First off, two figures for those that simply want the stats.

• Average yearly income is $50,000 GROSS income. (As in before tax)
• Needed capital to start living off interest to match this income is $1.7m

For those that want the working and details I will explain step by step below.

Note, all % rates are based in New Zealand terms. A quick exchange rate calculation for the majority of the readers, 1NZD = 0.62 USD as of writing.

For a normal gross income, deduction tax will give you net income. However, for gross interest income, deductions of both tax and inflation must be done to find your net interest income.

Interest rates in New Zealand for term deposits are near 8.25%. However, these rates are one of the world's highest, so I will be using 8% instead of 8.25%. As for tax, since I am using New Zealand's interest rate as an example I will use New Zealand's tax rate aswell.

As of writing, tax for gross income of $59,999 or less is 19.5%. Thus average income earners of $50,000 will receive a net income of $40,250. Tax for interest of anything over $60,000 is capped at 30% with PIE funds.

Now the calculations. We need enough capital to earn net interest to match that $40,250 figure we found earlier. Interest rate of 8% will need to be deducted the tax and inflation.

8% less tax of 30% will leave you with 5.6% left. 5.6% less a 3% inflation rate will give you a net interest of 2.6%. 2.6% of $1,700,000 will give you $44,200 NET interest income. As you can see we have $44,200 to match an average net income of $40,250, that's $3,950 MORE than average income earners, who work all day and everyday. This $3,950 takes account of bank charges and the such easily.

The biggest problem now is getting that $1.7 million capital in order to retire. This figure may seem a lot, but the stats show it is actually not that hard. As described here, there is 8.9 million households which are now millionaires, and increase of 33% from the previous year. Thus, even as a average income earner, we will be able to retire and live off interest with just $1.7m and be classified as another “mega-rich”.

We have been in a credit crunch lately and many businesses that got heavily into debt are in dire straits. If you want to know how to evaluate the debt position of a company read on.

The most basic and perhaps the most important debt ratio is Gearing, also called Leverage in the US. Gearing equals Long-Term Debt divided by Equity plus Long-Term Debt.

As an example, let's take David Jones, DJS, the upmarket retailer. Long-Term Debt is $350.0 million and Equity is $513.3 million. Gearing is: 350.0 / (513.3+350.0) * 100 = 40.54%.

Gearing shows how much debt is as a part of the capital of DJS. A gearing of 40.54 per cent is acceptable, yet some companies pump it up to 60 and 80 per cent.

Apart from knowing about Gearing, you need also to know how much is the interest the company has to pay annually and whether it can pay such interest. You can find this using the Times Interest Cover ratio.

Times Interest Cover ratio is EBIT, which is earnings before interest and tax, divided by the Interest amount for the year.

Still using DJS as an example, EBIT is $168.2 and Interest is $40.4 million. Times Interest Cover is: 168.2 / 40.4 = 4.16 times. Times Interest Cover shows that the earnings cover for the interest 4.16 times, which in this example is good enough.

Finally, Years to Repay is calculated by dividing the Long-Term Debt by the Net Profit After Tax, NPAT. In the DJS case, Long-Term Debt is $350.0 million and NPAT is $208.6 million. So, we have: 350.0 / 208.6 = 1.68 times or years to repay from net profit. As a rule, any debt that can be repaid in less than 5 years is good.

There are good databases online where the reader can find ready made all these calculations or find the figures that will allow you to set up your own ratios.

 

Gearing is basically defined as the ratio between a company's borrowing (debt) and owner's equity (i.e. shareholder's fund). It is synonym to the word leverage.

A number of ratios fall under the bracket of Gearing Ratio. Thus Debt Equity Ratio and Interest Cover or Times Interest Earned are the more common examples of Gearing Ratio, which are mostly used.

Formula, examples and interpretation of the more common types of Gearing Ratio are explained below.

Gearing Ratio

Formula

Gearing Ratio = Total Borrowings / (Total Borrowings + Total Equity) * 100

Example

A Company has Equity contributed by Shareholder's amounting to $ 100,000. The funds borrowed from the Bank amount to $ 50,000 for the purpose of purchase of Plant & Machinery.

Gearing Ratio = 50,000 / (50,000 + 100,000) * 100

Gearing Ratio = 33%

Interpretation

In this case 33% of the total funds are contributed by way of borrowings. Thus the proportion of debt to total funds appears to be reasonable. However this ratio needs to be compared with other companies in the industry to judge the reasonableness.

