Calvin Hague

What Can Be Done about Killing Sprees?

There has recently been another mass shooting in America, this time in Umoqua College.

Some say this is a mental health issue. The shooter is a sick man who needs help from a psychologist.

But mass shooting are happening so often that I wonder if the problem really is a mental health issue.

I wouldn’t say it’s a mental health issue. I think we live in such a corrupt and evil world today that it’s reasonable to expect that a significant number of normal people would grow so frustrated with it that they suddenly lash out, and a rifle within arm’s reach doesn’t help either.

There needs to be a way for people who don’t fit in with this corrupt and evil world to be able to distance themselves from the world safely and live their lives independently. Maybe a guaranteed minimum income would help. Under this policy, the government pays everyone a guaranteed minimum wage, say, $10,000 per year.

A person so disillusioned with society can take his or her $10,000 per year from the government and go live in the mountains or the forests or even overseas in, say, Chiang Mai, Thailand. The bottom line is that wage slavery should not be the default. There needs to be an option for individuals to drop out.

If a man does not have a guaranteed minimum income from the government, he has to go to university, go to work, and save up until he has enough money to be able to drop out of society.

Not everyone can live off dividends, especially when they are young and have little wealth. That they are forced to slave away at work just to earn their freedom, in my opinion, is an injustice, a sign that although we have progressed from the whips and chains of slavery in the eighteenth century, slavery has not been abolished but has merely evolved.

Is America Socialist?

Is America Socialist? Or is it a shining exemple of capitalism? It really is hard to know.

Now that China is suffering from a downturn, the government there is propping up their share market by buying assets and everyone is finger pointing, saying this sort of socialist intervention in the economy doesn’t work.

But in the US, the Fed intervened in the economy to prop up asset prices after the GFC, and the size and reach of the US government increases all the time, even or especially when Republicans are in power.

The Dismal Future of the Australian Economy

gold price vs asx200 27 august 2015 — GOLD vs the ASX200 (Commsec)

The recent volatility in stock markets has gotten me worried. Everyone keeps telling me to relax because “economic fundamentals are sound,” but when I ask them to explain how this is true, it’s revealed that they don’t really know what they’re talking about. It seems that most people just hope for the best and rationalize away bad news.

The Chinese stock market is certainly wobbly. Some say the Chinese economy is very healthy. After all, they have low debt and a massive foreign exchange reserve. They are the biggest lender nation in the world with the USA the biggest creditor nation. However, we don’t really know much about the true size of China’s debt because there is significant activity in the underground economy that is not transparent, and I’m not too confident in official figures provided by the Chinese government. Of course, China has been manufacturing products from t-shirts to smartphones, but the government has in recent years been intervening in the economy to prop up the stock and property markets. It’s uncertain whether these distortions can be held together by the government or whether the market will eventually strike back.

America has resorted to printing money, which has resulted in surges in the stock and bond markets. However, unemployment is still high and wage growth is low. Printing money doesn’t seem to have done anything other than make the holders of stocks and bonds wealthy (these are mostly wealthy people anyway).

In Australia, our economy used to be dominated by two sectors: the banks and the miners. The miners dug resources from the ground and shipped them to China. China makes goods and ships them to US consumer who buys these goods.

But the American consumer (or consumers from any other developed country) is not buying as much as they did before the GFC. This means China is slowing down, the price of resources is dropping, and the mining sector in Australia is getting crushed. We only have the banks left, and how do they make money? The balance sheets of Australian banks is mostly in loans to consumers who buy real estate. Real estate prices have been going up thanks to profits from mining. In other words, banks do well because house prices have been sustained by profits from the resources sector. Now that mining is dead, what will sustain us? Where are our strong fundamentals? House prices only go up with people buy houses, but to buy houses you need to make money in the first place. You can’t make money from houses without putting money into it in the first place.

Many who have bought stocks have made great wealth from quantitative easing, but now that tears are emerging in a bubbling world economy held together by printed money, it’s time to look at investing in gold.

