1. Check out Coach on the CouchDecember 2008
Money Talks with Lisa
So, Where Has All The Money Gone?! by Lisa Newton
I am rather bemused by all of this talk of ‘the credit crunch’. Has the world’s available money suddenly disappeared or gone into hiding? Or has it been abducted by aliens?
It’s important to understand what has been going on for the past couple of years: there’s been a booming property market in the UK and USA and we’ve been allowed to believe that it’ll continue like this forever. The masses got sucked into the British dream: live now (and pay forever)…
As property prices increased relentlessly, there was a frenzy – everyone started to believe the market only ever went in one direction: UP. Each deal that was cut ensured someone got paid: the estate agents, the builders, the surveyors, the mortgage brokers, and, of course – the bankers. Everyone was taking their cut, getting their commission and it all became a little too easy.
Fearful
Warren Buffet, the American investor, businessman, and philanthropist, once said: “be fearful when others are being greedy, and be greedy when others are feeling fearful”, of the two emotions, greed clouds your judgement, you’ll pay over the odds, but FEAR, my friend, FEAR will haunt you forever.
I recall sitting in seminars in central London where the speakers were ‘property millionaires’ and they were promising you that YOU, yes YOU could be one too – a property millionaire within five years, because “property always doubles every 7.2 years” we were told – in fact, the empirical evidence spoke for itself. As a numbers person, I couldn’t argue with the figures.
However, I’m also an analytical person and so I have to succumb to reason, sense, and logic.
I remember about 2 years ago, having a conversation with a solicitor at a networking event. He told he’d bought an ex-council flat in London for about £200,000 and it was already worth more than what he’d paid for it – and the person he’d bought it from, had bought it a few years earlier for about £80,000 and now moved out of London.
The solicitor chap and I got onto the issue of ‘house prices’ and his mission for the evening it would seem was to convince me that: “we’re in a rising market” and that “you can’t go wrong with property”. Although I could see his point (you can’t argue with the numbers) – I just had one question for him, which he couldn’t seem to answer. I asked him: “who in the world is going to be able to afford a £400,000 mortgage and want to live on that council estate in 2013?”
This is assuming, in 7 years, the place has doubled in price, and he wants to realise his profit, and not just sit on a paper gain.
No answer.
He didn’t know, and didn’t seem to care, but this was really bothering me. It’s in the middle of an estate. Good place to rent, but to BUY? I can see who has gained so far: the one who got a cheap deal from the council, the providers of the picks and shovels, the wallpaper shops, the interior designers, the furniture places – they should be alright. But the one left holding the house – and maybe in negative equity or killing themselves to make the interest only payments each month – will they be alright?
Food Chain
If there’s one thing I’ve learned in business, (especially in the service industry which I’m in) – is that here is a food chain. They feed you, you feed her, she feeds him, he sells lots, they buy, and money comes in, so they feed you, you feed her etc. It goes around. But, if anyone gets too greedy – there’s not much meat left on the bone, and I fear that some people may well realise – with growing horror and fear, that what they bought, is barely worth the paper it was printed on. Not only is there no meat left on the bone, but the carcass is not what they thought it was.
Where has all the money gone?
I think that for any economy to be strong, it has to have something that it can sell to the world. It EXPORTS. If the “things” it can sell, are from the earth – even better. It can grow and export. This is where oil countries do well. They have stuff in the ground that other people want to buy. And when we BUY, our money goes to them. That must be where the money is. Perhaps I should move to Saudi Arabia?
Problem
The problem with service-based economies – (like in the UK) – is that they don’t PRODUCE things to export. We’re supporting each other – and it’s carnivorous. Our manufacturing base has relocated to China or India. Where does money come IN to the UK? The financial services industry and the City of London has been a good source of revenue for the UK.
In the meantime, everyone else, have been buying and selling each others houses to live and make money. The city bonus culture is a phenomenon where one or two ‘fat cats’ get a huge cheque, and as they spend it on ‘services’ e.g. eating out, buying clothes, magazines etc., the rest of us are getting a slice and having something to live on.
If this food chain supply dries up, you’re left with a lot of idle people; with no-one to ‘service’ as no-one has the money or the means to do anything! This is why the government want Peter Jones(of BBC TV Dragon Dens fame) and other tycoons to start running ‘Enterprise Academies’ so that young people and the generations to come will find a way to make money and generate a business, create jobs and bring money into the economy.
I don’t have much sympathy for anyone who now faces having to reign in their spending, and shop at Aldi, instead of Waitrose!
