Tag: Money

Is Saving Money Depriving Yourself? 

“The best thing money can buy is financial freedom.” ~Rob Berger

One of the biggest problems most people have is that they believe that only spending money makes them happy. As a result, many people are reluctant to save because they reason that, taken to the extreme, if they save up money, they will be rich when they are older, but then they will be too old to enjoy that money.

The problem with this line if reasoning is that it assumes that spending gives happiness and therefore saving up money means you are not spending money and therefore while you are saving you are depriving yourself, making yourself unhappy.

The problem with this reasoning is that it ignores the happiness that comes from holding money rather than spending it.

When you hold money, you give yourself freedom and optimism about the future. You give yourself a sense of security. Holding money and investing that money also allows you draw income in the form of dividends, which gives you security because you don’t need to work for that money.

This is why I have no fear of dying with money saved up. I imagine I will adopt a child when I am very old and he or she will inherit everything or I will just will it to charity.

Many people consider this wasteful but it is not. Money held is not wasted. It serves a useful purpose, which is to give you passive income and security, which gives you happiness.

How to Invest Post-Brexit

The ASX200 went down about 5% after Brexit. A few days earlier, I purchased about $19k worth of gold mining ETFs (ASX: GDX). GDX went up 10% on Friday, so much that it made up for the losses from my other investments in my margin loan account. However, if you add up money in other areas, such as my super fund, my Vanguard funds, and so forth, I’m sure I made a net loss immediately after Brexit. I believe that there is a huge bubble right now in the economy caused by money printing. The economy is fragile because this bubble could pop any moment now, but it’s difficult to know when the bubble will pop. It may take decades before the bubble pops, so you need to have a strategy that allows you to profit when the bubble continues to inflate while also protecting you if the bubble pops.

What I am doing is focusing on dividend income but hedging this portfolio by buying gold mining stocks, gold ETFs, and maybe some government bond ETFs. I am less bullish on bonds because I think that they are artificially being pumped up with printed money. Gold is better as a safe haven asset compared to bonds as bonds are being artificially inflated by central bankers.

In my opinion, we are entering a period of stagnation similar to what we see in Japan where the stock market goes sideways and there is no more growth. We have reached the limits of growth, in fact. Investing in dividends allows you to capture income as the market goes sideways, and if the bubble bursts, gold will protect you. You are covered either way.

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What will burst the bubble?

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.