“Hope Is not a valid investment strategy”
New York City Mayor Rudy Giuliani 2008
To put it another way, “Because ‘change’ is not a destination, just as ‘hope’ is not a strategy.” Dr. Benjamin Ola Akande, 2009.
What is money ?
We all use money, we need it to buy things.
We work hard to earn it and save it for a variety of reasons.
But why is there sometimes too much of it and other times, too little ?
Where did all the money come from initially, and why is there suddenly not enough money ?
The surprising fact is, most of the money in Australia, is created by banks.
Probably less than 5% of all money in Australia is in the form of cash and coins.
The rest is an digital form in our accounts.
Like a form of magic, banks make the money appear, seemingly out of nothing, whenever they make loans.
But this money is not what it seems.
This money is credit and is temporarily on loan.
How do they do this ?
We now use this as money and believe that it is money.
But because it is credit, at some point in the future, it now has to be paid back.
And when it is payed back, it now “vanishes”.
This is not any form of trick, it is how “almost” all of our money is created and destroyed.
But how dependable is this money that banks create, and we essentially end up relying on ?
The banks make their profits by charging interest on loans, so long as they are confident in the economic situation at the time.
Then they are willing to lend as much as they can.
“..Whenever a bank makes a loan, it simultaneously creates a matching deposit in the
borrower’s bank account, thereby creating new money…”
Bank of England source
“…the essence of the contemporary monetary system is the creation of money, out of nothing, by private banks’ often foolish lending…”
Martin Wolf, who was a member of the Independent Commission on Banking.Financial Times.
Many people are also confused and believe that a bank is there to act as some form of simple intermediary which lends out the deposits to borrowers !
But what actually happens is that households have chosen to save money in a bank account, whilst the same money could possibly have been used to purchase goods or services anyway.
Saving does not by itself increase the deposits or ‘funds available’ for banks to lend.
Indeed, viewing banks simply as intermediaries ignores the fact that, in reality, in the modern economy, commercial banks are the creators of deposit money.
Now we have all been told, since we were children, that we should save our money to become wealthy.
But as a brief aside, just how safe are your savings in banks in Australia ?
In the unlikely event that a bank, building society or credit union becomes insolvent, the Australian Government may activate the Financial Claims Scheme.
The Scheme covers those ADIs incorporated in Australia that are:
Foreign subsidiary banks
The Scheme does NOT apply to:
Branches of foreign banks in Australia;
foreign branches of Australian ADIs;
Specialist Credit Card Institutions and Providers of Purchased Payment Facilities; and
finance companies and other institutions that are not authorised by APRA.
The Scheme protects the total amount of deposits up to $250,000 per accountholder per authorised bank, building society or credit union.
The Australian Prudential Regulation Authority (APRA) is the prudential regulator of the Australian financial services industry. source
But what about superannuation funds in Australia ?
This appears to be slightly tricky.
The Scheme applies to an ‘account-holder’ of a bank, building society or credit union that is incorporated in Australia and authorised by APRA.
If an a superannuation fund,including a self-managed superannuation fund is an account holder, then in theory your protected by the same amount as a standard deposit.
But you have to watch the pea and thimble very carefully.
“Are products marketed as superannuation or retirement products, such as accounts held by SMSFs, protected products…If a product, which is used for superannuation purposes, satisfies the definition of a protected product account, it is covered under the Financial Claims Scheme … the definition does not depend on what the account is used for, provided it has the legal features of a protected account.”source
As we mentioned earlier, a super fund can be classified as an “entity” holding an account with a bank for instance.
The $250,000 cap applies to the entire trust, which might have several billion dollars of ‘deposits’ in a single trust.
A recovery of $250,000 under the guarantee may make a meaningless contribution to recovering money for an individual depositor.
Thats the problem in a nutshell.
So where does this leave us at Ample Property Solutions ?
In a long and circuitous route, we are telling you the truth about how safe your money is in Australia.
We are a stable nation but here at Ample Property Solutions, we suggest the safest form of long term wealth creation is not saving all your money in super or a savings accounts.
It is through reducing your accumulation of bad debts, and swapping them for an accumulation of good debt.
Whats the difference ?
Some brief examples of good debt, without the nuances of problems that they might entail of course.
Technical or college education, small business ownership, investing and our favourite, real estate etc.
A few quick examples of bad debt, Clothes, Consumables and Other Goods and Services, credit cards and cars etc.
And there are of course grey areas between good and bad debt as well.
So, the essence of Ample Property Systems advice to our clients is fairly straightforward.
We encourage our clients to use other peoples money(the banks) as well as other peoples skills(our staff) as well as our large group of experts like valuers,builders etc.
Now is the best time, to invest in your future utilising Ample Property Solutions.
Contact us TODAY