 30% (ie have 70% paid off)
8) (good) Net wealth balance is up comparing Feb 2010 versus Feb 2011, which is good
No Euro trip for 2011, bummer:
Unfortunately the Euro trip will have to be for 2012 instead. It turns out, I barely have any annual leave days left after burning through so many days in 2010. So as a result, the 2011 savings/funds will be utilised in four possible ways:
1) Lending some to my friend to buy the replacement car since it was my fault that we were in that region when the guy wrote off the car and the insurance payout is insufficient for buying a replacement
2) Spending some on a snow trip somewhere, either Australia or New Zealand
3) Buying the investment property or
4) Doing nothing and buying some(all) toys on my wish list
Note on Jan/Feb 2010 vs Jan/Feb 2011 - I had a lot of one off expenditures in Jan/Feb 2010 which I didn't fortunately have to incur for Jan/Feb 2011. Expenditures such as passport renewal, prepaying for tickets etc for our trip to Japan and Hong Kong, medical expenses. I got really gouged by medical expenses last year to the tune of $3,314 and wrote two post on medical bills:
* Navigating our health insurance
* Poor health can send you broke
The benefits are vast:
1) You can see what bills need to be paid, what you've paid, tally up any expenses if you track them and update accounting or financial management software if you use them
2) If you have a budget then you can see how your actual income and expenditure measures up against your budgeted ones
3) If you've got savings in high interest accounts, in term deposits or whatever, then you can have a quick hunt around to see if there are better rates on offer, negotiate for them with your existent bank or set up new accounts and transfer your funds into them
4) You can check to see if you've been meeting your liabilities and have been making payments against outstanding debts
5) If you've got funds in transactional accounts not earning any interest, then move them into a high interest account
6) If you've got debts or bills to pay, you can figure out how you're going to allocate your income to pay them, instead of waiting until the due date comes around and then panicking about how to pay them
Recently I just performed mine. It involves doing the following:
1) Checking the interest rates on my online saving accounts and ensuring that I'm receiving a competitive rate on my savings
2) Pay my bills, check for future bills that may be forthcoming, check my expenditure for the month, compare with previous month and if I can be bothered, compare with last years
3) Recurring bills such as insurances, checking to see other offers out there and requesting or changing to something more competitive if I can't get a better deal
3) Finding out the balance of my superannuation retirement funds, the balance of my HECS student debt, checking the market value of my portfolio of stocks (although the iphone Bloomberg app is fantastic for this - it will automatically update the prices whenever I'm on the WiFi)
4) Check the social events that are coming up and the gifts that I have to buy (birthdays, baby showers, special events) or give (most wedding gifts require money to be given as gift since most couples are already living together)
The results of my recent financial health check:
1) (good) Savings account were good, all up for 2011
2) (good) Interest and dividend incomes were good, also all up for 2011
3) (good) Stock portfolio was good (capital gains), up for 2011
4) (good) Superannuation retirement fund was good, also up for 2011
5) (good) Expenses for Jan/Feb 2011 was down from Jan/Feb 2010, which is good
6) (good) Investment loan liability balance for Feb 2011 is down from Feb 2010, which is good
7) (stable) My HECS student debt is pretty flat, have been contemplating making another lump sum payment in April. I had the plan to make an additional lump sum payment in April off my HECS / HELP debt to drop the balance to 30% (ie have 70% paid off)
8) (good) Net wealth balance is up comparing Feb 2010 versus Feb 2011, which is good
No Euro trip for 2011, bummer:
Unfortunately the Euro trip will have to be for 2012 instead. It turns out, I barely have any annual leave days left after burning through so many days in 2010. So as a result, the 2011 savings/funds will be utilised in four possible ways:
1) Lending some to my friend to buy the replacement car since it was my fault that we were in that region when the guy wrote off the car and the insurance payout is insufficient for buying a replacement
2) Spending some on a snow trip somewhere, either Australia or New Zealand
3) Buying the investment property or
4) Doing nothing and buying some(all) toys on my wish list
Note on Jan/Feb 2010 vs Jan/Feb 2011 - I had a lot of one off expenditures in Jan/Feb 2010 which I didn't fortunately have to incur for Jan/Feb 2011. Expenditures such as passport renewal, prepaying for tickets etc for our trip to Japan and Hong Kong, medical expenses. I got really gouged by medical expenses last year to the tune of $3,314 and wrote two post on medical bills:
* Navigating our health insurance
* Poor health can send you broke
Friday, November 12, 2010
Top 10 Books on Wealth
BRW 26th May 2000 (yep from way back then)- Top 10 Books on How to Get Rich
Put the stuff you read into action
Reading them won't achieve that much. You have to put all those theories into practice. Putting them into practice can take years and years. There is no such thing as a get rich scheme except a scam scheme. If you want to get rich quick, it's by innovation involving the internet (eg:ebay/facebook) or being an entrepreneur and they work very hard to get to where they are.
