Money Tree II

Since writing the post on the Money Tree, I came across this excellent article, and spoke to some friends about the reality of home ownership in 2016.

Paying for it: In hock to the greatly outdated Australian dream

My parent’s and my generation were brought up with the expectation that we would own a home, with assistance from our parents in the form of a loan or deposit.  In the mid to late 20th century full-time, permanent jobs were achievable, and the cost of living low enough for couples to live off one wage.

All of this changed around the turn of the 21st century.  People started to invest in housing instead of stocks and bonds, or self manage their own superannuation.  The government offered incentives on investment properties, that weren’t available for personal home loans.  This drove the price of housing up at a rapid rate; 300% in South Australia, and more in the eastern states.

To add to the difficulties in securing a home loan, banks were spooked by the Global Financial Crisis, despite our government going guarantor, and tightened lending regulations for home buyers.  As a result, a fat deposit is no longer the step into home ownership.  It has to be backed with a good credit history and proof of a permanent minimum income.

Permanent full-time jobs are steadily decreasing in Australia, replaced with contract and casual or part-time work.  There is no such thing as job security anymore, and most workers are pushed to their limits with performance management, long hours, unrealistic work expectations, with under-training and an ultra-competitive work place that is constantly looking for ways to streamline procedures and cut costs.

For manufacturers, tariff reduction and free-trade agreements mean making locally is no longer a competitive option, with labour costs far cheaper in poorer countries with lower living standards and workplace conditions.

If you aren’t part of the lucky generation, or politicians, who receive tax free superannuation benefits for the rest of their life after retirement, the next retirement generation is going to be working until they are too old to do so.  Then living on the aged pension with a mortgage or rent still to pay, and adult children to support both financially and physically with day-care for grand-children.

The CityMag article referred to above, looks at the realities of housing today and a change in the way people are living.  We used to live in multi-generational housing, as many cultures still do, but the last century was an odd bump in the road with the “nuclear family”.  The future of housing has to address a much larger population, mass migration due to climate change or war, and less money moving around in the economy.

I don’t think these forced changes to our way of living have to be a bad thing.  The excesses of the 20th and early 21st century in western societies can move to a more inclusive and community based way of living.  Technology allows us to see how other people live and we can learn a lot by simplifying our lives.  I look forward to seeing what an affordable, adaptable, totally self sustainable home can look like.  By removing the expectations of the past, we can start with a clean slate and ask, what are our needs and what makes a meaningful life?


Money Tree

I recently came across a book in an Op shop by Noel Whittaker called “Making Money Made Simple” and thought for $1, why not?  Expecting a dry old tome about financial markets for high income earners, the book was instead surprisingly easy to read and offered lots of good advice that can apply to anyone.

From experience, most artists survive from one sale/commission/grant/exhibition to the next by working in another industry, or having a supportive family.  The previous post was about exploiting our own IP (intellectual property) as a way of making another income stream, but how about planning for the future?

Artists are great at making what looks like a large amount of money, and then nothing for long stretches of time, so it’s either feast or famine!   Bills pile up in between so when the money does come in, it goes straight out again.  This way of living isn’t conducive to putting money aside for emergencies, let alone for a comfortable future.

Whittaker starts by saying that it doesn’t matter how much money we make, everyone makes a different amount and still has trouble living within their means.  So the problem isn’t how much money we make, but spending up to that amount.  The problem with spending all we make is that there is no money for emergencies, and we end up borrowing to pay bills, which then sets up a cycle of debt.

Whittaker’s solution is to retrain our way of thinking.  Set a percentage of our income aside for paying down debt, emergencies, savings and retirement as if we were paying a bill.  Direct debit from our account as soon as we are paid, so the money isn’t there to spend.

Instead of just drifting from one pay to the next, we are told to set goals.  To actually think about what we want to achieve financially and then follow the steps to achieve it, one at a time.  He introduces the idea of  growing your own money tree by starting small, for example 10% each pay, and then investing that amount as it grows.

He suggests prioritising paying down debt that isn’t a tax deduction as quickly as possible, then direct debiting the payments into a separate account as soon as the debt is paid so it is kept aside for saving.  Any extra amount paid on a debt reduces the amount of interest and speeds up the term of repayment.  The money that would have been lost over time is now working for you.

He talks similarly about renting versus buying a home.  In Adelaide it’s still possible to buy a unit for under $200,000 or a house under $300,000.  It seems a lot of money, but not when you consider the amount that disappears in rent each week that could be paying a mortgage.

There is another section on borrowing for investment but I thought the most useful advice was about how to pay off debt and save.  There are chapters on various forms of investment and the advantages and disadvantages of term deposits, property investment, shares and trusts, all in easy to understand language.

Whittaker repeats throughout the book, that the amount of money isn’t the issue, but the discipline to save, even a small amount, each pay.  He suggests drawing up a budget and taking on small jobs to make extra money, such as newspaper delivery or cleaning, to emphasise that every little counts.  The book ends with advice to people at all stages of life, so the message is it’s never too early or late to start growing your nest egg.

Making Money Made Simple