Ben Hughes

27 Nov 2010

Meat

Last night I ate meat for the first time in almost 10 years.

I became vegetarian because I wasn't comfortable letting the market do something for me that I wouldn't be able to do myself. My motivation was less to do with animal rights and environmental activism and more about personal responsibility. Every few years I've asked myself if this decision was still right for me. It was usually a simple evaluation: would I be able to kill an animal to eat when I had viable alternatives?

Reading A Vegan No More kicked off the evaluation process again, inspiring a deeper assessment than usual. I starting thinking about whether I lived up to this principle in the rest of my life. I couldn't honestly say that I did. It started to seem like not eating meat was an easy way to feel as though I was being responsible, without really having to do anything of consequence. There's also the issue of ignoring the animals that are killed in the production of non-meat products, which in many ways is also getting the market to do my dirty work.

Moreover, I've started questioning the underlying principle itself. Do I really believe that it's possible, or even desirable, to apply my personal morality to every link in the production chain of every product I purchase? It's hard to align that with my belief that specialisation and trade improves everyone's lives. I need to put some more thought into this to work out where I stand.

Meat-wise, last night was a feeling out process to see if I had any physical or emotional reaction. Unsurprisingly, emotionally I had none. Stopping was more of an intellectual than emotional decision and I didn't expect starting again to be any different. Physically I felt.. weird. The eating itself was all good(sichuan beef, mmm). My body is definitely not used to digesting meat though. I felt incredibly full for hours and it was offputting having something so hard to digest in my stomach. Just being conscious that I was digesting was quite bizarre. Unlike Trish, I didn't feel a rush of euphoria and like everything was right with the world. Then again, I haven't been malnourished, nor did it ever feel like I was denying myself anything.

Where to from here is still up in the air. I don't feel particularly strongly about meat either way. If I do incorporate it into my diet it will be infrequently and from 'ethically' raised animals.

Update

After a few days it's become pretty clear that meat is going to be part of my life. My squeamishness about killing has also gone, which removes any lingering moral dilemma. Reading about places like Lillydale Farm also made me happy.

Although I'm not seeing the sort of miraculous change that Trish saw, I have noticed that I can eat a lot less, be full for longer and seemingly concentrate better. I doubt this is meat per se - just the effects of a solid lump of protein. While possible to get that as a vegetarian, it takes a lot more effort.

24 Jul 2010

Ah, the tax system

At the moment I'm knee-deep in investment options, trying to get my head around negative gearing, transactions costs and lots of other fun stuff. Yesterday we bought a new house. For the last 5 years we've been working fairly hard to pay off our unit. We've always planned to buy a bigger place and keep the unit as an investment property. Now that the time has come, we need to work out if that actually makes financial sense. I've been randomly tweeting about this stuff as while thinking it through, and some people have asked questions that are too hard to answer in 140 characters. So I'll attempt to go through it all here. Of course, this isn't financial advice for anyone else: it's just my understanding of my situation. It's quite likely I've completely messed this up. Once I think I have a fairly clear idea of things I'll be seeing a financial advisor. You should too. Broadly, we're considering two options: keeping our current place and renting it out, or selling it and buying something similar to rent out. At this stage we're not looking at other investment options.

Some numbers

Lets say the unit is currently valued at X. 5 years ago we bought it for 2/3X and currently owe 1/3X. That is, we've paid off roughly half of the original mortgage. We've bought the new house for roughly 2X. To pay the deposit and stamp duty on it, we'll be re-drawing everything we've paid off the unit's mortgage, bring that mortgage balance back to 2/3X. The trick to working all this out is to remember to treat both loans as part of the same portfolio, rather than trying to calculate things seperately. Regardless of how things are arranged, the maximum debt we can be in is 80% of the value of the portfolio (X + 2X), ie 80% of 3X, or 2.4X.

Scenario 1: Keep the unit

Here we start with 2/3X debt on the unit's mortgage. We then borrow (2.4-2/3)X = 1.73X, which is the most we can borrow while staying under 80% total debt:equity. We have 1/3X in cash (redrawn) which takes us just over the 2X needed for the new house, with almost enough to cover the 4.5% stamp duty. Because the unit has been owner occupied, only interest on the current 1/3X mortgage balance can be claimed as a tax deduction. This turns out to be an important part of the calculations. So, we have a total debt of 2.4X, with the interest on 1/3X being tax deductible. The rental rate of the unit is enough to cover repayments on the exiting 2/3X loan, plus a little left over. After a year we may, if lucky, make about $5000 profit. Maybe. Because we're making money, there's no other tax advantage in this scenario.

