atans1

Think you know it all financially, read this

In Financial competency, Financial planning on 22/11/2011 at 9:56 am

A US financial planner messes up his finances. Could be any S’pore property “owner” with a mortgage.

http://www.nytimes.com/2011/11/09/business/how-a-financial-pro-lost-his-house.html?pagewanted=5&ref=business&src=me

The experience has changed just about everything about how I do financial planning and the advice I give in public … I’ve … learned some things about risk. Risk is an arbitrary concept, until you experience it. And I’ve noticed myself focusing more on the consequences of something going wrong than just the probability of that happening. As a result, I tend to urge my clients to make decisions that err on the side of caution.

… For one thing, I am less quick to judge other people’s financial behavior. I’m also more inclined to take into account personal factors that determine how people behave around money.

… The process of making financial decisions is about more than building a spreadsheet to calculate the answer, because life rarely fits cleanly into a spreadsheet. Our decisions often appear irrational until we understand the whole story.

I have a friend who is going through a tough time financially. He has a high income, but is burdened by debt from a few real estate deals that went south. He continues to take fairly expensive ski trips. That would seem irresponsible in his situation, and maybe they are.

But I now realize that it is not that simple. Maybe those trips are keeping the guy alive, or saving his marriage or keeping him sane enough to work.

I have another good friend who borrowed against his house to pay for a therapist. Unless you were walking in his shoes you might think that was stupid, but it saved his life and changed his career. It ended up being one of the best investments he ever made.

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  1. Hi,
    You said,
    “And I’ve noticed myself focusing more on the consequences of something going wrong than just the probability of that happening.”

    Yes, i always think the consequences is more important than the probability.
    That’s why i am still trying to find how to use Leverage in a way that risks of failure in my leverage operation will not seriously affect my financial position. i am allergic to but amaze by Leverage. So i have not find the answer yet.

  2. In S’pore you must be damn rich to never use leverage, or you’re still living in your mummy’s house at age 45, hoping to inherit it from her. Even my rich relatives took out 60% mortgage (2.5X leverage) on their own residential properties or 80% mortgage (5X leverage) on investment properties, even if they can pay fully in cash.

  3. Hi abc,

    Sorry to tell you we was living in the good old days. We paid fully for our 2nd HDB Executive Maisonette with our CPF money. It was only 117K-127k. To tell the truth i wanted to use leverage to buy private property many times but my wife was afraid. We are working class. She was afraid of retrenchment. She is also quite easily contented. The only thing by not using leverage, we are debt free by about 30+. We never have to tightened our belt. We eat what we want. We have money(CPF) to invest in SGX stocks. We sleep soundly until today.Result is O. K. lah!
    ” So, that’s why i am still trying to find how to use Leverage in a way that risks of failure in my leverage operation will not seriously affect my financial position. i am allergic to but amaze by Leverage. So i have not find the answer yet.”
    Sadly, i agree with you, you can’t repeat what we did in the good old day.-Even buying HDB’s BTO 3-room flat, you have to take a mortgage.

    i suppose you are a young man/woman. Pardon me if i am wrong.
    Vote for a better tomorrow, come the next election.
    Cheers!

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