Month: August 2014

Career Planning is Like Walking Through a Foggy Maze

I’d like to talk about career planning. Many times I think back at my career development and think about lessons learned. What I have discovered is that career planning just doesn’t seem to work.

Many people pressure you into defining what you want to do before you go out and do it. The problem with this idea is that it assumes that it is easy to determine what it is that will fulfil you. It is not. Suppose you think you like accounting. There are so many branches of accounting that you can’t possibly know if the branch you eventually fall into will satisfy you. Furthermore, there is so much more that makes up career satisfaction than a broad academic category like “accounting.” You may love cost accounting but when you end up in a job where you hate the people you work with or you hate your manager, you will not be happy.

To complicate matters, although you may think you like accounting, there is no guarantee you will even end up in an accounting role. You may study accounting and specialize in, say, accounting standards, but once you enter the job market you may find that there are no jobs available that suit your stated passion, and you have to settle for something else.

Career planning is like walking through a maze. You know you need to reach your destination and you may know the general direction of your destination, but there are multiple walls or obstacles around you, so much so that long-term planning seems pointless.

So what are we to do when we walk through the foggy maze that is our career? When you walk through a maze, you focus on what is ahead. You focus on the walls around you. You focus on what paths that are available for you right then and there. If you make a wrong turn and reach a dead end, you walk back and learn your lesson.

The same applies with your career. You follow the paths available to you. If the only jobs available are general finance graduate jobs rather than the accounting standards job you were hoping for, it may be better to settle with what is available. Even if you get something you think you want, for whatever reason, you may end up not like it. Even if you end up liking something, circumstances change. Your manager can change. There might be a restructure. The world is not fixed, and planning too much leaves you inflexible and vulnerable to a rapidly changing world.

We need to be flexible and adaptable. We need to be prepared to be the best we can be regardless of the situation presented to us.

Is Your Primary Residence an Asset? Yes, But…

I was having lunch with a colleague a week ago and he said the following to me: “Your primary residence is not an asset but a liability because you have to continually pay for it. You don’t own your house. The bank owns it.”

This got me thinking because years of education has taught me that a house is an asset since assets are defined as anything that produces value. A house can be rented out to produce rental income. Indeed, it is an asset according to this definition.

But technicalities aside, I do understand what my friend was trying to say. After some googling, I found that this concept derives from the book Rich Dad, Poor Dad in which Robert Kiyosaki explains that a house generates negative cashflow and therefore is a liability for you.

He is wrong. It is not the house that creates the negative cashflow. It is the mortgage. The problem is, for most people, in order to afford a house, they need to accept the mortgage because they simply don’t have enough cash to buy a house outright.

It is this connection that the bank has concocted that fools people. When you buy a house, you get an asset, but it doesn’t end there. Two sets of assets are created. The first asset is the house, which you hold. The second asset is debt, which is held by the bank. Houses tend to go up in value, but not always. House prices tend to move up only slowly and are volatile. The asset the bank holds, on the other hand, is much more valuable. The bank holds debt. It produces income no matter what. Even if you default, the bank simply takes your house. Effectively, when the bank lends you money to buy a house, it is doing two things: (1) directing cashflow from you to itself and (2) transferring risk from itself to you. The cash the bank would have held would have sat in a vault doing nothing but by lending it to you, that cash now generates interest that flows to the bank. Rather than buying real estate itself and suffer from the risk of volatile prices, the bank simply puts that risk on you by lending to you. It gets a steady income while you wear the risk.

I am not against buying a home. What I advise against is the debt. Unfortunately, when most people buy homes, it is connected to debt. It is like coffee. Research shows the antioxidants in coffee prevents prostate cancer in men. But if you put four teaspoons of sugar in your coffee, the sugar will hurt your health. Likewise, even though a house is great for you, the debt that is attached is what will work against you. If you need to buy a home, I recommend you buy a small home to minimise the debt. Otherwise, pay off the debt as quickly as possible. Rent out spare rooms. I have nothing against buying a house as an investment, but it is best to stay out of debt.