Will money make us truly rich?

Will money make us truly rich?

Every day I read or watch something intended to scare the common public into thinking the worst, if you go onto any news website you will constantly read articles about things like the fluctuation in property prices.  The articles assume it’s all doom and gloom if prices drop and you will be worse off because your assets will decrease in value, the reality is that the property market is like any other market, and it fluctuates over time.  It really makes me sad to see how we view money as a nation and the link we make with it improving our lives.

I don’t have a problem with people becoming wealthy but a common challenge I put to people is to measure wealth in terms of happiness, after all happiness is one of the main reasons we want to be wealthy - isn’t it?  This poses an important point which our country’s “leaders” should be at least acknowledging, do people really want to be wealthy or do they want more basic things like happiness and security?

 

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There are people in the world that would be viewed as poor though they can feed their family and have a roof over their head and that is all they need, they are happy and secure.  In the 1980’s the King of Bhutan decreed that his governance can only be measured by how happy the people become, Gross National Happiness is still used today as a key indicator of performance.  A stark similarity to the name most countries including Australia use to measure performance - Gross Domestic Product (GDP).  GDP is the total value of products and services we create in our economy, yes a value placed purely on money.  I’ve never been to Bhutan but I’m sure they live a happy and enriched life due to their government’s policies.

Meanwhile back in Australia families are working themselves to the bone because they bought the “perfect house” and need to keep up with the mortgage payments, unfortunately “mortgage stress” is now a common term in the world we live in.

Who can blame these people with society telling them their wealth is a measure of their happiness?  It’s even evident at the top, in our national anthem there is the line “we’ve golden soil and wealth for toil”, I’m sure the government used that as an argument for the mining tax.  Our own government see our land as a mattress with untold riches hidden beneath and the sea as hidden treasures of prosperity enriched by natural gas and oil.  I’m pretty sure the national anthem hints on something a bit more then what can be dug up; I interpret it to mean that wealth is measured in what is around us.

The country’s wealth is the magnificent land we inhabit, the easy going Aussie personality and the fact that most of us have come from elsewhere in the world and made a truly great place for generations to improve on.  Most people have simplistic wants, they value seeing their family grow, being happy and having fond memories, this is their true wealth.

If we had a true understanding of our wants and needs and applied this to how we look at finance individually and as a society then our nation would be the richer for it.

 

How to get the best price for property in a buyers market

How to get the best price for property in a buyers market

There is plenty of negative commentary about our housing market at the moment which has been magnified by the position of our economy and furthermore the world economy.  In every market there are winners and losers, at the moment buyers can put themselves in winning position.

Here are a few tips that might help you when purchasing a property.

Initial Research

One of the first things you can ask is why the property is being sold; sometimes this can give you an insight into how desperate the vendor is to sell the property.  For example, if you get the picture that the vendor is looking to sell quickly then you may be able to bargain by offering a reduced price and a fast settlement period (this is the period of time it takes for the sale to go through).  Another important question is what the asking price is; even if you have seen it on the ad they may have already reduced the asking price if the property has been on the market for a while.

The more information you can gather in this period the better because it will help you in getting the lowest price.

How much is a property worth?

If a car salesperson told you that a bomb they are trying to get rid of is worth $20,000 is it worth $20,000? Only if that’s the price you pay.  What I’m trying to say is that you define how much a property is worth and the reason you didn’t pay $20,000 for the bomb was you knew you could buy another for cheaper.  Knowing a property’s value is something that a lot of buyers do not know, if this is the case then you need to do more research on properties within the area you are looking to buy. The buyer decides the price not the seller.

 
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Don’t look so desperate!

This is a common mistake home buyer’s make mainly because they get emotionally attached to one property; if you appear to need the house then you lose leverage in any negotiation and more likely to pay the full asking price.  One way of working around this is letting the agent know that you are interested in several properties in the area, this way the seller has no leverage and makes them more likely to negotiate.

Put an offer in writing. 

This makes the offer more genuine and allows you to explain why you have made a lower offer, you can go as far as to use trends supporting reduced prices in the area or show similar houses that have been sold or are currently on the market to indicate that the asking price is too high.  Keep in mind that when they market a property for sale they generally expect to discount the price in order to sell, the challenge is getting the right price.

In the letter you can also reinforce that the property is one of several you are looking at in the area showing you are not desperate to purchase that particular property.  You can even make this point stronger by putting an expiry date to the offer (e.g. 3 days); this can make the seller more desperate and more likely to negotiate.

Ask for a counter offer. 

If you have heard nothing back from the agent a week after sending the letter of offer then a strategy to use could be to call them back and let them know you are still looking for the right property and casually ask them how they went with the property.  If the property is still on the market you can ask if the vendor is willing to make a counter offer, if you can get this then you have already entered into a negotiation and you know how low they are willing to go. 

For example; if you write a letter of offer for $300,000 on a property advertised at $330,000 and the vendor gives you a counter offer of $315,000.  At this point you know that the vendor is willing to go to $315,000 and discount the property by $15,000.
 

