Tuesday, November 15, 2011

What's a good deal?

In reality we are always searching for good deals. Some of us are searching for deals offered by promotion advertising campaigns. Well there is nothing like buy two cans of coke and get the third one for free or buy a pair of Dockers pants and get a 50% off on purchase of another. Sounds like a good deal but I am not talking about those deals.
My interest is to find a good deal that will give my early retirement dream. At the age of 45 I would like to be free of any responsibility. Imagine this, having a Pina Colada on the golden sand beach, feeling the sun and cool wind, I am in my shorts and Hawaiian shirt with a straw hat and hugging my new found freedom. This is not a vacation my friends, this is the deal I'm searching for.
Now a few things that are always starring at our face but we don't bother with them because we are always in the hope of getting a better job, a promotion or a fat bonus. After that we will just spend it in a day or pay off our debts and then buy another piece of worthless junk to get into more debt.
The irony is that the world's economy is following such a system which is highly flawed to the extend that people, organizations, corporations and even countries have fallen into their own death trap. The 2008 crises is the aftermath of some sadistic people sitting at Capital Hill who are still finding ways on how to screw the world over and over again. That is another topic.
My point is that why am I saying that the current system is ironic, this system has made us human slaves pursuing an intrinsic value that will never coexist in reality. That is also the beauty of it. You have to understand that there are always two sides of a coin. If we are slaving for this system we can make this system slave for us.
Now consider this simple example just to get you thinking. We take a mortgage loan for 20 years and the interest come to about 10% which makes a monthly payment of Rs. 15000. The situation is that you want to accumulate your wealth and you think the best way to do that is to buy an apartment or house which is an asset. Chances are that the market value will not depreciate but rather it would appreciate. (At least that's what you think and look what happened in the 2008 crises. That is a different issue and will be covered later). 
So anyway you buy an apartment on mortgage and pay Rs 15000/month for 20 years thinking that it is an asset and accumulation of wealth. Well, sorry to say it is not your asset but just a huge liability. Now the trick is on how to turn your liability working for you. It's simple "PUT IT ON RENT!"
If you put your apartment on rent for Rs 18000 to 20000 per month now look what has become of this flawed concept of lending and borrowing. You borrowed money from a bank and the objective of the bank was to lend money and get interest which is its income. Now you let someone borrow your liability and get an interest on it. Now isn't that just ironic!
What has happened over here. You now have a liability which is giving you a return. At the end of 20 years you will get your house and the market value has appreciated so that's good and you put it on rent all these years to repay your mortgage loan and also earned an extra. That my friends is called a Good Deal!

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