For example, one night around 9pm a man knocked on my door and asked if I wanted to donate to a charity that preserves rain forests and so on. I’m a bit of a greenie, so I was ready to give him some money but he refused the cash. “We are looking for a donation that we take monthly – as a regular thing”. I explained to him that I was travelling next year and had no idea what my financial situation would be like, but I would be happy to donate as a once-off thing. He refused again and gave me same story about the “monthly commitment”. It was pretty obvious that he was getting a cut of the monthly commitment, and as a result wasn’t interested in my genuine donation. He left empty handed and I walked back inside frustrated with the world.

Ever since a friend asked me to donate to a charity quite some time ago, I’ve given it some thought, and to be honest I ask myself “what is the point”.

For instance, charities supporting cancer research are just misguided, and wasting money on research for a wonder drug, when clearly the solution is a good diet and a healthy lifestyle. Doctors receive essentially no training on nutrition, despite it being the most important thing in our lives, and good nutrition being the most plausible way to “beat” cancer.

I plan to pick some well thought out charities that I believe strongly in, and donate to them only. I think it’s a better way of going about making donations.

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Donating to Charities

Steve has recently written his latest edition of “Debtwatch”. Debtwatch No 41, December 2009: 4 Years of Calling the GFC looks at where Steve started his journey and began to realise the global and Australian economic situation.

“…debt had been growing faster than GDP–4.2% per annum faster in Australia’s case for over 40 years, and 2.7% faster for longer in the USA’s. An unsustainable trend in debt had been going on for almost half a century.

Staring at those graphs, I realised that these debt bubbles had to burst (and probably very soon), that a global financial crisis would erupt when they did, that someone had to raise the alarm, and that given my knowledge, that someone was me.

Less than 2 years later, the Global Financial Crisis erupted, and economists who didn’t see it coming, and who for decades had argued that government spending could only cause inflation, suddenly called for–and got–the biggest government stimulus packages in world history to prevent an economic Armageddon.”

Australia's Private Debt to GDP Ratio, 1945-2006

He covers topics such as debt servicing, deflation and depressions, bad theories, and his opinions on where we are headed.

“With such ignorance about the dynamics of debt, academic economists and Central Banks around the world are hoping that the crisis is behind them, even though the cause of it–excessive levels of private debt–has not been addressed. They are recommending winding back the government stimulus packages in the belief that the economy can now return to normal after the disturbance of the GFC.

In fact “normal” for the last half century has been an unsustainable growth in debt, which has finally reached an apogee from which it will fall. As it falls–by an unwillingness to lend by bankers and to borrow by businesses and households, by deliberate debt reductions, by default and bankruptcy–aggregate demand will be reduced well below aggregate supply. The economy will therefore falter–and only regular government stimuli will revive it.”

Steve’s predictions for the future?

“…I do not share the belief that the GFC is behind us: while the level of private debt remains as gargantuan as it is today, the global economy remains financially fragile, and a return to “growth as usual” is highly unlikely, since that growth will no longer be propelled by rising levels of private debt.”

If you have the time, this really is a worthwhile read. Steve Keen’s blog is at www.debtdeflation.com.

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4 Years of Calling the GFC

• Don’t get tied to a physical location
• Work as little as you can
• Actually do what you want to do in life

This is all good and well, but you really need to financially support the lifestyle that you want. If you have read any of my other posts on this site, it’s probably obvious by now that I’m not a very materialistic person. I’m no Amish, but I’m not very driven to have a lot of “stuff” either.

By not having the need to own a lot of posessions, I personally have a huge advantage – I can get away with earning less in order to have the lifestyle that I want. Of course if you do have a lot of needs by way of posessions, it’s all possible, you just need to raise more income.

How do I plan on doing this? There are plenty of ways, but essentially I am working on projects that require little to no work from myself after the initial setup. I’m not quite at the “outsource everything” stage, so I’m doing a lot of work myself (since I actually enjoy it), but maybe one day.

For instance, I run a website called “Eco Update“. The idea of the site is to aggregate content – basically it pulls the relevant content from other sites and then displays it on mine. The aim is to collect content on a few related topics, making it a “hub” of eco friendly/green living news and information. From the income generating point of view, the site also features Google Adsense advertising, and generates a minor income stream for me which requires little to no effort after the initial setup.

It goes to show that while you can make smart investments to generate passive income, there are also other little projects that can do the same for next to no cost. Some people like me create websites and use affiliate programs and advertising banners to generate income while others will start a dropshipping business. There are plenty of options and you are only limited by your imagination.