The best classic book for anyone who wishes to have a solid foundation of understanding money - read The Richest Man in Babylon. It was written in 1926 and is still popular in print. And still very highly relevant in today's world.
Did JK Rowling know that her Harry Potter books would go on to change her life and dominate the fantasy book publication and fantasy movie world? That her written words would propel her into the Richest U.K women billionaire spot. Or that she would be the seed for other people's wealth and ambition? Afterall, Daniel Radcliffe, the main actor of the Harry Potter film is 21 years old with an estimated fortune of 42 million pounds. That's 67.8 million AUD and he is just one actor.
Boom and Bust. The business cycle will keep repeating.
I always find these old retro articles interesting. Particularly when they show that the world keeps spinning and humans keep going through the same old cycle of boom and bust in the most fundamental sense.
This is one of the most ironically, illuminating quote that I've seen- Kinghorn, from Rams Homeloan, in 2000 was quoted as saying:
Considering this quote is from 2000, 10 years ago, it is still relevant in today's world. Investors are always seeking higher yields and a lot have sacrificed their stable income investments in exchange for high risk investments. The cycle is always the same. Market crash in 1928/1930s and the great depression, market crash in 1987 with overgearing/over leveraging, technology crash in 2000 (dot com boom) where the market was so crazy hot that people bought at IPOs, paying millions for IT companies that weren't producing any sales nor profits.
And of course, our recent 'global financial crisis' starting in late 2007.
- Rich Dad, Poor Dad - Robert Kiyosaki
- The Cashflow Quadrant - Robert Kiyosaki
- The Millionaire Next Door - Thomas J. Stanley
- Building Wealth Through Investment Property - Jan Somers
- Your Mortgage and How to Pay it off in 5 Years - Anita Bell
- Making Money - Paul Clitheroe
- The 7 Habits of Highly Effective People - Stephen Covey
- Think and Grow Rich - Napoleon Hill
- Share Trading - Daryl Guppy
- The Richest Man in Babylon - George S. Clason Signet
Put the stuff you read into action
Reading them won't achieve that much. You have to put all those theories into practice. Putting them into practice can take years and years. There is no such thing as a get rich scheme except a scam scheme. If you want to get rich quick, it's by innovation involving the internet (eg:ebay/facebook) or being an entrepreneur and they work very hard to get to where they are.
The best classic book for anyone who wishes to have a solid foundation of understanding money - read The Richest Man in Babylon. It was written in 1926 and is still popular in print. And still very highly relevant in today's world.
Did JK Rowling know that her Harry Potter books would go on to change her life and dominate the fantasy book publication and fantasy movie world? That her written words would propel her into the Richest U.K women billionaire spot. Or that she would be the seed for other people's wealth and ambition? Afterall, Daniel Radcliffe, the main actor of the Harry Potter film is 21 years old with an estimated fortune of 42 million pounds. That's 67.8 million AUD and he is just one actor.
Boom and Bust. The business cycle will keep repeating.
I always find these old retro articles interesting. Particularly when they show that the world keeps spinning and humans keep going through the same old cycle of boom and bust in the most fundamental sense.
This is one of the most ironically, illuminating quote that I've seen- Kinghorn, from Rams Homeloan, in 2000 was quoted as saying:
"In this market, you have to do some credit enhancement before you can issue mortgage backed-securities. That usually involves taking out mortgage insurance. In the US, investors will buy subordinated bonds that have not been made bankruptcy-proof; they are preparared to take the risk for a higher yield.I find this rather ironic and self serving on behalf of the financial institutions and investment banks. Firstly, the investment banks were prepared to take on increased risk for higher yields because the funds weren't coming from their own hip pockets. They were using funds from investors and individuals. They knew that there were risks involved but they wanted the commissions and their cut. They didn't care about the future so much as their current bonus and what cut they would get in the immediate future.
