I was reading a generic article on real estate in the finance section in one of the larger news websites in Australia.
You would hope that the advice is sensible financial guidance helping point people in the right direction to achieve their dreams. In fact the heading ‘Home ownership is a dream but a mortgage doesn’t have to be a nightmare’ leads us to believe it will give us advice on how to not fall into a nightmare.
Yet the advice within was shockingly terrible. I just do not understand how this rubbish could be published within the mainstream media. It is no wonder that the average persons’ knowledge on finance is so poor when this is the sort of advice that they are provided with on a daily basis.
Lets look at the worst paragraph.
My friends in banking think that paying back the capital on mortgages is crazy. They see a mortgage as a way of leveraging a great lifestyle. The more debt you can get, the better. It means more toys, more art, better wine and bigger houses.
With “friends” like this leading by example, who needs enemies?
There is so much wrong with this paragraph. I was expecting to read a follow on paragraph tearing it to pieces, explaining why his friends are idiots and showing the average reader why this is terrible advice. But it never comes. Even if his friends in banking are earning a million a year this is still poor advice. The GFC in 2008 showed how easily it was for bankers to suddenly go from being paper millionaires to all being sacked en-mass.
The easiest way to get ahead is to save a significant portion of your earnings. Invest it. Then add time. With the power of compounding those savings will multiply and eventually that money will start working for you. Hopefully to the extent that you no longer have to work 9 to 5.
A house is a personal place for you and your family. A place of security. It should not be mortgaged to the hilt, forcing your entire families welfare and dependence to be totally reliant on your next paycheck. And for what? So that in the meantime you can live life now and have more art and better wine?
“Living in the now” increases lifestyle risks which . Throughout your life you will face many unexpected hurdles. When you are not prepared for these bumps, then a mild financial discomfort can morph into a major calamity. Thinking of the future and preparing with an emergency fund will help to mitigate these issues. While living only in the now will compound them.
If you live only in the now, one day you will wake up struggling to survive on the pension for the remaining years of your life. That is not the way I wish to spend my twilight years.
At the very least a happy medium can be found, but that is a long way away from the extremes shown in the article.
Can You Buy Dreams?
Big debt at a young age can be crippling for some and yet highly motivating for others. Inspired by my fanciful banking friends, I finally got over my fear of debt and now live in a huge pile by the sea.
My name is on the deeds, but I know that the bank really owns it. Nonetheless, I can live with that. I’m living the life I want, and I love it.
Which sums up the point of the article. Everyone should ignore monetary issues as you only get to live once. As such, everyone should follow their fantasies to buy their dream house now.
But why stop there? How about that new Ferrari? Or a yacht? If i was living only for now, I’d be on a plane to Europe to visit the Hagia Sophia and the roman coliseums. Perhaps dropping by Egypt to visit the tombs and the pyramids. Of course this all ignores that I would come back with a lot fewer options than when I left. As i would no longer have the financial firepower to choose to do whatever it is I want.
Spending money does not buy freedom. It only buys inservitude. Forced to remain on the hampster wheel of perpetual work. It is through the ownership of money that someone truly buys freedom. As it provides options and the ability to do whatever they want. If you choose instead to save further, then eventually it will provide enough passive income to fund your entire future.
That is freedom. That is the ability to live your dreams.
Terrible finance advice. The author finishes with;
… regardless of the logic. It’s your life. Live it.
This is the one great sale pitch of all corporations. Always endeavoring to make consumers buy on emotion rather than on need and logic. This is why car ads are always showing all of the fun you can have in their car instead of actually talking about whether it’s a superior product.
Financial decisions need to be made logically. It is only with via emotion that people are tricked into spending 3 months total wages on a ring just to prove how much you love someone. Or buying that new Jeep with a great deal on finance so you can have those amazing adventures all the time.
People can only get ahead by living a lifestyle that is well within their financial means. You can’t do that by leveraging yourself to the hilt.
I just hope the author isn’t trying to fund his beach side lifestyle by writing financial articles.
The article can be read in full here.
After tracking down the author of the reader and reading his personal synopsis it starts to make sense. This person appears to have done quite well for himself and can easily afford a beach lifestyle. But this is not advice for the average joe. Yet that is who he is targeting this article at.
After reading a few inane articles like this, people will start to form the belief that this is standard behavior. Not only that, but it is good financial practice!
Everyone should be very wary of mass media inspired financial advice.