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The one question that determines your future wealth

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Inflation is an inherently personal thing. We quantify it in general terms with headline figures, but don't be fooled. Inflation isn't the same for everyone.

In Ireland, the inflation rate has fallen over the past few months from 9.6% in July to 7.7% in December, but this doesn't mean that everyone's life is now 7.7% more expensive.

How inflation affects you will differ depending on your age, location, job, savings and investments.

There will be winners and losers: net buyers and net sellers.

Let's take an example.

You bought a house before 2020 vs. you're looking to buy a home in 2023.

For those who bought pre-2020:

Initial fixed rate at 3% or lower (many of these will be approaching their fixed rate cliff)
Up to 40% increase in home value since purchase
Your mortgage repayments have remained constant while the value of your home has increased dramatically.

Yes, you're paying more for eggs, but your debt as a percentage of household net worth is considerably lower.

You're wealthier now than you were before the pandemic, in both absolute and relative terms, due to the inflation tied to your most significant asset.

Over two thirds of the Irish population have a mortgage or own their home outright.

For many of these, inflation has been a net positive due to the housing effect - a wealth-creation event.

For those looking to buy a home now, the past three years have created a very different scenario.

Wealth destruction

According to the Central Statistics Office, the average house price index has gone from €293,000 to €359,000 since 2019, an increase of €66k. Mortgage rates are now starting to increase. This is set to continue as the ECB looks to raise its deposit rate to 3.5%. (ECB rates were negative in 2019). As such, recent inflation has had a materially negative impact on both the purchasing power of the savings accumulated to buy a house and the future debt burden that the mortgage represents. The same inflation. Two very different outcomes.

The property divide

This is the very essence of how wealth gaps materialise, playing out in real time at an accelerated pace.

Many factors drive wealth inequality in Ireland, but it's bizarre to think that the side of the wealth divide you find yourself on may be determined by simply asking the question.

Did you own a home before the pandemic started or not?

With 70% of Irish wealth tied up in housing, the wealth effect of rising house prices is particularly strong relative to the rest of the world.

Remedies

Don't just listen to the headline numbers. Figure out how inflation is affecting you personally.

Are you being crushed by rising prices, or are you a net benefactor as prices increase?

Everyone isn't on the same boat here. The sooner you realise this, the sooner you can do something about it.

Want investment advice and personal finance tips that won't bore you to death?

Join the one thousand plus subscribers by scanning the QR code or go to www.theislandinvestor.com.

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The same but different – A tribute to three great Irish musicians

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Driving home from work last Friday, tributes for Shane McGowan were pouring out across the radio stations and while listening in, I got a strong sense of déjà vu.

It was only a few months earlier that we got the sad news that the talented Aslan front man Christy Dingham had passed away, and a short few weeks after that – Sinéad O’Connor.  The loss of three iconic Irish musicians that left music fans across the country reeling.

When I think about each artist individually, their personalities couldn’t be more different. Yet, for days after the passing of the Pogues frontman, I found myself wondering why I was so drawn to all three.

And then, over the weekend I stumbled across a completely unrelated article which led with a headline:

“In a year dominated by artificial intelligence, deepfakes, and disingenuity, “authentic” has somehow emerged as Merriam-Webster’s word for 2023.”

And there was my answer. The one characteristic that embodied all three of these great Irish musicians.

It was my mother that first introduced me to Aslan’s music. She grew up during their peak and loved all sorts of rock music. I regularly watch their Vicar Street performances back on YouTube and still get mesmerised by Christy’s intense stage presence. Using elaborate hand gestures to evoke a greater meaning behind the words, he always looked like he was away in his own world. Off stage, and particularly later in his career, I admired him for his honesty when talking about his struggles with addiction and mental health. He was talking openly about these issues long before it was the norm.

Sinéad O’Connor was another original soul who, because of her talent, was catapulted into a music industry consumed by artificiality; she was almost too pure for it all. I always admired her unwavering commitment to her beliefs. Her authenticity was evident in every aspect of her artistry. The way she unapologetically embraced her shaved head and boy-ish style, she challenged conventional opinions around beauty. Her music reflected her personal struggles and she never shied away from addressing issues of social injustice, religion, and gender equality. Her stances often drew criticism and controversy, but she always remained true to herself.

