Good Debt VS Bad Debt

Good Debt VS Bad Debt


Okay, the bad news is, Australian households have more debt compared to the size of the country’s economy than any other country in the world.

Let that sink in for a moment.

The good old Federal Reserve has shown how the consolidated household debt to GDP ratio has steadily increased for Australia between 1960 and 2010 out of a selected list of OECD nations.

 Australia’s household sector has accumulated massive unconsolidated debt compared with other countries around the world.

We have now officially beaten Denmark for this dubious honour.

Some of this debt is just over extending on a mortgage for a house we could not really afford.

But a lot of this debt is also just frivolous purchases of shiny things we did not really need in the long run.

From 1997 house prices in capital cities have outpaced fundamentals such as  construction costs,inflation, incomes,rents etc which makes it harder for some first home buyers to enter the market in our capital cities.

And people on lower incomes will continue to  struggle to just be able to provide a roof over their heads.

Some claim that the global real estate booms originated from a combination of expanding bank credit as well as  private mortgage debt.

The  growth of mortgage debt seems to provide a strong indicator for housing price growth in the future.

Unless the government curbs immigration massively, or somehow works out a way of lowering the birthrate here, then we cannot see how the value of houses in Australia will ever be effected.

The flow on effect to outside the main capitals is also present of course.

But will the market ever cool down at all, even temporarily ?

We believe the  problem of debt(bad debt)has multiple causes.

One of the major reasons is Australians love to have a house thats just huge.

At one stage, our homes were even bigger than homes in the US.

The average floor area of a new house built in Australia was 231sqm which is smaller than about 8 years previously.

The US Census Bureau of 2015 showed houses being about  2,687 square feet (249.6sqm).

Which is 10 per cent larger than the houses being built in Australia.

We don’t believe people need to live in houses that large.

But we also acknowledge another problem which we think is insidious.

As a nation we like buying junk, and our garbage tips are showing this.

To paraphrase Jerry Seinfeld “Your home is a garbage processing centre, and when you buy new things, your excited and you play with the new thing for awhile, and then it gets boring”

Then the new thing is stuffed into a cupboard.

Its final trip is into the garage.

Nothing ever returns from the garage back to the house.

We are now some of the largest waste producers in the world.

Second only to the United States.

They beat us in home sizes and garbage it seems.

The problem is, the millions of man hours wasted on junk we do not need, rather than investing the same money on something that will give us some form of long term security, in the future.

Its the hoary old saying “good debt vs bad debt”.

The truth is, after spending millions of dollars over their lifetime, most Australians when asked to point out what purchases were truly meaningful, could make a list of about 5 things.

How much is enough ?

Marketers spend about a trillion dollars per years trying to get us to buy stuff we don’t want, to try and impress people  we don’t really care about.

Clive Hamilton in his book “Affluenza” states “Sixty two per cent of Australians believe they cannot afford  to buy everything they really need.When we consider that Australia is one of the worlds richest countries and that Australians today have incomes three times higher than in 1950. it is remarkable that so many people feel their incomes are inadequate.”

In other words, we are lucky enough to live here, in one of the richest periods in human history yet everything is amazing and everyone is miserable.

The “baggage” we carry as a nation is depression and stress.

Case in point, a 2014 news Ltd survey of 50 thousand Australians found that 53% of people earning $200K + a year felt either angry or frustrated at their cost of living.

So what do we espouse as a company then ?

We believe that careful monitoring of spending habits and NOT purchasing frivolous trash is the way forward for a safe and secure future.

Instead of buying expensive cars that we cannot afford, or houses we cannot afford to live in, how about being different to the masses and showing some sensible restraint when it comes to spending our hard earned money ?

We truly believe there is only two major ways to invest our money.

Shares and property.

A third that is tenuous, and interesting is crypto currencies.

But, we do not offer our services in the share market .

And we love real estate.

Our services and products are built around a long game and steady wealth creation model.

By purchasing new or off the plan properties all over Australia.

Purchased at the right time, in the right location.

And guided by the right experts.

Give us a call and let us help you secure your future using property as your means to an end.

And please don`t forget to check out our article Mortgage choice Brisbane.