ARBOR OUTLOOK: Western wealth, property records and Aretha

But a book titled “The Mystery of Capital” by Hernando de Soto (not the Spanish explorer buried in the Mississippi River) postulates that property ownership is more than an investment vehicle, it is the foundation of wealth creation in the West.

Massive economic growth, asserts de Soto, cannot be achieved without personal property (most often housing) that is documented by government records. Sounds simplistic, right? I mean, whose house and/or property aren’t listed on a county website?

It’s hard to imagine, but a significant part of the world lives in undocumented housing. In developing nations, land or property ownership often cannot be easily ascertained and frequently no official government records exist at all. Even when property records exist, many are not updated or accurate enough to be functionally useful. Squatters sit on properties that are listed as owned by others. This situation permeates Central and Latin America, Africa and large swathes of Southeast Asia. De Soto contends that this is the primary hurdle to wealth building, as well as the essential reason the West is wealthier than “the rest.”

When you tie someone to an address, someone who owns the property or legally resides there, they can engage on a much deeper economic level than those who have no legal residence. And it’s not because the property-less people of the world are lazy; it’s that property gives folks the ability to generate additional capital.

“The poor inhabitants of these nations…do have things, but they lack the process to represent their property and create capital,” says de Soto. “They have houses but not titles; crops but not deeds; businesses but not statutes of incorporation…”

Documented property and home ownership allows us to borrow money, to start businesses, and to inject capital into the economy. Without property or home ownership or the capacity to procure a title to a property we own, our economy would be severely impacted. The red tape and taxes and fees (who hasn’t recoiled at the word “doc stamps” when purchasing a home) associated with property and home ownership are significant, but we are offered tremendous opportunities for wealth accumulation through official documentation.

As de Soto said, “This is the mystery of capital … Westerners, by representing assets with titles, are able to see and draw out capital from them.” A person’s home is his castle, but it is also his capital.

Margaret R. McDowell, ChFC, AIF, author of the syndicated economic column “Arbor Outlook,” is the founder of Arbor Wealth Management, LLC, (850-608-6121 —, a “fee-only” registered investment advisory firm located near Sandestin.

The Annoying Psychology of Why You Can’t Stick to a Budget

Break up big goals into smaller ones.

Finally, even when you do have a clear idea of what kind of future you want, it can still be hard to stick to your goal in the long term. Eventually, your motivation dwindles and you’re tempted to spend the money on something more immediate, like a fancy meal or a new pair of shoes. You figure you’ll make up for your lack of saving down the road.

To combat this line of thinking, first break your savings goal into smaller increments. Saving a million dollars for retirement seems like a pipe dream for most of us. Saving $400 a month, while still daunting, is a lot more digestible.

Again, it’s about bridging the gap between the present and the future, so breaking up a big goal in this way makes it a lot more present and actionable. It’s sort of like bringing your “future self” into the present. Research suggests you’ll save more if you think this way, too. A 2014 study used two different approaches to get people to save. Some subjects were told to save linearly, and think of the future as completely separate from the past or present. Those subjects were instructed:

This approach acknowledges that one’s life is made of separate and progressive time compartments such as the past, present, and future. We want you to think of the personal savings task as part of such a linear progress. Make your saving task a planned one: just focus on the total amount of your savings goal for the future …

Other subjects were asked to think cyclically, and imagine the future would resemble the present. Subjects in this group were given the following instructions:

The future will be exactly like the present: if you save money now, you will save in the next pay period. If you don’t save money during the present pay cycle, it is likely you won’t save money in the next cycle. We want you to focus on your personal savings in the present, and that is all. What’s more, at the end of the day, you will be able to look back and see how much personal savings you have achieved.

Across all of their studies, researchers found that people in the cyclical group saved 78 percent more than subjects who were instructed to think about the future linearly. The study suggests that it’s more effective to focus on the process, rather than the end goal when it comes to saving. Incredibly, even a small mind-set shift like this can make a world of difference when it comes to managing your money.

Tax Reform: Don’t Forget Personal Savings

President Trump’s tax plan released last week reaffirmed his goal of slashing tax rates on businesses. The plan also proposed overhauling individual income taxes by simplifying the rate structure, increasing the standard deduction, and eliminating breaks such as the state and local tax deduction.

What was missing from the Trump plan were reforms to the tax treatment of personal savings. The plan would repeal the 3.8 percent investment tax imposed by Obamacare, but it was silent on the underlying dividend and capital-gains tax rates.