Be clear on your highest offer.

If you are making your offer and it is the highest you are willing to go on that property then make this clear in your letter of offer.  This way the offer will be taken seriously and if the vendor wants to sell then they will sell the property.
 

Understand the agent’s role

The Real Estate Agent works for the person selling the property and they work to get the best deal.  Agents also work on commission and will only get paid if the property sells, it’s important to remember that sometimes the agent can be more desperate to sell than the vendor.  For example, if a property has been on the market for a while and you come along with a low offer then the agent may indicate to the vendor that the offer might be the best in a stagnant market; this may influence the vendor to sell.  At this point the vendor is relieved to sell, the purchaser is happy with the price, the agent gets paid for their efforts and everyone is happy.

I hope this gives you some information which you can use when purchasing property and please if you have any views please express them by leaving a comment.

 

To fix or not to fix: my prediction on rates

To fix or not to fix: my prediction on rates

So we are getting toward the lower end of the scale with home loan interest rates and a lot of people out there are thinking whether they should fix their rate or not.  In this blog I intend to give some information that will help readers make a more educated decision, also I will give my opinion on what will happen to interest rates in the next year or two. 

The first thing I see people do when it comes to fixing is hold out for the lowest rate, this can be tricky because none of us have a crystal ball and can predict the future.  Holding out can be a trap because if the banks see the economic trend changing they will increase their fixed rates without any notice, once this happens people do not fix because in their mind they are losing money as they missed out on the lowest rate.

If you hold out for the lowest rate then essentially what you are doing is gambling, if you are ok with gambling then that’s fine but for many people it has the potential to eat at them and consume them.  If you want to get out it can cost tens of thousands and therefor you are trapped.  If you are a person that will try save the maximum amount through fixing remember; the dealer always wins.

Instead what you should be doing is measuring up if you are happy with the rate, it will give you certainty with managing your finances because the cost will be fixed every month and you will be content with your decision no matter what happens to the rates. 

I get asked if now is a good time to fix all the time, all I can say that is in recent history the current rates are relatively low and that if you make a decision be ok with it understand if you want to get out you could be up for some large exit fees.

What is going to happen to rates?

In the past interest rates have been lowered because the government has high debt.  Lower interest rates allows the people to borrow more and therefor spend more, more spending is what grows our economy and allows the government to take higher taxes and pay off government debts. 

Unfortunately now we have a record amount of consumer debt (the combined debt owned by individuals), this means we can borrow less and more money will go to saving and repaying debt rather than spending to improve the economy.  What does this mean? It means the government will find it harder to reduce its debt and our economy will struggle to grow.  I believe the rate will be kept low until the economy starts to show some signs of recovery.

With industries like manufacturing, tourism and retail just to name a few all going backwards I find it hard to see the economy recovering any time soon.  These jobs are all being off-shored or going online, less jobs means less money for people to spend and it means the economy will take time to improve.  With this in mind I don’t see rates growing for at least another 18 months.

Am I right? Only time will tell.  I would love to hear your thoughts or questions on the issue, I will respond to all comments.

 

Changes to your credit report that you need to know.

When you apply for a loan or a credit card the lender will conduct a credit check on you, when they do this they have certain information about you that can indicate if you will be good and pay your bills or not.   The proposed amendments to the Privacy Act regarding credit reporting will change what information these organisations can see about you.

The changes allow the following five new kinds of personal information:

·         the date the credit account was opened 

·         the type of credit account opened

·         the date the credit account was closed

·         the current limit of each open credit account; and

·         repayment performance history about the individual.

What does this mean?

1.       If you are someone who forgets to pay things like the credit card, personal loan or home loan on time then you really need to change this because this will have a negative effect on your credit report and may stop you for applying for something important in the future like purchasing a property.  These records can go up to 2 years back so it will be easy for a lender to judge money management skills and therefor decide whether or not to give you credit.

2.       You can no longer lie to the bank.  In the past people have been able to not disclose what actual loans or credit cards they have. For example, someone could have applied for a $10,000 credit card but not told the lender they already have $40,000 in cards that they are struggling to meet repayments on.  This allows lenders to be more responsible when it comes to lending money.

I think that in the short term there may be a small group of people that will be disadvantaged by these changes because our system hasn’t punished these people for paying late before.  Generally speaking these are the types of people that have poor money management skills or they simply are not in a position to borrow more money.

On the upside it will influence more people to spend more time on managing their money which can lower the high personal debt levels Australian’s own.   The decision making process of lenders will now be more transparent which means less blame can be pointed their way.  Our problems with debt are behavioural and I believe each individual holds an amount of self-responsibility; legislation like this could contribute to the changing of the tide in this area.

Do you think this will impact people you know?  Maybe you disagree with some of the things I've written.  I'd love to hear your opinions on the topic.

 

For me info please read the article: http://www.langes.com.au/consumercredit/2012/07/20/new-privacy-credit-reporting-provisions/