In a capital intensive industry Gearing Ratio of 50% or less can be considered reasonable. Capital Gearing Ratio above 50% is considered to be risky, since borrowing funds has a cost attached to it by way of interest. Once funds are borrowed, the principal and interest are required to be paid irrespective of the performance of the business. Thus a high Capital Gearing Ratio leads to high risk.

Debt Equity Ratio

Formula

Debt Equity Ratio = (Total Debt / Total Equity) * 100

Example

A Company has Equity amounting to $ 50,000 and has borrowed funds by way of Long Term Loan amounting to $ 75,000 for funding the construction of building and purchase of Plant & Machinery. A Short Term Loan of $ 25,000 is taken for funding the Working Capital Requirement.

Debt Equity Ratio = (100,000 / 50,000) * 100

Debt Equity Ratio = 200%

Interpretation

A Debt Equity Ratio of 200% is considered to be very high. There is heavy dependence on borrowed funds which means more risk. In this case the company will need to perform and have sufficient Operating Profits from the first year itself in order to meet the interest cost and repay the first year loan installment. In case the company has struck a deal to start repayment of the loan after a couple of years it would have that time period available for setting up and growth of the business. Within this time period the company would be required to make sufficient Cash Profits in order to repay the loan.

In case the Debt Equity Ratio is 200% after the company has commenced business and operated for a period of few years, then it would be interpreted to be very unhealthy and high risk, unless a major expansion is planned.

As stated above, the Debt Equity Ratio would need to be compared with the industry norms to ascertain the reasonableness. A capital intensive industry would be having a high Debt Equity Ratio as compared to trading business.

Gearing Ratio Vs. Debt Equity Ratio

There are debates and arguments as to the correctness of calculation of Gearing Ratio. What is the correct formula for calculating Gearing Ratio? Is the Gearing Ratio the same as Debt Equity Ratio?

It can be observed from the above examples that Gearing Ratio and Debt Equity Ratio give similar results except the result %age will be much higher in the case of Debt Equity Ratio. It finally does not matter which method of calculation is being used. It is the interpretation of the ratio which is more important and comparison of the results with industry norms.

The key thing to remember is that before increasing your borrowing the risks and returns need to be balanced.

Interest Cover

Interest Cover or Times Interest Earned is another important ratio which falls in the bracket of Gearing Ratio's.

Formula

Interest Cover or Times Interest Earned = Operating Profit (EBIT) / Total Interest

Example

A company has made an operating profit of $ 8,000. The Interest Paid during the year is $ 4,000.

Interest Cover = 8,000 / 4,000

Interest Cover = 2

Interpretation

The Interest Cover ratio is more relevant where the Gearing Ratio is high. Thus in this case if the interest rates go up, the company is in a critical situation since it will eat away the profits.

The interpretation of the Interest Cover ratio given above is also dependent on the performance of the Company. Has the company made sufficient profits at the operational level? The Operating Profit to Sales would need to be calculated and compared with the Projections.

Lower the interest cover higher the risks. If interest cover is 1 or less than the company may suffer liquidity problems and may need to identify alternative sources of finance. Additional capital introduction by the owners may need to be considered.

Crayola Crayons

In 1903, cousins Edwin Binney and Harold Smith produced their first box of Crayola crayons. The boxes sold for a nickel each and contained eight colours; red, green, yellow, orange, violet, blue, black, and brown. The name Crayola was invented by Edwin's wife Alice by combining craie, the French word for chalk and ola, short for oleaginous meaning oily.Over the years Crayola crayons took on many changes. In 1958 the built-in sharpener was an innovative addition to the ever growing box of new colours.

Crayons were given unforgettable names like; Periwinkle, Purple Pizzazz, Razzle Dazzle Rose, Tickle Me Pink, Fuzzy Wuzzy Brown, Macaroni and Cheese, Tumbleweed, and Razzamatazz. In 1990, eight traditional crayons were replaced with new shades and the retired colours were then enshrined in the Crayola Hall of Fame. Protesters from such groups as CRAYON (Committee to Re-establish All Your Old Norms) and RUMPS (Raw Umber and Maize Preservation Society) helped convince Binney & Smith to bring those colours back out of retirement. In 1991 the eight retired crayons were reinstated. Binney & Smith released a limited 1 million boxes of the retired colours with the 64 crayon box. They were called “The Crayola Eight.”