Gold tends to shoot up significantly when stocks tumble, and when stocks go down, gold tends to go sideways or go up anyway, so there doesn’t seem to be any downside to investing in gold.

Personally, I will be buying this shiny metal from now on.

Fear of Being Fired and Fear of the Future

Today is Sunday. Last night I stayed up until three in the morning. I woke up today at nine, which means I got six hours of sleep, which is not good. It would explain why I feel so horrible today. I don’t want to sleep in because I know I’ll have trouble waking up early tomorrow for work. I know poor sleep increases cortisol and destroys muscle. I had a lunch catch up with a friend booked in today, but I didn’t feel like going, so I texted him and told him I was busy. I didn’t get into the detail. He seemed cool with it.

It’s all hitting me, I suppose–my girlfriend ignoring me, my career completely stagnating, my lack of sleep, my lack of good friends. I’ve recently been mulling over in my head a new income goal. I currently earn $80k a year in income. About $5k of that is from investments (conservative estimate) and $75k is from my salary. I aim to increase gross income from all sources by $5k per year. This means next year I should be earning $85k and the year after that I’ll be earning $90k and so forth. I can increase my income by getting promotions or progression at work, but if that fails (and it probably will) I can save up more and rely on investment income. I am also going to get serious about starting a side business on the internet so I can earn money online. I need some goal to keep me motivated otherwise I will start to get lazy and depressed.

I’ve heard rumours at work that senior management will fire a few people in the next few weeks. Supposedly they have a few people they want to target. I can only hope I don’t get fired, but even if I do get fired, it’s not like I love my job or anything. I’m not fully certain what I’ll do if I get fired, whether I’ll hunt for another similar job, start over and do something completely different, or fly over to Asia and retire. There are always options, I suppose, so I don’t have too much fear, and I do have savings. I’ve always been paranoid about the future. I avoided marriage, mortgage, and children for this reason alone. This is the thing about the future: it is always uncertain and scary. You want to give yourself the best opportunity as possible to tackle the future. That means you need good health, no debt, and no massive obligations or commitments.

Love and Frugality

Last night I watched a romantic movie called Before Sunrise. It is about a young boy and girl who meet on a train, get off at Vienna, and spend the night in the city before they need to separate from each other the next day. I thought the movie was absolutely beautiful and I suppose by watching it I feel great loss that I never really fell in love with anyone. I’ve been on quite a few dates (most of which are first dates) and had one relationship that lasted for a year, but otherwise I’ve lead quite a simple life. I would love to fall in love like they do in the movies.

Of course, the frugal side of me tells me that just because something is glamorized in a movie it doesn’t mean I should follow it. Movies, TV shows, books, and other forms of art have a way of making you desire things more and creating greater expectations. Greater expectations normally lead you into spending more money than you otherwise would.

Saving up money is simple. You simply don’t spend much. Of course, if it were this simple, why are most people living under enormous debt? I think it is because most people have high expectations. An average person may earn $50,000 per year, but if his expectations are such that he needs to spend $50,000 per year in order to afford the things he feels he needs, he will not save anything. However, if his expectations are lowered. If he were to suppress his desires such that he can live on $10,000, he’d be able to save much more.

Where do expectations come from? There are two sources: internal and external. Expectations can come from yourself when you tell yourself that you need something or that you don’t need something. But expectations can come from others: friends, girlfriends, TV, movies, salesmen, etc.

When we talk to ourselves, we can try to convince ourselves that we don’t need something that we may desire. To react to external influences, we can avoid friends who spend more than we do.

To suppress feelings of love or desire, it is probably best if I avoid romance movies or books. If I keep watching these movies, I desire more.

The point I am making is that love is the tool that other people use to make you desire something, and desire leads to greater expectation, and this normally leads to greater spending. Marketers try to make you love a product so that you buy it. Women try to make you love them so that you spend money on them. It is sad then that in order to be successfully frugal that you must suppress your love. They say love is a beautiful thing, and it can be, but when I look at all the examples of love in the real world, I have trouble separating acts of love from acts of greed, envy, or hedonism. From one perspective, love is beautiful, but look at a different perspective and love is also vile or vulgar.