We have done bond issues in the US and Euro markets, and we may look at doing a sub-prime bond issue in the US. With that sort of financial structure in place you can do more unusual loans - investment loans, development finance and lending to impaired credits (borrowers with poor credit ratings)."
Considering this quote is from 2000, 10 years ago, it is still relevant in today's world. Investors are always seeking higher yields and a lot have sacrificed their stable income investments in exchange for high risk investments. The cycle is always the same. Market crash in 1928/1930s and the great depression, market crash in 1987 with overgearing/over leveraging, technology crash in 2000 (dot com boom) where the market was so crazy hot that people bought at IPOs, paying millions for IT companies that weren't producing any sales nor profits.
And of course, our recent 'global financial crisis' starting in late 2007.
- Before the financial crises and sharemarket crashed, there was greed, euphoria and investors investing in riskier and riskier assets in the chase for high returns. Ordinary folks want a cut too, they start to move in but usually ordinary folks starts buying and investing when the market has peaked. Backyard BBQ and party conversations involving funds and sharemarkets.
- The market crashes.
- When the market crashes, people start to withdraw their funds from investments that have crashed, from riskier investments and start to direct them towards 'safer' more stabilised investments. Their capital is less prone to fluctuations in stable income investments (government bonds, term deposits, bank saving accounts etc)
- Investors innovate and create more financial/investment/sucker products and start investing again once profits and yields start increasing. The market starts rising again.
- Ordinary folks see this and want their slice of the pie.
- If you're an investor and you start noticing that your firends, relatives and neighbours - the ones that have never been interested in the market, start talking about the markets and their investments, it would be a good idea to start looking at how you can exit the market.
Tuesday, September 14, 2010
Financial Gifts from Parents and Relatives
Have you been the recipient of a financial gift or series of financial gifts?
I stumbled upon the blog of a GenY girl (Meg) living in Texas who receives a financial gift of $24,000 and now $26,000 per annum from her grandparents. She's not the only one receiving monetary gift. It turns out, each of her parents receive $24-$26,000 (approx $52k/annum) and so does her aunties, uncles and all grandchildren! That's some serious wealth sharing practiced by her grandparents indeed.
Although no-one really likes to mention that they've received financial gifts, it does exist and as long as you don't really boast about it, you can fly under the radar unobtrusively without some people resenting you and being jealous.
It did provoke me into reflecting back on the gifts that we (meaning myself, family + friends) have received. Some more substantial than others. The amount depends on how affluent our respective parents are. The gifts aren't always monetary. You've been a recipient if any of these other 'gifts' reasonate with you: dinners paid by parents, cars, jewelleries, holidays paid by your parents, rental/study/living allowances, bills or weddings paid by your parents....
Because I blog and write using my name and not some 'fake' name or anonymous identity, I can't reveal names when it concerns myself. Otherwise I'd be drawn and quartered if anyone knew I was posting up their private financial lives up on the web for the world to read about.
Meg from the 'World of Wealth' blog provides a pretty tasty break down(for those who are interested in snooping about other people's financial health) of her assets and the gifts that she's received. I'd estimate that she's received about $300,000 in monetary gift via the form of trust funds, cash and loans (that are forgiven). Not to mention her family subsidising her travels.
Friend A: Financial gift received $300-$350,000
We all got various birthday presents for our 18th. When we asked her what her best present was, she mentioned that her uncle gave her a house that was worth about $300,000-$350,000(ish). Strangely, I don't think anyone was surprised. A few of us received cars from our parents when we first got our driving licence at 17. We were young and it didn't really mean too much until we attended university.
It turns out that the rental income that she received from her house was paying the fees on her law degree, clothes, entertainment and also with savings to spare. With the two property booms that we've had in 2003 and 2009, the house is probably worth around $500-$700,000 not to mention she's probably earning a significant 100k+ income from practicing law. Not bad at all for a GenY.