Blame
If you are up the creek – you’ve got no-one to blame but yourself. Watch how, over the coming months, we’ll all try and find someone (other than ourselves) to blame. Lets blame: the media for ‘hyping’ the situation up, the bank for lending the money we asked for, the credit card companies for lending money we didn’t ask for but spent anyway.
The problem with service industries, are that we’re all highly dependant on each other to keep spending. We are each others customers. The restaurants need you to keep having a good time, the pubs and cinemas want you to keep going out. So the government have cut interest rates by an unprecedented 1.5% - in the hope, we’ll feel richer again, and restart the spending spree. There’s only one problem with this – we’ll spend more of what we can’t afford, and until we learn how to save a little and live within our means, then we’re just going to have cycles of steaming ahead and then tightening up – and the money is going to run for its life – and take shelter in those countries and with those that know how to manage it properly. That’s where all the money will go.
Lisa Newton
Boogles Ltd
About the author:
Lisa is the owner of Boogles Ltd, a bookkeeping company in London that manages the books, money and finances for many businesses. Before you start a business, you need to get your own financial house in order. Although Money may seem like a dirty word, or a taboo subject for some... it isn't for Lisa. MONEY TALKS.
www.booglesltd.com www.yurbroke.co.uk
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September 2008
Too Much
Month at the End of the Money?
by Lisa Newton
Why is it, that despite knowing how much they get paid, and knowing what
their outgoings are, there are still some people who find themselves short
of
cash at the end of each month? There just seems to be nothing they can
do to get ahead, or to be on top again.
There are two elements to this problem. Sometimes, things happen that are unexpected – we can get sick, be made redundant, or everything - the car, washing machine, the boiler - breaks down at once and needs replacing. And then, for some, they just spend what they don’t have.
Debt
We are a nation that is drowning in a sea of debt, and debt can be crippling. If you only make the minimum payments on a card with a typical APR of 18%, then it could take almost 20 years for that debt to shift and be cleared. Twenty years! On top of that, we still have to go on living, repaying student loans, mortgages, overdraft and put a bit aside for our retirement.
Terrifying
I always point out to people that if they were on a pension, they’d
have a significantly lower income than what they have now. So, if they
find it a struggle now, how would they cope if they had even less coming
in? For some that's a terrifying thought, retirement may seem like a
long way off to some, but it’s getting nearer every day!
Lifestyles
We live in a culture where ‘we want it yesterday’, and this is part of the problem, so many of us have the ‘Buy now, Pay later’ mentality. Except that we keep on paying for it. People seem to think that they shouldn’t go without. They want the flat screen T.V now, the car now, the holiday now. This indicates that we are increasingly living beyond our means – and just pushing the problem further back into the future, but the problem doesn’t go away – it just gets bigger.
Cost Of Living
Has the cost of living increased? Have salaries risen in line with this cost? If we find we have too much month, then maybe we should go for a job, which pays more, or, we should spend less.
New Job
The problem with a new job, for most people, is that they’re unlikely to be paid significantly more for what they do already. And if people form a habit of spending just above what they earn, then they’ll keep doing that. And still run out of money. Although everything seems to cost more, salaries never quite meet it anyway.
Spending Less
If you are finding that everything just seems to cost more, then it can be difficult to cut back – although there is ALWAYS something we could spend less on – whether we like to admit it or not. Cable TV, booze, fags, cosmetics, shoes, magazines, coffees – are all luxuries. If the ends are too difficult, then try cutting out some of the above… for a bit (or until you’re back on top.)
A Third Way
The only other way, to really solve the money problem, is to make (significantly) more money. If you always find you are a week or so short, you need to figure out how much is needed, and make that money via a second income stream. This ideally, will be home based, something you can do part time, and something which will keep you busy (so you won’t miss the cable TV when it gets cut off). Something online perhaps. Profits are better than wages, so you want a part time business and not a second job.
Think about what your inclinations are? What you are good at? What industry draws you? E.g. property, education or designing. There are plenty of opportunities out there. The additional income stream will help you to make the money stretch to the end of the month.
Final Thoughts
They don’t teach you about how money works at school, yet it’s a fundamental life skill. Money can come to you in various ways – you can earn it, win it, inherit it, steal it, marry it or you can borrow it.
About the author:
Lisa is the owner of Boogles Ltd, a bookkeeping company in London that manages the books, money and finances for many businesses. Before you start a business, you need to get your own financial house in order. Although Money may seem like a dirty word, or a taboo subject for some... it isn't for Lisa. MONEY TALKS.
www.booglesltd.com www.yurbroke.co.uk
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