Shane MacGowan will always be remembered for his unfiltered nature, and while the lyrics of many songs were dark and gritty, there was also an element of empathy and compassion in what he wrote. Like Christy, he too struggled with addiction and mental health issues throughout his career. While his demons sometimes spilled over into the public eye, his honesty and vulnerability just endeared him even more to us Irish.

So isn’t it apt in a year we lost three great musicians, the word of 2023 happens to be the one undeniable trait that they all shared. Thank you Christy, Sinead and Shane for showing us that authenticity is not just about being different to everyone else; but also about possessing the courage to challenge the established, to question the norms, and to keep going, even when the going gets tough.

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Full employment, minimum wage set to rise, but locals still feeling the pinch!

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Warning: This article does not come with the usual bells, whistles and Christmas cheer you would expect at this time of the year.

Last week we asked our readers to take part in our Killarney Town Pulse Survey. We wanted to get a better understanding of local consumer sentiment and to get an snapshot of other issues impacting our standard of living. See a summary of our findings below.

Analysis

So, jobs are aplenty, the minimum wage is set to increase in 2024 and yet according to our findings, locals are not too optimistic about the year ahead.

Just 1 in 10 people reported that they are better off now than they were a year ago. Only 16% expect the economy to be in a better place this time next year and there seems to be widespread dissatisfaction with how the government are tackling key issues affecting our standard of living.

Hasn’t everything gone so expensive?

If I got a euro for every time I heard this the over the past 12 months I certainly wouldn’t be feeling the pinch myself! Generally speaking, people do not like to talk about their personal finances but people’s behaviour is changing under the current climate. We are so frustrated with the cost of everything we are venting at home, in the office, and even while out for dinner with friends. It is not a dig at local business, I know plenty of small businesses struggling to keep their heads above water too.

Inflation is a concern but the real worry is where prices will land

Consumers and businesses are dealing with higher interest rates that have come as a result of the Central Bank trying to tame inflation. Loan products such as mortgages and car loans are more expensive. The noise coming from these issues alone is enough to drown out any positive aspects of the economy.

Stubbornly high inflation is a concern for policy makers, but for the average Joe, we are more concerned about where prices will eventually fall back to. We can deal with some short term pain but with inflation stabilising and some early signs it may even be falling, a large percentage of our survey respondents expect prices to continue to rise. This is backed up by many economists predicting prices will never return to what they were.

It’s not clear how much wage increases have played into higher prices up to now but there is a general consensus that where business margins are tight, higher wages for workers will lead to sustained higher prices for consumers 

Government is failing on issues impacting our standard of living

Research published by the National Youth Council of Ireland last week showed that more than 7 in 10 young people aged 18-24 are considering moving abroad because they think they would enjoy a better quality of life elsewhere. We asked a similar question to locals in our survey and more than 50% of Killarney locals said that either they, or someone they know, is considering moving abroad. This is a sad indictment of our country today.

The pace of housing delivery is dampening young people’s hopes of owning their own home and is even making renting unaffordable. It is not just impacting the youth however, I know of business owners in Killarney where housing shortages are impacting their ability to attract and retain talent, Businesses can’t afford to pay them a wage that allows them to comfortably rent and live in Killarney.  

At the start of September we were reading about a major teacher shortage across the country. Graduate múinteoirí are now ditching Ireland for the Middle-East where their accommodation is often subsidised and their take-home-pay benefits from a largely tax-free society. 

This Wednesday we witnessed a staff walk out at UHK in protest of a recruitment ban in place by the HSE. Reports claim that there are over 90 clerical positions waiting to be filled at the hospital. It is no wonder with all of these added pressures that our nurses and doctors are heading Down Under for warmer weather and better pay and while you couldn’t begrudge them, the drain of health workers in Ireland is leaving those left behind working in stressful and sometimes dangerous conditions.  

It’s the uncertainty

The economy is in a strange place at the moment, we are not sure if it is growing, slowing or shrinking. It kind of feels like we are dangling off the edge of a cliff and one big gust of wind could  push us over the edge. The preferred outcome is that we will be pulled back to safer ground but can this government gets to grips with the major issues impacting our standard of living and get the cost of living down to a more tolerable level?

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