Friend B: Financial gift received $300,000
Friend B: He bought a $500,000 house when he was 22 years old. None of us ever explicitly talk about money, income or savings. So we didn't question him about the financing arrangement or anything. I'm not sure how we got talking about property investing but he told me that the $300,000 deposit was a loan from his parents. And now it's a loan that is 'forgiven' so he does not need to pay it back. They were probably waiting to see him mature a bit and behave a bit responsibly with his funds, to stop drinking and partying so much before they let him know he didn't have to pay the loan back. Now the house is fully paid off so that's $500-$600,000 worth of equity that he can pull out to fund future property acquisitions.
He's on the hunt for another property now with his fiance. With a DINKS status and high income for the pair of them, they will probably easily end up in excess of $1m net wealth before their mid thirties.
Friend C: Financial gift received $250,000
Friend C: Same thing as above. $250,000 'loan' that is 'forgiven' and probably was never really a 'loan' in the first place. Between this gift and his own savings, he is another GenY who has amassed $500,000 in net worth and is looking for another property to buy.
Friend D&E: Financial gift received $150,000
Friend D&E: A married couple, one child and stay at home mother. It seems everytime they bring up 'financial issues' to the parents, money is gifted. Both are GenY and have about $360,000 ish in net assets. Not sure what type of 'financial stress' can be felt with assets behind them, but I imagine that if you find yourself spending all that you earn or saving just a small amount, you would feel 'financial stress' regardless of your net asset amount.
Relative A: Financial gifts?? Not sure but the assets sure stack up to a rather significant figure.
My cousins also have affluent parents. And although we never discuss anything too personal between ourselves, occasionally parents like to brag. One proud set of parents induces other parents to start listing their kid's achievements. Family jaunts are always interesting in terms of finding out who is up to what in terms of their investing activities.
Relative A and his wife have accumulated three properties between them. They're both GenY and between the values of their three properties, I'd estimate their gross assets to be $1.44 million. Pretty good. Although I'm not sure if their net assets are also high or whether they're geared up to the eyeballs.
Relative B: 31 years old and has four properties with gross asset values estimated to be about $1.26 million. I would hazard a guess that Relative B is also a recipient of a monetary gift as well.
I could probably go on and on about the friends, relatives and friends of friends that I know who has significant assets. Also, the ones who has received significant monetary gifts. I don't know anyone who is irresponsible. Almost everyone has interesting investment allocations.
Some of my friends aren't as fortunate to have affluent parents and they manage just fine. Without a more invasive discussion though, it's hard to differentiate between the ones that have a massive net wealth and the ones that are massively geared. So on the surface, almost everyone appears to be rather affluent. In summary though, I'd rather ask no question and have no-one asking me questions too. It's a rather private matter really and none of anybody else's business.
Of course, it is an interesting subject :) Financial gifting is a bit like the lottery, except it's usually a lot more reliable. It does open up the question of what a person who is the recipient of the gift will do with the gift. Most friends/family that I know who has received monetary gifts feel guilty if they spent the money on hobbies and holidays. They have used the funds as a deposit for property and to invest and used their own hard earned income to fund their guilty pleasures.
Would you spend or invest if you received a monetary gift of $200,000 or more?
I stumbled upon the blog of a GenY girl (Meg) living in Texas who receives a financial gift of $24,000 and now $26,000 per annum from her grandparents. She's not the only one receiving monetary gift. It turns out, each of her parents receive $24-$26,000 (approx $52k/annum) and so does her aunties, uncles and all grandchildren! That's some serious wealth sharing practiced by her grandparents indeed.
Although no-one really likes to mention that they've received financial gifts, it does exist and as long as you don't really boast about it, you can fly under the radar unobtrusively without some people resenting you and being jealous.
It did provoke me into reflecting back on the gifts that we (meaning myself, family + friends) have received. Some more substantial than others. The amount depends on how affluent our respective parents are. The gifts aren't always monetary. You've been a recipient if any of these other 'gifts' reasonate with you: dinners paid by parents, cars, jewelleries, holidays paid by your parents, rental/study/living allowances, bills or weddings paid by your parents....
Because I blog and write using my name and not some 'fake' name or anonymous identity, I can't reveal names when it concerns myself. Otherwise I'd be drawn and quartered if anyone knew I was posting up their private financial lives up on the web for the world to read about.