Can I live a life without love or desire? I doubt it. I am willing to spend money to pursue love, but it must be controlled.

Reduce Spending vs Increase Income

I currently aim to save 85% of my after-tax pay (as recommended by Early Retirement Extreme). I try not to tell too many people in real life about my high savings rate, but back in the days when I was more naive, I’d talk about my savings rate all the time, and one common response I hear is the recommendation that I should be focusing on increasing income rather than reducing spending.

My response to this recommendation is: why not do both? Why not increase income and reduce spending at the same time? Why assume that you can only do one or the other?

While I recommend increasing income and reducing spending at the same time, I recommend you put more effort into whatever gives the biggest bang for your buck. In other words, do what gives the greatest return on effort.

For example, when I graduated from university and started working, I was earning only $40,000, and four years later that has approximately doubled. I have received only one promotion. I am on a fixed salary with zero bonuses. I get paid the same amount regardless of my performance. I don’t consider this to be spectacular, but I have been saving approximately 80% to 85% during that time, and adding my salary plus my passive income from investments, my total income today puts me into a higher tax bracket whereby I pay approximately 40% on income tax. In other words, due to progressive income taxation, higher income is rewarded with higher taxes. I am a big fan of progressive income taxation mainly because it earns government significantly high tax revenues while also reducing the gap between rich or poor, but there is no disputing that for some people progressive income taxation reduces the incentive to work hard because once you are at a certain income, effort is not sufficiently rewarded.

This is why I prefer to save. Saving is easy. One very easy way to save money is to automate. For example, talk to HR and ask them to send 85% of your income into a separate savings account. All this will take about one hour. Assuming you earn an average salary of $50,000 and pay zero tax, you will be saving $42,500 per year. In other words, one hour of work will give you are return of $42,500.

Now suppose I were to try to increase my income. I’d have to search for jobs, catalogue my skills and achievements, update my resume, write a CV, talk to referees, apply for the job, talk to the relevant contact at the firm, practice for the interview, go to the interview, and follow up after the interview. All this will take maybe 50 hours and even then there is no guarantee I’ll get this job, and even if I do, the increase in salary is only about $10,000, and that is not counting taxation.

Which gives the better bang for your buck: one hour of work yielding $42,500 or 50 hours or work yielding $10,000? This is extreme example, but I think it illustrates my point.

Everyone is different. For those working in jobs that pay performance bonuses (e.g. real estate agents), a structure is in place that rewards hard work, so there is no question that you should be working hard at achieving these performance targets. Furthermore, while automatically saving 85% of income is easy for some, if your circumstances are such that you must spend a lot (e.g. you have a mortgage, children, or expensive housewife) then you may have no choice but to focus on increasing income rather than reduce spending.

The bottom line is that is does not matter whether you make money by making money or saving money (“a penny saved is a penny earned”). What matters is that you devote your limited time and efforts to whichever area provides the greatest return.

Thoughts on “Early Retirement Extreme”

I love listening to podcasts when I’m driving, exercising, or stretching. It’s free education and entertainment. A recent podcast I’ve listened to that I feel I need to write about is one on the Survival Podcast featuring Jack Spirko interviewing Jacob Fisker of Early Retirement Extreme.

I have always been fans of both Jack Spirko and Jacob Fisker, so having these two together in a podcast is brilliant. Basically, Spirko is a “modern survivalist” who works to set up a homestead in the country where he can take refuge in if there is ever some disaster scenario. He focuses on self-reliance, independence, frugality, and being prepared. Even if nothing happens, it doesn’t hurt to be prepared.

Jacob Fisker of ERE, on the other hand, is different. Whereas Jack Spirko works outside the system (or “off the grid”) in order to free himself from it, ERE is about using the system to your advantage, i.e. applying capitalism to achieve freedom (or as the ERE website sometimes says, taking advantage of “rentier capitalism”).

Fisker’s story is remarkable. He takes retirement to the absolute extreme. Mainstream retirement advice is that you save up 5% or 10% of your income and then over forty years or so, assuming some wildly optimistic rate of return and then harnessing the power of compound interest, you will retire when you are incredibly old and frail with an income that is about $50,000 a year.

