This quote pretty much sums it up.....
You cannot legislate the poor into prosperity by legislating the wealthy out of prosperity. What one person receives without working for, another person must work for without receiving.
The government cannot give to anybody anything that the government does not first take from somebody else. When half of the people get the idea that they do not have to work because the other half is going to take care of them, and when the other half gets the idea that it does no good to work because somebody else is going to get what they work for, that my dear friend, is the beginning of the end of any nation.
You cannot multiply wealth by dividing it.
Adrian Rogers, 1931
Monday, May 24, 2010
Wednesday, May 12, 2010
Money up in Smoke
The way I see it, you have two pathways to financial independance;
1. Take lots of risk. Be a punter on the share market and maybe get lucky, or start your own business and make it hugely successful; or
2. Be disciplined and patient. Stick to a long term strategy, start early, and allow the miracle of compound interest to kick in.
Most people find the first option exciting but generally fail by making the wrong decision and the people that choose the second option more often than not get distracted by impatience or greed - todays pleasures beckon stronger than tomorrows pain.
I must admit though, I have great admiration for people that smoke cigarettes. They have the discipline and ability to find what is now $17 each day to purchase their poison. This is especially true of lower socio -economic groups that appear to have a higher take up of smoking.
Imagine if this discipline was instead forced on their savings. If a smoker could quit and could instead put that $17 a day aside into an investment, how would this look when they retired - how would this $6,200 per annum which previously went up in smoke change their life?
I have asumed that an 18 year old decides that instead of smoking, they will save that amount each year (until they are 65) and earn an after inflation and tax rate of return of 5%.
At age 65 this investment would be worth approximately $1.2 million (in todays dollars). This is extraordinary in reality because it actually demonstrates that even the poorest people in our society can become millionaires (they can smoke, so why not?).
Double the impact if the husband and wife both smoke.
So the lesson here is to start early and stick with it. Very few people can actually manage to do this which is a pretty sad reflection on our society.
1. Take lots of risk. Be a punter on the share market and maybe get lucky, or start your own business and make it hugely successful; or
2. Be disciplined and patient. Stick to a long term strategy, start early, and allow the miracle of compound interest to kick in.
Most people find the first option exciting but generally fail by making the wrong decision and the people that choose the second option more often than not get distracted by impatience or greed - todays pleasures beckon stronger than tomorrows pain.
I must admit though, I have great admiration for people that smoke cigarettes. They have the discipline and ability to find what is now $17 each day to purchase their poison. This is especially true of lower socio -economic groups that appear to have a higher take up of smoking.
Imagine if this discipline was instead forced on their savings. If a smoker could quit and could instead put that $17 a day aside into an investment, how would this look when they retired - how would this $6,200 per annum which previously went up in smoke change their life?
I have asumed that an 18 year old decides that instead of smoking, they will save that amount each year (until they are 65) and earn an after inflation and tax rate of return of 5%.
At age 65 this investment would be worth approximately $1.2 million (in todays dollars). This is extraordinary in reality because it actually demonstrates that even the poorest people in our society can become millionaires (they can smoke, so why not?).
Double the impact if the husband and wife both smoke.
So the lesson here is to start early and stick with it. Very few people can actually manage to do this which is a pretty sad reflection on our society.
Tuesday, May 11, 2010
Superannuation avoids a bathing
One of the greatest disincentives for people to invest in superannuation these days is the belief that the government will tinker with the rules that affect an individuals ability to control and access their superannuation. The Henry Tax review and the 2010 Federal Budget are now behind us so we can take a look at the bad news for superannuation.........
..........and now let’s look at the good news.
The Good news is that there is no bad news for superannuation. The government have recognised that constant tinkering with superannuation does undermine the confidence in the system and with an aging population this is not good policy.
Certainly, Henry did recommend some changes to superannuation that were ruled out by the government for good reason. This included aligning the preservation age of superannuation (when you can access it) to the Age pension Age (this is going up to 67). Henry also thought a government annuity type product would be a good idea but Rudd & co rightly ruled this to be a private sector matter.
Let’s not forget, the Government already offers an Annuity Type product – it’s called the Age Pension and many people hope to never have to use it but it is a useful safety net for many.
In addition to this it must be noted that the Government has completely ruled out the potential to remove the tax free superannuation payments for those aged over 60. In fact, this was ruled out in the terms of reference for the Henry Tax review.
The changes that have occurred in superannuation are minor, but retain confidence in the system which is invaluable. For those that earn less than $37,000, they will not pay the 15% tax for their super contributions and the Superannuation guarantee levy is increasing from 9% to 12%. Although the increase in the superannuation levy is a blow to employers (particularly small business) who have to pay it - it is being phased in over 10 years and I would think that it will be a factored into future wage negotiations anyway. Other initiatives are also being implemented to assist those over the age of 50 who have low superannuation balances and enable them to contribute more without penalty.
So with only the Cooper Inquiry into Superannuation remaining, the future looks very bright for the retirement savings industry and many can now breathe a sigh of relief.
Julian McLaren is a Representative of the Shadforth Financial Group (AFS Licence No. 318613) Julian may be contacted on 69317488. This is general advice and readers should seek their own professional advice in regards to their individual circumstances
..........and now let’s look at the good news.
