Comfort with money

Risk…the possibility that something bad will happen. To my great chagrin the financial services industry, or at least those who are not prepared to do much thinking on the subject, have no clear concept of what is “risk” and what are its degrees. If you walk across a railroad track there is a risk that the train will run over you and you will be dead. If you walk across a rail crossing and the train is coming in your direction at 80 kilometres an hour and you stay on the track in front of the train there is no “risk” that you will be killed, there is a “certainty”. Risk then includes the possibility that something bad will happen which clearly includes some possibility that nothing bad will happen. Early in my career as a financial planner Macquarie Bank published a handbook which set out to characterise types of risk relating to money and investments (note the difference). I have lost my little book so I’ll try to remember the types of risk they spelled out. Ma...

Two middle aged gentlemen with whom I was acquainted had remarkably different tastes, especially about what they spent their considerable wealth on. One loved driving relatively new luxury European cars and had his annual holiday in the “family” home, which his father had built at Tin Can Bay when all his kids, including my acquaintance, were pre teens. The other spent his money either on stateroom cruises in exotic parts of the world or brief exotic holidays in places where $500 a night for hotel accommodation was regarded as being on the low side. He drove a 12 year old Holden that he had bought second hand. Every time they met up they would discuss their most recent car purchase or their most recent cruise or land based holiday. On each of these occasions they would greet each other with the same “ Jeez I wish I could afford the sort of holiday (sort of car) that you have.” My definition of “afford” is simply being able to meet your financial commitments as and ...

How you spend your money, your discretionary money that is, is a matter of your personal choice but as long as it is YOUR choice then no one should criticise what you spend it on. Having chosen to spend it, that money has gone. You have therefore lost the OPPORTUNITY to do something else with that money. When you can identify chunks of money that you have spent and calculate what income you could be making by investing that money in something else that would earn you “x” dollars, the “x” dollars you do not have is the opportunity cost   of what you spent your money on….honeymoon, deluxe wedding celebration, house, Lamborghini, European holiday, rental property, cellar filled with wine, Melbourne Cup attendance (especially if you live in Camooweal) and the list could go on forever. As long as the money is available and “affordable” (that adjective has a number of meanings) one’s personal choice dominates but that still does not dismiss the FACT that one of the costs as...

Back in the “good old days” we had no capital gains tax in Australia and it occasionally made some sense to add to your cost for a property to engage in negative gearing. In its simplest form this kind of “gearing”(aka “borrowing”) meant paying out more in tax deductible interest and other expenses associated with a rental property you had bought in the expectation (?hope) that at some time in the future you would sell the property at a handsome tax free capital gain. Capital gains tax added a new dimension to this financial manoeuvre but I despair of anyone whose sole aim in negative gearing is to get a tax deduction. I once used the term “positive gearing” in an article I wrote and more than one person looked at me blankly and said “ I’ve never heard of positive gearing, what is it?”. Polonius farewelled his son Laertes with the admonition.. “neither a borrower nor a lender be” which would be OK for a father sending his teenage son off to Schoolies Week but definitel...

Hot topics come and go in the press and social media and one topic that is copping a bit of air time at present is the way in which “ageism” is treated by employers, government, families, young people and “the aged”, whoever they are or choose to be. I started paid work at the age of 14 – that was 68 years ago. That was an age at which, I think, you were allowed to leave school for“real” work, 40 odd hours a week. In my case I did stay at school and then went to University and started full time work after I obtained the first of my three degrees. The last of these I got at the age of 48. A couple of years ago my two much younger co-owners and co-directors of the company that I had established at the age of 56 (and partly sold to them ten years ago) decided that it was time to retire and the business was subsequently sold so that they could fade into the commercial background. I reckoned that I still had something to give to the community and to those clients who prefer t...