ERE, in a nutshell, states that you save up to 85% of your income and then retire within five years. Because you are saving up in five years, compound interest does not matter. What is remarkable about Fisker is that he was able to retire at age 33 after saving 85% of his income with an income of only $25,000. He achieved this by e.g. not having a car and walking to work (walking about five miles back and forth).

Suppose the typical person earns $50,000, and assuming zero taxation (for simplicity), then in five years, assuming you save up 85% and assuming zero rate of return on your savings (again for simplicity), you’d have a little over $200,000 saved up. Assuming a rate of return of 5% on the savings if invested in a mixture of cash, bonds, stocks, REITs, etc, you’d be earning about $10,000 per year or about $800 per month.

Can you live off $800 per month? In a country like Australia or even the United States, I think it’s highly unlikely. Maybe you can buy a place in the country and scrape by, but I’m not too sure.

However, in a country like Thailand, $800 per month is more than enough.

JC of Retire Cheap Asia is a retirement consultant who lives in Thailand. He advises expats from America and other developed countries on how to retire in Thailand. According to him, the minimum amount you need to survive in Thailand is $500 per month. At $500 per month, you live a very rough and bare life. However, if you have $1000 per month, you live a life of luxury. An income of $800 per month achieved through five years of Early Retirement Extreme would afford you a comfortable existence in Thailand (see Retire Cheap Asia Retirement Income Categories). This applies not just to Thailand but other countries like Cambodia, Philippines, and maybe even Belize and many others.

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.

The Borrower is Slave to the Lender

I am not religious, but I am definitely not an atheist because I don’t know for sure that a god does not exist. The best word to describe me is agnostic.

I have my doubts about the Bible, but there is no denying that the Bible is an excellent manual for personal finance. If you want advice with money, forget financial advisors. Go to the Bible.

Perhaps the most important biblical financial verse in the Bible is Proverbs 22:7, which states that “the rich rule over the poor, and the borrower is slave to the lender.” This Biblical verse wowed me when I read it as a teenage boy in school. It opened my eyes to the fact that far from being equal, the world we live in today has powerful people and weak people, and coercion and slavery in modern times is carried out not with whips and chains but with debt, fees, penalties, and compounding interest.

The question is, which will you be? Will you be a borrower or lender, a slave or a master?

“Neither a lender nor a borrower be,” says Shakespeare, which is very noble. I personally like to be a master rather than a slave.

Borrowers are pathetic. They go to the bank and beg for money. Then they work nine to five, whoring themselves to the organization in order to earn cash to pay back the banker. These banks make incredible profits from lending. Which would you rather be, the borrower who works like a slave or the bank who owns the slave? I prefer to be the bank, which is why I own bank shares or, even better, bank ETFs.

When I recommend you lend, I don’t recommend you lend money to family and friends. Do not do this! You lend by getting experts to lend for you, that is, put your money into bond funds or, as I said earlier, buy bank ETFs. If you’re new to investing and don’t know what a bond or an ETF is, a savings account is a good start. Banks lend out money in your savings account to others.

What about borrowing to invest? Is that not good debt? The answer is no. There is no such thing as good debt. Debt is debt is slavery. Debt is a legal obligation to pay, which means you must work in order to repay. If you must work against your will, that sounds like slavery to me. Investments in real estate, shares, and even education can be lucrative, and when they pay off, the debt you incurred may in theory be worth it. But these investments are not guaranteed. You are taking a risk. The more you borrow, the bigger the risk is. The bank, who lends you money, takes no risk. The bank collects interest repayment from you regardless, and if you default, they take your house or have some other legal means to collect the debt. All the risk is on you. You might win, you might lose, but the bank always wins.

If you absolutely must borrow (for example, you need a car to drive to work), be careful you don’t get carried away. Make sure the debt is as small as possible and repay it back as quickly as possible. Sacrifice everything (vacation, etc) to get out of debt quickly because your freedom from slavery is at stake.