Cream of Tartar

Cream of tartar is made from a type of sediment called argol that deposits on the inside walls of winemaking casks. McCormick & Company buys their cream of tartar from Italy where wine makers and casks are plentiful. The cream of tartar is retrieved from the empty barrels by tiny little people who are able to crawl through the small openings of empty wine casks where they scrape the residue left behind from fermented wine.

Another name for Cream of Tartar is Potassium Bitartrate. It is also used in the making of tin plate metals, baking soda, and in laxatives and if stored properly, Cream of Tartar has an indefinite shelf life.

Ivory Soap

Harley Procter, the producer of Ivory Soap, was looking for a new formula that could compete with the then popular castile soaps. He consulted his cousin, chemist James Gamble who formulated an appealing white creamy bar. Soon after the production (only one day), the factory worker who ran the master mixer forgot to switch off the machine before taking his lunch break.

The over-mixing caused too much air to be mixed into the soap but, it was dried, cut, and packaged just the same. To their surprise, consumers loved the floating soap and demanded more of it. The fact that the air filled bars lasted only half as long as other soap bars, did not deter customers, they were willing to pay more money for the luxury of a floating soap that would not elude them in bath water.

There has been some controversy over this story with some saying long whipping of soap batches was intentional. Whatever the true story, the fact remains that people were willing to pay for bath soap that lasted half the time of other soaps and the convenience of a soap that floats.

WD-40

WD-40 was invented in 1953 by Norman Larsen who was head chemist and president of the Rocket Chemical Company in San Diego California. He was trying to develop a formula that would displace water and on his fortieth try he found it, hence the name Water Displacement 40 or WD-40. The formula was used to discourage corrosion on nose cones of airplanes and Atlas Missiles and to displace moisture from electrical circuitry.

Rocket Chemical Company engineers found how well WD-40 worked and began sneaking it home for personal use. It didn't take long for word to get around about the multitude of new uses for this amazing new product so, in 1958 WD-40 became available to the public. In 1961 a more pleasant fragrance was added to hide the odor of the petroleum distillates. Now, the "WD-40 Company" (renamed in 1969) produces over a million gallons of their “secret sauce” and distributes it to packers who then add propellant and solvent before packaging.

Wrigley's Spearmint Gum

Did you know that 2.5 billion dollars worth of gum is chewed yearly in America alone? The Great American Chewing Gum Book states that if the yearly amount of chewed sticks of gum in America were laid end to end, it would measure 5 million miles long. This equals in measurement the same length it would take to travel to and from the moon ten times!

In WWII Wrigley's advertisements suggested that war workers should chew at least five sticks of gum per day stating that men felt and worked better when they chewed gum. Soldiers not only chewed gum but found practical uses for it. They used chewed gum as patches for gas tanks, life rafts, jeep and truck tires, and even for fixing airplane parts. It was also considered an essential emergency ration to relieve dry throats during long marches and for relieving tension in battle and since that time, (World War II) all American soldiers are issued gum in their survival kits and K rations.

If you are not familiar with the term “compounding interest” let me explain. When your investment earns money, with your current interest rate, your earnings will begin to rake in earnings from it self. Then those earnings earn earnings and it goes on and on for the length of your investment. A small investment can start to accumulate a large amount of money very quickly do to this simple but amazing thing called compounding interest.

I will unfold an example for you to show exactly how wonderful compounding interest is and why the interest you earn on your investments you should not touch. Let's say you invest $10,000 today with an average annual rate of return of 12% for 10 years. During those 10 years each year you do not reinvest the interest. At the end of the 10 years you will have $22,000. That seems to be a reasonable gain from the looks of it, but when you compare it to an investment with compounding interest you start to see the power it holds. If you were to compound your interest and each year have your interest gain earnings as well you would have $28,394.21 at the end of the 10 years. That is almost a difference of $6400.

Are you convinced? I hope so. Nothing is more important, in the investing world, than time. When you are young time is your greatest advantage. By the above example you can see what compounding interest can do in just 10 years compared to simple interest. Imagine if you start investing as a 18 year old high school graduate and you start saving as much as you can at that age. By the time you are 60 years old you would have had 40+ years to invest and gain compounding interest on your investments.

Investing a large sum late in your life is nothing compared to the importance of starting young. Don't let your naivety of your youth impede your thoughts and distract you from doing what you should be doing now. Use your time to the best of your ability and start now.

Save now. Invest now. Be fruitful later.

Essentially, a mortgage is a loan. Mortgages can be taken out on any property owned by someone - a boat or a car for example - but typically are used for real estate. Like everything in life, there are ups and downs to taking out a mortgage on real estate, regardless of whether it is for personal or commercial use. The positive is that whoever is purchasing the property doesn't have to fork over the full amount right away and can make monthly payments until it is paid off. The downside is that interest is going to build up on the balance and the amortization period chosen determines just how much.

