In the years BP (Before Property) I knew exactly how much I was financially worth. Indeed my assessment was to the nearest 0.1% of portfolio value.
Twice a year I'd compile a statement of assets (there being no liabilities then!). I'd look at how much was in bank accounts, tallied up managed funds, checked share holdings etc. Contrary to obsessive budgeters, I wasn't diligent in recording income (beyond ATO requirements) or expenditure, but knew it was a tight ship with limited scope for economies.
This habit of compiling a six monthly statement remains today (AP). I can (and do) make educated assessments of the portfolio's worth. However since it included IPs (in areas with recent capital gain) my estimates are only guesses. I'd be doing well to assess values within 10%. 10% is a substantial amount, and equivalent to current annual expenditure. Even if I got a qualified valuer, his assessment would still be no better than 2-5%, which is still sizeable.
Thus money has gone from something that can be calculated to the nearest cent to a concept that's more fuzzy and less calculable.
This 'fuzzy money' concept gives rise to several attitudinal shifts:
1. The first is that money is just an idea, as mentioned in Kiyosaki's books. If you convince someone else that A is worth $A+B then you've 'created' wealth, even if no subdivision or renovation involved. If you can get a valuer and his bank to concur, then you can leverage off this increase to get finance.
2. The second affects attitudes towards expenditure. In particular, a period of strong asset growth may make one a less cautious spender. An extra discretionary expenditure of (say) $500 is tiny compared to the large error margin in net worth calculations.
Even a year's diligent saving looks small, so interest in saving (as opposed to using debt) declines. Those households who got into debt with the DVD, plasma, home theatre, new car since they felt wealthy after their home jumped $200, 000 in value is a popular manifestation of this tendency. Amongst the people here, the 'living off equity' concept has some parallels.
I have no experience of 1. except passively where an improvement to a neighbouring (and adjoining) IP and its recent sale for a high price may have a positive effect on mine. In relation to 2. there have been no discernible changes to expenditure. However some attitudes have changed slightly and later actions (eg more liberal expenditure and less saving) may reflect this.
Peter
Twice a year I'd compile a statement of assets (there being no liabilities then!). I'd look at how much was in bank accounts, tallied up managed funds, checked share holdings etc. Contrary to obsessive budgeters, I wasn't diligent in recording income (beyond ATO requirements) or expenditure, but knew it was a tight ship with limited scope for economies.
This habit of compiling a six monthly statement remains today (AP). I can (and do) make educated assessments of the portfolio's worth. However since it included IPs (in areas with recent capital gain) my estimates are only guesses. I'd be doing well to assess values within 10%. 10% is a substantial amount, and equivalent to current annual expenditure. Even if I got a qualified valuer, his assessment would still be no better than 2-5%, which is still sizeable.
Thus money has gone from something that can be calculated to the nearest cent to a concept that's more fuzzy and less calculable.
This 'fuzzy money' concept gives rise to several attitudinal shifts:
1. The first is that money is just an idea, as mentioned in Kiyosaki's books. If you convince someone else that A is worth $A+B then you've 'created' wealth, even if no subdivision or renovation involved. If you can get a valuer and his bank to concur, then you can leverage off this increase to get finance.
2. The second affects attitudes towards expenditure. In particular, a period of strong asset growth may make one a less cautious spender. An extra discretionary expenditure of (say) $500 is tiny compared to the large error margin in net worth calculations.
Even a year's diligent saving looks small, so interest in saving (as opposed to using debt) declines. Those households who got into debt with the DVD, plasma, home theatre, new car since they felt wealthy after their home jumped $200, 000 in value is a popular manifestation of this tendency. Amongst the people here, the 'living off equity' concept has some parallels.
I have no experience of 1. except passively where an improvement to a neighbouring (and adjoining) IP and its recent sale for a high price may have a positive effect on mine. In relation to 2. there have been no discernible changes to expenditure. However some attitudes have changed slightly and later actions (eg more liberal expenditure and less saving) may reflect this.
Peter
) out of a pension.