Think about it, then do some planning, and make it happen. Start small if need be and aim for the stars.

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Financial Self Sufficiency

Upon arrival to the conference I was given a HP netbook – a HP Mini 2140 to be precise. I’m a massive geek and I love this thing (I’m typing this blog entry on it right now).

I just can’t believe how image driven Queensland is. I know everyone, everywhere is somewhat driven by image, but never before have I seen people so driven by image that their lives evolve around it. Talking to Queenslanders, watching them walk around on the streets, seeing the numerous mini trucks, heavily modified v8′s and turbo cars everywhere, not to mention people riding choppers, etc, etc – it’s just a state driven by looking good – at any cost! They are all trying to keep up with eachother, even though only few of them can afford to.

Obviously this sort of thing happens everywhere – certainly in Adelaide where I live, but just not on this scale.

While I’ve been here I’ve also had some time to catch up with my sister who lives in Queensland too. It’s been great to catch up with her, and finally meet my niece – who is just awesome.

Spending time with my sister and her family has once again reinforced my opinion that “things” and ”stuff” is just so unnecessary. I completely understand that people need their hobbies, they need their few luxuries, but at what cost?

This isn’t a dig at the state at all – it’s beautiful up here… In areas anyway. I’ve considered the idea of moving up here a fair few times now (although never seriously enough to talk with my fiancee about it). I just don’t know if I could keep up with everyone else. I really think that to survive in Queensland you need to be very career drive, have very well of parents, or be happy to live a life of eternal debt.

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Queensland’s Overindulgence

I try to keep an eye on news articles, and forum posts on the Aussie dollar and inflation figures. While I’m certainly not an expert, I’m slowly beginning to understand how things work in this world of ours.

Money is important to everyone during these times. It puts food on our table and clothes on our back. It’s most people’s primary concern, and as a result they want more of it.

My mum was talking to me the other day about her superannuation, telling me how she needed more in there so she can retire comfortably. Already in Australia, super funds have taken huge hits in their returns. Over the last few years people have lost more money than they have made in their super fund, yet we are still all told that we should invest all of our money into super for retirement.

Following the Real Estate Bubble in Australia and the opinions of those who know their economics, it’s very plausible that our country will suffer high levels of inflation in the future. All to support a housing bubble.

So we are all banking on being rich. People invest for the future, so they have more money. Shares, property, super and so on. It’s all so we have more money, later.

The question I ask everyone is, “what is the value of a dollar?”

What’s it worth to you? What will it be worth in 20 years time? Are you banking on being rich?

I tell my mum to plan for the future. In my opinion, she should be planning to have everything she needs before she retires (within reason of course). Planning to have the money to do it later is a dangerous idea. If inflation hits, and the car that once cost $25,000 now costs $100,000, she’s stuffed!

I keep telling my friends who are rushing into the idea of buying a house to take their time and get to it when they are ready. No one will listen because of the free money on the table from the government, and the fact that they want to get in “before the next boom”. They aren’t necessarily making money from a boom. They are making “more dollars”, but not actually becoming wealthier in the long run. While their house is “worth” more and if they sell they will have “more dollars”, everything they will want to buy with those extra dollars will be more expensive. Essentially, they are perceived to be richer, yet everything is more expensive. They are back at square one. Essentially, if their money is making 5% interest, and inflation is 5%, they aren’t making anything. The numbers are just changing.

True financial planning, true investing is beating this situation. You need to make more money than inflation is absorbing.

It’s amazing how common sense this is for most people, yet how completely confused some people are by this information. To some, a dollar is worth a dollar, nothing more.

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Value of a Dollar

“What cars would you buy?”, “Where would you buy a house and what sort?”, and so on. I was talking to the guys at work about it last week and I’m convinced that nothing “amazing” like winning 90 million will ever happen to me, but I take comfort that along with that I don’t believe anything terrible will happen to me in my life either. I’ll just ride the wave, enjoy it to the max, and then die one day.

Australia is the new America. Rampant consumerism, and while I like my “stuff”, it’s insane to think that my life could be that much better just with more money. In fact you only have to look to the “stars” to see how the money ends up owning them in the long run.