Scenario 2: Sell and buy

As before, we take out a loan for 1.73X and redraw 1/3X. Now, we sell the unit for X, pay out the 2/3X loan and are left with 1/3X cash (minus stamp duty etc). This goes off the new mortgage, reducing it from 1.73X to 1.4X. Now, we buy an investment property exactly the same as the original unit, for X. We borrow *all* of that money, using the equity in the new house. This means we have 1.4X + X = 2.4X debt, and 3X equity. 80%. Yay. At this point it looks a lot like things are the same as in scenario one, except we had the hassle and transaction costs of selling and buying the units. But lets look at how the debt is distrubuted. The home loan has 1.4X debt, and has no tax benefits associated. The unit loan has X debt, the interest on which is all tax deductible. The rent we receive will not cover the repayments, and any net loss is also tax deductible. This means a proportion of the repayments we make are tax deductible.

Let's compare

Here's the crux: in both scenarios we have a debt of 2.4X and are making the same repayments on that debt. In scenario one none of the repayments are tax deductible. In scenario two, a proportion of the repayments we make (those above the rental income) are tax deductible. And, of course, a larger percentage of the interest is tax deductible as well.

What does it all mean?

If there were no transaction costs the clear winner is scenario two: same overall debt and repayments, much better tax benefits. However, 4.5% stamp duty is a significant cost. Back of the envelope, it would take at least a couple of years for the tax benefits to make up for the transaction costs. In the mean time, we have to find the cash to cover the stamp duty: we can't borrow it without going over 80%.

A rule of thumb

Basically, the more you owe on your current property as a proportion of its current market value, the more attractive it is to keep it as an investment. Provided of course than you can afford to buy a new place while keeping your total debt:equity under that magical 80%. To me this is pretty counter-intuitive and really highlights how ridiculously complicated our tax system is. For us, it's borderline. So borderline that I'm going to a financial planner to get them to crunch the real numbers. I think in the medium term, scenario two will end up winning out. Thoroughly confused now? Awesome. That makes two of us.

Footnote: what's this 80%?

80% debt:equity ratio is the level below which you don't need to purchase mortgage insurance, which is quite costly and usually rolled into the loan. It's also easier to get approval if you have at least 20% skin in the game.

12 May 2010

Growing up

A very scary thing happened to me earlier this year: I started to grow up. After I turned 30 in January things seemed to naturally progress in that direction. I was already doing a job that made career sense, rather than something I was passionate about. I started shaving regularly - like every couple of days; and getting my hair cut every 6 weeks. I started wearing dress shirts every day instead of just when I felt like it. My wife and I started looking at buying a bigger house. Finally, I was becoming a grown-up. But it all started to unravel when I realised that what I meant by "growing up" was "giving in". In the beginning I had a really positive feeling about the changes. I like looking decent, so making that happen regularly was nice. I was starting to get used to (and occasionally enjoying) my more management-oriented role at work. It felt like I was taking the next step. But I wasn't. I was jumping onto a different track. It was incredibly draining. That'a a lot clearer with hindsight. After some soul-searching I decided to go with passion rather than career progression and landed a new job. It's a 100% technical role and I'm loving it. I may well still be in the honeymoon phase, but all of the things that used to worry me have gone. There's essentially no hierarchy, so comparative career progression is not even possible, let alone a concern. The environment is as casual as you can imagine and because I cycle to work now, pretty much every day is jeans and a t-shirt day. I shave... well... when I remember. I'm not worried about the problems of the organisation: there don't seem to be many, and CEO's more than capable of handing whatever there is. After looking at some IT industry salary figures, I've realised that I'm in a very sweet spot. Firstly, I'm paid competitively to do something I love. Secondly, the higher paying management-oriented jobs don't really pay that much more, until you get into the CIO level. I came so close to embracing a me that doesn't exist, to becoming what I thought I should be rather than what I want to be. And while I have plenty of room for personal improvement, it's amazingly freeing to leave the expectations (mostly my own) behind and go with what I love. God, I hope I'm never tempted to grow up again.