The Good news is that there is no bad news for superannuation. The government have recognised that constant tinkering with superannuation does undermine the confidence in the system and with an aging population this is not good policy.
Certainly, Henry did recommend some changes to superannuation that were ruled out by the government for good reason. This included aligning the preservation age of superannuation (when you can access it) to the Age pension Age (this is going up to 67). Henry also thought a government annuity type product would be a good idea but Rudd & co rightly ruled this to be a private sector matter.
Let’s not forget, the Government already offers an Annuity Type product – it’s called the Age Pension and many people hope to never have to use it but it is a useful safety net for many.
In addition to this it must be noted that the Government has completely ruled out the potential to remove the tax free superannuation payments for those aged over 60. In fact, this was ruled out in the terms of reference for the Henry Tax review.
The changes that have occurred in superannuation are minor, but retain confidence in the system which is invaluable. For those that earn less than $37,000, they will not pay the 15% tax for their super contributions and the Superannuation guarantee levy is increasing from 9% to 12%. Although the increase in the superannuation levy is a blow to employers (particularly small business) who have to pay it - it is being phased in over 10 years and I would think that it will be a factored into future wage negotiations anyway. Other initiatives are also being implemented to assist those over the age of 50 who have low superannuation balances and enable them to contribute more without penalty.
So with only the Cooper Inquiry into Superannuation remaining, the future looks very bright for the retirement savings industry and many can now breathe a sigh of relief.
Julian McLaren is a Representative of the Shadforth Financial Group (AFS Licence No. 318613) Julian may be contacted on 69317488. This is general advice and readers should seek their own professional advice in regards to their individual circumstances
Monday, May 10, 2010
The Road to Serfdom
What is it with the Financial World? There never seems to be a shortage of things to commentate on. This becomes explicitly more exciting when politics decides to tangle itself into the capital markets. Truth be known, Governments of the world will always try and influence finance through taxes and legislation as they try and manipulate constituents voting behavior.
This week has seen some massive events. These events are all manufactured in one way or another but basically have the same theme. Governments around the world have been too generous with their spending and its time to pay the piper.
Let’s start at home. Our government sprays money about in a manner that looks irresponsible. Suddenly it is time to start funding that expenditure (repaying the debt? That will have to wait for another day). Let’s look for an easy target. Mining! Lets tax the “super profits” of the Mining Industry who are largely “foreign owned”. This policy is deeply flawed and looks like it may have been stolen from the One Nation policy handbook (One Nation would like to curb foreign investment in Australia).
The reality is, Australia relies on foreign investment. It is not hard to forget this when you look at our Gross Foreign Debt which stands at over $1.2 trillion (as at end of December 2009). If we upset foreign investors we might just face a Financial Armageddon of our own.
Speaking of which, how about the Greeks! They are protesting in the streets regarding the “bail out” package put together by the European Union. They have to face the facts here. The Greeks don’t want their “standard of living” cut by the harsh budget measures but the reality is that the Greeks never should have had the standard of living they enjoyed because it was all built on Debt – which is not sustainable – clear and simple. So now they have to take the medicine, which looks much like Castor Oil and it will not taste good. This is however, better than the alternative, which is death.
There are many democratically elected governments around the world that now have to make the harsh decisions. The current low taxes against a back drop of high public funding of health and pensions and benefits for all those with their hands out crying for more (symptoms of a “Nanny State”) are about to cumulate in a very sharp reversal of political and economic fortunes.
Julian McLaren is a Representative of the Shadforth Financial Group (AFS Licence No. 318613) Julian may be contacted on 69317488. This is general advice and readers should seek their own professional advice in regards to their individual circumstances
This week has seen some massive events. These events are all manufactured in one way or another but basically have the same theme. Governments around the world have been too generous with their spending and its time to pay the piper.
Let’s start at home. Our government sprays money about in a manner that looks irresponsible. Suddenly it is time to start funding that expenditure (repaying the debt? That will have to wait for another day). Let’s look for an easy target. Mining! Lets tax the “super profits” of the Mining Industry who are largely “foreign owned”. This policy is deeply flawed and looks like it may have been stolen from the One Nation policy handbook (One Nation would like to curb foreign investment in Australia).
The reality is, Australia relies on foreign investment. It is not hard to forget this when you look at our Gross Foreign Debt which stands at over $1.2 trillion (as at end of December 2009). If we upset foreign investors we might just face a Financial Armageddon of our own.
Speaking of which, how about the Greeks! They are protesting in the streets regarding the “bail out” package put together by the European Union. They have to face the facts here. The Greeks don’t want their “standard of living” cut by the harsh budget measures but the reality is that the Greeks never should have had the standard of living they enjoyed because it was all built on Debt – which is not sustainable – clear and simple. So now they have to take the medicine, which looks much like Castor Oil and it will not taste good. This is however, better than the alternative, which is death.
There are many democratically elected governments around the world that now have to make the harsh decisions. The current low taxes against a back drop of high public funding of health and pensions and benefits for all those with their hands out crying for more (symptoms of a “Nanny State”) are about to cumulate in a very sharp reversal of political and economic fortunes.
Julian McLaren is a Representative of the Shadforth Financial Group (AFS Licence No. 318613) Julian may be contacted on 69317488. This is general advice and readers should seek their own professional advice in regards to their individual circumstances
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