For instance – I am relatively healthy, in a good career and with my fiancee who makes me so very happy. I am lucky enough to know my passion – bikes. I love the outdoors and my freedom. Obviously I’m not going to say that money wouldn’t make some of these things easier to acquire – bikes for instance – I could have hundreds if I was loaded, but what is the point? Where is the satisfaction in having a few hundred bikes when in reality you will only ever ride maybe 5 of them regularly? Being rich is a false economy. I’m not going to love my fiancee any more if I’m rich, I’m not going to get any healthier if I’m rich, and I’m not going to feel any more free if I’m rich either.

I’m sure if you think about it in your life too, the benefits will be limited as well.

Winning a lump sum of money like this will just throw all frugality out of the window, and before long you will be “two steps back”.

Maybe I’m just sour about others winning, maybe I’m in denial, but I honestly think that people bank on money (no pun intended), that bit too much. If money is the thing that will make you the happiest in life, it’s time for a reality check. There is so much out there to make you smile, make you laugh, or give you a rush that doesn’t cost a cent!

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90 Million Dollars!

I’ve always had an issue with image. Not personally – as mentioned I’m a fairly resilient person, so I don’t hugely care what other people think of my lifestyle or how I look, but coming from a private school I was inevitably part of a competition to look as rich as possible, regardless of where I actually stood in the pecking order. It’s amazing how some parents push their kids out of the car in Ralph Lauren and Nautica, despite their car running on three cylinders.

Only now have I realised that a large part of a lot of males’ image is tied up with cars. I personally have had a few nice cars, and while I have never consciously bought them for the image factor, now that I think about it image is the only reason for your car to look good. While nowadays it’s easy for me to let go of that dream, I find that most Australians consider others to be “successful” dependant on how new their car is. Going on that judgement, I must be fairly unsuccessful, right?

Whether it be for a car, house, TV, boat, bike, clothes, laptop or so on – are people actually getting into debt purely just to boost their self-image? In this crazy world that we are living in, I’m a firm believer that nine times out of ten they are.

I don’t profess to be exempt from this, although I consider myself to have things under control – a good friend of mine asked the other day if I was sick of not having a car, and that “surely you could afford it”. Quite honestly, we could afford another car, but we just don’t need one at the moment – it doesn’t make any sense.

Nowadays you just don’t seem to get any kudos for paying down your loans and owning things freehold. To date I have never had a loan for a car, and only ever taken out a loan to buy our property. I wouldn’t have it any other way.

I wrote an article about the Minimalist Lifestyle not too long ago, and I feel that this ties in perfectly – to me, debt means stress. It is something that will always be in the back of your mind until it’s gone. Get rid of it and it will be one less thing to think about. Be content with less, and enjoy life rather than worry about it constantly.

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In Debt to Your Image

For instance, I run a few websites at the moment, this one included. The goal is to see (it’s just a test) how much money you can actually make from having a few Google AdSense advertisements around the place. In around two months I have made a whopping US$13.01. I tell my friends about it and they just laugh at me, “It’s not worth the hassle” they say.

For $13.01, sure, it’s not. But what about after a year? That $13.01 becomes around $80. Now quite obviously I’m not going to be able to survive on $80 a year any time soon, but I think this is where most people give up. This is residual income – from time to time I need to add some content or do some maintenance, but essentially when I’m not directly working on making money, the content is still working for me.

Share dividends, interest on your savings and so on – there are plenty of ways to generate small amounts of income that can one day build up to a considerable amount. For some people, it’s all about investing money and supplementing their current income, whereas for others it’s about investing a small amount of money and time, to just earn enough to get by.

It’s typical of people nowadays to discount the little things. They discount the small amounts that they spend as nothing. $5 a day is easy to spend, but after a year that is $1825! Smokers for instance, have a real financial benefit from quitting, if nothing else. Turn it around, and imagine running 5 websites making $5 per day – that is over $9000 a year! I could invest that money into shares and use the dividends to generate more income too. It’s ongoing, but there is real potential in it.

What I need is an idea. The world is full of them, but unfortunately my head isn’t. I need to make more websites, I just can’t think what I should make them on and how I can make them different from everyone elses.

This blog is pretty much the exception to the rule. While I do have an ad on the page, it will never really generate much, if anything. Everything I am reading now is about Search Engine Optimization, page rankings, and so on. You really need to push the content towards the viewers, then almost manipulate them into clicking your ads. My blog has too much random content to actually get a high page ranking, and as a result it will never really receive the hits. This is “my place” on the internet, and what is say here is as biased or unbiased as I want it to be – it is just my honest thoughts, and there is nothing more to it.

