I was reading Rich Dad and it has some very interesting points. Basically it is highlighting to us the differences in terms of thinking and outlook of life between a poor man and a rich man. The main difference? The poor man works hard for his money but a rich man has his money work hard for him. How to make money work for you? Apparently it is the difference in the way one thinks that will make one get financially stronger or weaker. The poor man will think that "I cannot afford it." and shut his brain down. The rich man will think "How can I afford it?" and continue to exercise his brain to think of a way to make the money. Another difference, a poor man will think that his house is his asset while the rich dad thinks that a house is a liability. Hmm...interesting isn't it? Why is a house a liability when everybody is investing in properties and getting rich with their properties?
Well, I have 1st hand experience...remember the 1997 crisis when so many people went bankrupt by having properties? Well, when the market is good and the property is being rented out at a higher rent than your mortgage repayment, it can be considered an asset. However, when the market is bad and the property you have on hand is still under mortgage, then it is a big liability. I bought my private apartment in Upper East Coast Road during in 1995 and took a 80% mortgage. By mid 1997 the property has dropped 30%~40% from the price that I bought it for and it remained there at the bottom for 10 years. The rental income was less than my mortgage repayment, so for 10 years, the property was not an asset but a liability to me. I was paying through my nose and if I had no other inome to tide me through, I would be gone. I sold it for 5% higher than my purchase price last year and got out of the crap. I may have sold it a little too early...but I had my reasons and I shall not go into details here. The market has turned around and if I still have my property now, I will be taking in a monthly income of at least SGD500 after paying for the loan repayment from the rental. So, a property can be an asset or a liability depending on the market situation. Right?
Anyway, there is a board game by the name of Cashflow 101 that teaches finance, accounting and investing at the same the fun way! I think I am going to buy this board game and start playing it with my children. It is supposed to be suitable for adults and children above 10 years old. Just nice for my family. Good idea to start the kids young! :D
3 comments:
I have always thought that houses are liabilities unless you don't live in them. Otherwise they're merely expenses.
Unlike most of my friends who got larger flats and ladened themselves with 30yr loan, we got ourselves a smaller flat in S'pore. Was quite concerned about the monthly payments though.
If a house is a liab, a car is much worse. That's especially true in S'pore.
Currently in London, there are lots of young couples who find it difficulty to service their mortgage payments. A sizable number of already defaulted after the banks increased the interest rates recently. By the looks of it, I don't think the end is in sight.
Oh well, enjoy the game (101) and tell us about it! Cheers!
My parents' theory : it is always better to buy than to rent a place to stay. I think this theory is applicable in Asia but not in many parts of Europe where the rentals are regulated by the government? My friend in Munich tells me that people there rent their houses instead of buying it and it is also the same in Switzerland. How about in the UK? What's the trend?
Over here in London, prices of housing have skyrocketed for the last few years but people kept on buying because of low interest rates. Now that the bubble has burst (somewhat), those people are in trouble as the banks gradually increase interest rates.
Generally, people, especially expats, rent. If they buy, it's most probably in London suburbs or even out of London where it's more affordable and more spacious. The downside? You cannot enjoy evening plays and take public transport back home after that. :)
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