Meg from the 'World of Wealth' blog provides a pretty tasty break down(for those who are interested in snooping about other people's financial health) of her assets and the gifts that she's received. I'd estimate that she's received about $300,000 in monetary gift via the form of trust funds, cash and loans (that are forgiven). Not to mention her family subsidising her travels.
Friend A: Financial gift received $300-$350,000
We all got various birthday presents for our 18th. When we asked her what her best present was, she mentioned that her uncle gave her a house that was worth about $300,000-$350,000(ish). Strangely, I don't think anyone was surprised. A few of us received cars from our parents when we first got our driving licence at 17. We were young and it didn't really mean too much until we attended university.
It turns out that the rental income that she received from her house was paying the fees on her law degree, clothes, entertainment and also with savings to spare. With the two property booms that we've had in 2003 and 2009, the house is probably worth around $500-$700,000 not to mention she's probably earning a significant 100k+ income from practicing law. Not bad at all for a GenY.
Friend B: Financial gift received $300,000
Friend B: He bought a $500,000 house when he was 22 years old. None of us ever explicitly talk about money, income or savings. So we didn't question him about the financing arrangement or anything. I'm not sure how we got talking about property investing but he told me that the $300,000 deposit was a loan from his parents. And now it's a loan that is 'forgiven' so he does not need to pay it back. They were probably waiting to see him mature a bit and behave a bit responsibly with his funds, to stop drinking and partying so much before they let him know he didn't have to pay the loan back. Now the house is fully paid off so that's $500-$600,000 worth of equity that he can pull out to fund future property acquisitions.
He's on the hunt for another property now with his fiance. With a DINKS status and high income for the pair of them, they will probably easily end up in excess of $1m net wealth before their mid thirties.
Friend C: Financial gift received $250,000
Friend C: Same thing as above. $250,000 'loan' that is 'forgiven' and probably was never really a 'loan' in the first place. Between this gift and his own savings, he is another GenY who has amassed $500,000 in net worth and is looking for another property to buy.
Friend D&E: Financial gift received $150,000
Friend D&E: A married couple, one child and stay at home mother. It seems everytime they bring up 'financial issues' to the parents, money is gifted. Both are GenY and have about $360,000 ish in net assets. Not sure what type of 'financial stress' can be felt with assets behind them, but I imagine that if you find yourself spending all that you earn or saving just a small amount, you would feel 'financial stress' regardless of your net asset amount.
Relative A: Financial gifts?? Not sure but the assets sure stack up to a rather significant figure.
My cousins also have affluent parents. And although we never discuss anything too personal between ourselves, occasionally parents like to brag. One proud set of parents induces other parents to start listing their kid's achievements. Family jaunts are always interesting in terms of finding out who is up to what in terms of their investing activities.
Relative A and his wife have accumulated three properties between them. They're both GenY and between the values of their three properties, I'd estimate their gross assets to be $1.44 million. Pretty good. Although I'm not sure if their net assets are also high or whether they're geared up to the eyeballs.
Relative B: 31 years old and has four properties with gross asset values estimated to be about $1.26 million. I would hazard a guess that Relative B is also a recipient of a monetary gift as well.
I could probably go on and on about the friends, relatives and friends of friends that I know who has significant assets. Also, the ones who has received significant monetary gifts. I don't know anyone who is irresponsible. Almost everyone has interesting investment allocations.
Some of my friends aren't as fortunate to have affluent parents and they manage just fine. Without a more invasive discussion though, it's hard to differentiate between the ones that have a massive net wealth and the ones that are massively geared. So on the surface, almost everyone appears to be rather affluent. In summary though, I'd rather ask no question and have no-one asking me questions too. It's a rather private matter really and none of anybody else's business.
Of course, it is an interesting subject :) Financial gifting is a bit like the lottery, except it's usually a lot more reliable. It does open up the question of what a person who is the recipient of the gift will do with the gift. Most friends/family that I know who has received monetary gifts feel guilty if they spent the money on hobbies and holidays. They have used the funds as a deposit for property and to invest and used their own hard earned income to fund their guilty pleasures.
Would you spend or invest if you received a monetary gift of $200,000 or more?
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