Good morning folks!
This morning while getting on-line, I saw some unpleasant news. Due to the declining value of the dollar, Saudi Arabia is considering removing the riyals peg to the greenback. Evidently, the Saudi’s are getting mad because the dollar peg is causing inflation over in the gulf.
Feel free to check out the article. In the mean time, here a fun graphic thats making the rounds on the internet.
So, if you haven’t gathered by now, one of our long term goals is to become wealthy. For us, this means that we we’d like to have $4,000,000 in assets when we turn 65. Sometimes, when we tell our friends about this, some don’t believe it can be done. They’ll nod or smile or just flat out say it won’t happen. A lot of times people come back with some silly figure that 80% of millionaires got that way because of inheritance, or you have to come from money to get rich.
This is what I call the inheritance theory of wealth. This is the idea that most wealth in America is created by rich families and then passed down. There are several reasons why, if you’re interested in building wealth, you should decisively reject this philosophy.
1) Its not true. The facts suggest that inheritance isn’t that important for building wealth.
If you look at the Forbes 400 (e.g. the world’s richest people), America’s wealthiest man, Bill Gates, got his start in his garage (clicky). Also, according to Capgemini, the main source of wealth for high net worth individuals (HWIs) in America is actually business and earned income. Inheritance was the major source of income for only 21% of America’s millionaires. (here).
2) It Doesn’t Serve You. Lets face it, most American’s aren’t going to receive an inheritance. But, most of us are interested in financial security – you are, otherwise you wouldn’t be reading this blog. The reason why subscribing to the inheritance theory of wealth doesn’t serve you is the following: it causes you to believe that you cannot achieve financial security. Financial security for most people invariably means higher income and better networth. If you subscribe to a philosophy that says you need an inheritance to achieve this, you’re mentally handcuffing yourself. Instead, you should rely on your own belief in yourself, cleverness and discipline to achieve financial security.
Finally, I recognize that it doesn’t hurt to come from a family that is wealthy and financially savvy, but to assume that you need the right family background is both factually incorrect and psychologically hamstringing. In short, you should stay focused on what works in building wealth and not buy into common, but false notions about money in America.
Thanks,
James
Hello All,
NPR is reporting that now the Canadian dollar(the trusty loonie!) is now at parity with the US dollar. This is generally because the dollar’s value is falling against most major currencies. While this is for Canadian consumers, but not so good for the US, unless you’re catering to Canadian tourists.
We blogged about this a while ago, perhaps we should have bought more loonies.
Best,
James
This weekend, my wife Miel and I had a good friend over for the weekend. We ended up spending a good amount of time discussing Brad’s interest in buying a house. This got me thinking about the current stock and real estate market, and weather it makes sense to go hunting for assets in this environment. Right now, valuations for some stocks (we like canroys) are more attractive than over the past few months and there are plenty of houses available in most local markets, which means that you could get a good price if you have good credit and you’re looking to buy.
I’m not the only one, everyone’s favorite guru, Kiyosaki is saying the same.
Food for thought.
Best,
James
I don’t know why I’m so obsessed with the whole Northern Rock banking meltdown, I guess that its because I’m always interested in the following the personal finance action. At any rate, the Northern Rock hullabaloo seems to be dying down a bit as the Bank of England has agreed to bail out the bank. Their shares were up .22 pence as of 5:42 yesterday. Clicky for the story.
Best,
James
To follow up on our sub-prime meltdown, we’ve had other opportunities to learn the lesson that people with bad credit often don’t pay their bills.
Back in 2004 we bought a place in a transitional neighborhood here in DC and flipped it six months later. During this time we had a renter with very poor credit who was quite delinquent with payments. DC housing laws are very favorable to the renter, and thus it didn’t matter if she had a cable dish that was somehow afforded above rent. This just goes to show that credit history makes a world of difference. We know there are those who manage to turn themselves around, but it might not always be best to risk your finances on these individuals.
Our advice to folks who are dealing with rental properties, it pays to go with those who have good credit history and references. Certainly this isn’t a rock solid way to determine if your rent will be paid on time, but it is a pretty good indication.
Also, what you see isn’t what always what you get. A few months back I was advising a friend who was just starting out renting her place. She hadn’t considered doing a credit check, saying that her applicants looked fine. After our experiences I was a strong advocate for checking someones credit score and references. For instance I recall that we had checked this renter’s references but those alone didn’t reveal how financially unstable she was. The credit check really provided the best and most reliable information. We may have wanted to give our tenant the benefit of the doubt as a single mother with two kids, but we learned the hard way that a pleasant appearance and even references don’t always say much about creditworthiness. You really need a combination of both to determine if someone should rent your property.
Best,
Miel
Hi All,
I just caught wind of this, but apparently there was a run on Countrywide Bank in California. The LA Times is now reporting that customers are concerned that Countrywide is going bankrupt and are withdrawing their deposits en masse.
It seems like the subprime mess is starting to catch up with us in an ugly way.
Click here for the story.
Best,
James
A Northern Rock bank branch in the UK. Customers line up to withdraw their deposits.
A lot of pundits lament the fact that people don’t pay attention to the financial news. This a sometimes a problem because your personal finances are usually connected to big picture economic trends. In our case, we’ve had our own personal subprime meltdown.
Like many personal finance aficionados, we’ve been lending money on prosper.com. When we initially started lending, we targeted high risk borrowers. About a month ago, we started to see that many of these people were several months behind on their payments and we changed our lending policy. Well, now it turns out that we didn’t shift course quickly enough. Five of our loans are currently delinquent and a couple more are two months late. All in all we’ve lost about $300.
Our situation is small microcosm of what’s going on in the larger economy. For us, the $300 lesson that people with bad credit don’t pay their bills was cheap, but the national mortgage industry has poured billions into the subprime market. Overall the consequences of the sub-prime meltdown have been far reaching. Mortgage lending is down, so are all the business that profited from the housing boom, like construction, advertising, retail, etc. For the nation, it has been an expensive lesson that when prudent finances become secondary to irrational decisions, the results can be messy.
In the case of us DINKs we still believe that prosper is a good way to build wealth, but it will be a long time before we lend to someone with high risk credit risk again.
Best,
James
You cannot copy content of this page