The amortization period of a mortgage is how long the term is. This time period is usually chosen by the person taking out the loan. Each individual financial institution determines the minimum loan period and the maximum loan period - for example, in Canada, the minimum is usually 15 years and the maximum recently was moved up to 35 years. The United States has a fairly similar demographic as Canada, and while most mortgages have amortization periods of 40 years, some banks have started toying with loan period of 50 years.

You can't have a mortgage without the rates involved. No bank would willingly approve a mortgage loan without getting anything in return. That $300,000 you just paid for a new home? If you have a fixed interest rate of 4.5%, assuming you make all your payments on time and pay off extra when you can, the bank is going to make $135,000 in interest. That's almost half the cost of your new home!

There are many types of mortgages, including but not limited to:

Fixed Rate Mortgages have set interest rates. If your mortgage starts with 4.5% interest, it is going to stay at 4.5% interest even if the interest rates increase or decrease over time.

Variable Rate Mortgages are just what they sound like. When interest rates increase or decrease over the loan term, your interest rate will increase or decrease with it. So your payments and interest will vary from month to month. Pre-Approved Mortgages allow you to shop around for your new home or property and know just how much you can afford!

Remember that when you take out a mortgage on a property, it belongs to the bank you took the loan from. This bank can repossess the property at any time you fall into arrears - have missed several payments. Be sure to do your research before applying for a mortgage and know what you can afford. With the many types of mortgages that are available and the right guidance from your financial adviser, it is easier to choose the mortgage that fits your financial position.

They take your money and invest it or loan it out for very lucrative returns while paying a measly two to five percent interest rate on your holdings.

Granted, a small interest rate is better than no interest rate, but you’d be better off to diversify your funds yourself, investing under the advisement of professional investors and brokers, and perhaps investing in real estate.

In the worst case scenario, put your money in a high quality safe.

A discussion about banks would not be complete without a mention of credit cards.

Why do credit card companies set up booths and solicit college students and convince them of the benefits of using their plastic currency?

The answer: because they are smart. Their marketers understand the psychology of the young and uninhibited college student. The average college student, who is already accruing years of debt in the form of college loans, is almost certainly going to max out their credit card, and thus be indebted to the card-issuing bank for years to come.

Complicate this matter with the fact that the U.S. congress passed a bill making it very difficult to declare bankruptcy, and you’ve created an entire generation of indentured servants.

Banks rule the world. The fact of the matter is most U.S. capital is owned by Great Britain, China, and Saudi Arabia, specifically banks, privately and government-owned in these countries.

God forbid, personal disaster strike and you run out of income while your account goes below zero dollars. The fees the average bank charges is more than enough to be called inhumane. It is almost impossible to fathom that any bank owners could be a devout Christian, Jew, or Muslim, for the banks of today’s world are anything but charitable, merciful, or forgiving—all virtues of these worldly religions.

It is this writer’s personal experience to have been billed twice by a credit card company (bank) before ever receiving the requested card. The card was then, upon arrival, broken into four and sent back to the company right along with the paperwork for closing the account. The bank replied with a letter informing this writer that his account had been closed and that he owed them twelve dollars.

Twelve dollars for what?

Consider customer service with the average credit card company. If you can somehow miraculously reach a human being, (in most cases it’s simply a non-productive, circular set of options with a computer) it is the rudest human being on earth, and they will tell you flat out that you are wrong. Whatever happened to good customer service? Whatever happened to the customer always being right?

If you went to a restaurant whose food was poor-tasting and over-priced and the staff was rude to you, would you continue to frequent that restaurant?

Right.

Pay off the bills you owe, cut the credit cards into pieces and send them back. Live within your means, and pull your money out of the banks. After all, they’re getting rich using our money, and we’re treated like scum.

To fly a fighter you must go to college, then go to fighter training then you have to serve eight years because it cost about 2 million dollars for the government to teach you so it is hard if you want to become a pilot then there is your family who think it is live for nothing then you can leave to become an Commercial plane pilot or get job in aerospace so your family will fell better.

It is a good job for some and some it is just too tough it takes everything out of you so think can you do it. You have to learn every part of the fighter plane to become a pilot. Then there is the high pay and everything with it if you love plane, jet, army and war then this might be the right job for you. Yah also if you want to fallow you parents path.