Do some reading up on it some time – passive income is great, but it’s probably the hardest income to earn!

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Passive and Residual Income

Australia already has a First Home Owners Grant to “help” people get into one of the most overinflated investment bubbles in the world.  Free money has been handed out to Australians as part of stimulus package, which will cost this country dearly in the future too. Now we have the Holden Owners Grant. Not actually a government grant of any kind, just clever advertising that will no doubt convince thousands of uneducated Australian’s that there’s never been a better time to buy an overpriced, poorly engineered piece of devaluing steel.

Whether it’s a car, a house, computer, clothing, or so on, if people can’t afford it it’s either one of those items that only a special few can afford to buy (which is part of it’s appeal), or quite simply the price is too high. For example, people pay big money for clothing brands like Prada. It’s high prices and label is what makes people aspire to wearing that label. Now obviously Prada are making a profit at their current prices, so their business model works. By selling only to the “elite”, they can turn a decent profit.

On the other end of the spectrum though is the brands that need economies of scale to make their products profitable. Holden is one of these brands. They need the masses to buy their cars, and in order to get the masses to purchase your product it needs to be affordable.

If these items aren’t affordable, quite simply your business is going to fail. Although housing is a tricky one to compare this all with, it’s still a similar situation. People can’t afford to buy houses at it’s current value so there needs to be a grant to get people into the market. All this does is keep the prices inflated and in the long term helps no one except for the “investors” already in the market.

A so called Holden Buyers Grant is just ridiculous. Obviously they can’t move Holdens at the moment at their recommended retail price, so they need the grant to sell their cars. Australians are more likely to buy cars from Asia and Europe as they are either cheaper, or a similar price and of a much higher standard.

For Holden it’s a simple case of provide the market with what they want, or fall down. Unfortunately they and many other Australian businesses fail to see this. In Australia I foresee this crash being harder than any other that we have had in the past, as it is going to be an enormous readjustment for our businesses, and as a result our people.

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Holden Owners Grant

It’s well known that most Gen Y’s aren’t very loyal in a workplace sense. They are happy to jump ship after a short period of time just for some extra money here or there. Apparently the way we were brought up, we have a short attention span or something. I’m not sure, someone was telling me about it once but I wasn’t really listening… haha!

Does this extend further than just employment though? Local car manufacturer Holden is in a heap of financial trouble at the moment – being down the food chain from General Motors isn’t the best place to be in an economic crisis. Talking to the Baby Boomers, they think it would be a great loss to this country to lose Holden, but talking to the Generation Y’s paints a completely different picture. The general consensus is that Holden have been producing poorly built, inefficient and overpriced cars for too long now. Technology has moved in leaps and bounds for European and Japanese cars, but in Australia we are essentially using the same outdated technology as the yanks. It’s nobody’s fault that Holden is going under but their own, and good riddance.

In this specific example I see a crash and “the world coming down” as a massive positive. The US and Australia manufacturers will be brought to their knees and forced to produce more efficient cars and work with a business model that actually makes money rather than lose it. Lots of other people just see the doom and gloom and not the positives from it. These are usually the older generations.

Now does that make us positive or negative? Loyal or disloyal? Short term I can acknowledge that peoples lives will be “ruined”, but once again I see a positive in that. Without making too much of a generalisation about Holden employees, the meaning in their life is in their car, their TV and their Jim Beam. Now while I like cars, watch too much TV and enjoy the drink, I’d be stoked to live in a world where all three didn’t exist. Others would be literally lost, but before long find some real meaning in their life, and enjoy it for real rather than all the superficial crap that we live for nowadays.

While bankruptcy and losing your car and what not is a big negative in the short term, it offers such a huge positive in the long term.

All of this doom and gloom has enormous positives out of the other side, yet the Baby Boomers struggle to see this. Why so?

My father for one would be sad to see the Aussie icon that is Holden lost to the Global Financial Crisis, but I’m happy for it to sink. House prices crashing, banks falling, economies crumbling, exchange rates not so good. Baby boomers would faint if this stuff wasn’t sugar coated when it all happens. However what is bad for some is great for others, you just need to be able to open your mind and explore the situation, rather than just look at it with your blinkers on. Gen Y’s are able to see the positives in this situation much more easily than the Baby Boomers.

Gen Y’s are loyal, Baby Boomers just can’t see that in order for their country to become strong again they need to cut off the dead wood first.

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Are Generation Y’s disloyal?