“I really don’t know where we are going to cut costs. We are already living as cheaply as we can.” With these words to my wife, I tried to take the easy way out. Fortunately, the reason WHY we had to cut costs was greater than the reason not to.
Even though my initial reaction was that we could not cut any costs, we were able to cut R15 000 (±30%) off our monthly expenses over the following 12 months. It started with some sacrifices and small cuts; larger cuts followed and eventually, we started paying off debt that freed up money to pay off other debt faster. In a later blog post, I will explain in detail what we did and how we did it. For now, the point is: Where there is a will, there is usually a way, and it all started with WHY.
So, how strong is your will? How important is your reason WHY you need to get your finances in order? In my case, I found out that my parents are not in a position to retire and the burden of their poor planning could become my problem.
Less than 6% of South Africans can retire at 65
Trust me, poor retirement planning is a prevalent problem in South Africa. Statistically, less than 6% of South Africans are in a position to retire at 65. Most of them have to cut their living costs to be able to do so.
My second reason for making a change to my finances was my ever-increasing debt. For a few years, I received a higher income due to the longer hours we had to work on a project. It was not an increase, but rather a top-up for overtime. When the project came to an end, the top-up went away, but not my increased cost of living. My debt increased rapidly and I was oblivious to the fact, because technically my salary was still the same. It was just the added benefit that went away. It took me a while to realise the impact. We did not have a budget or a system in place at that time, so we didn’t really understand what was happening in our finances. It just happened.
And then, the worst thing happened to someone with increasing debt. Our new tenant in our rental unit stopped paying her rent in month 2. Our cash flow was already in the red, and now another income stream was shut off. What was worse, is that we would have to spend money (on legal fees) to sort out our latest problem. This trouble-tenant would cost us about R150 000 in written-off outstanding rent, legal costs to get her evicted and interest on debt that we had to incur due to her. The value of the lesson – we were at fault for placing this tenant – and the wake-up call, was worth so much more. Not many of us are fortunate enough to get such a wake-up call early enough in our lives.
We realised that if we do not get proactive with our retirement planning, one of three things will happen:
- We would have to work until we died. This is simply not realistic as at some point you become less valuable to an employer, due to not being able to perform tasks to the level that you were previously capable of. Your salary will eventually decrease and you would not be able to keep up with your standard of living.
- We would end up in a caravan park living off a state pension. I don’t think I have to explain this one too much. It simply was not an option.
- The burden would fall onto our children. If you ask me, only parasites live off other organisms at the other’s expense. How could we possibly justify getting children when we know that they would have to look after us one day?
It was quite simple. Become Financially Independent before it is too late! Here are our reasons WHY:
- Money will control you until you take control of your finances. I have fallen into the cycle of being dependent on a salary, but it is my choice to stay in this cycle or take control of my expenses and get out of the cycle.
- The sooner I can build enough passive income to cover my expenses, the sooner I can do what I love. Travelling the world is something both my wife and I enjoy. The sooner we take back the power of who controls our time, the sooner we can do with our time what we want.
- I do not want to be a financial burden for my loved ones. Life comes with enough challenges. To expect someone to look after you financially is not only selfish, but shows poor judgement and planning on your side.
An illustration of Simon Sinek’s “The Golden Circle” from his book ‘Start with Why’
When Simon Sinek wrote ‘Start with Why’, he had businesses in mind rather than individuals. His message was, people don’t buy what you do, they buy why you do it. For example, people don’t buy a car, because it is a car. They buy it because the company sells it as the ultimate driving experience. Now, my message is: “The reason for doing something; doing it with vigour and actually completing what you started, is not what you will achieve, but rather why you want to achieve it.” Nobody gets excited about financial independence (retirement) until they think about WHY they want to achieve financial independence.
If you can convince yourself upfront that the result will be worth the effort, you are halfway there. It makes the difficult tasks so much easier. So take a few moments and think, why is it important to you (and your family), to take control of your finances?
- Is it to retire early?
- Is it to give your children a kick start in life?
- Is it to get out of the rat race?
- Is it to make a fresh start in another country?
- Or perhaps to travel the world one day?
If it is not important enough, you won’t make a single change. The stronger your reason why you want to change your financial situation, the better the chance that it will motivate you to make a change. You have to be obsessed with your reason. Write it down and put it up where you can see it. Make it part of your daily routine.
One of my friend’s family owns a Family Resort. Other than offering chalets and camping sites, it also offers a separate area for long-term residents. Here you get people who are retired and come park their caravan for months until they decide to pack up and move onto the next resort.
You also find people that come and park their caravan here to save costs. A stand that includes water and electricity, could cost less than R3 000 a month. Some have enough income to live in the city, but they prefer to live in a caravan for 9 – 10 months a year, to enable them to travel for the rest. Their reason WHY, is to travel the world and see new places.
Other occupants have children in Australia. Their reason WHY, is to save money to visit their children. There was even a young family of four, that moved to the resort during COVID 19, because they fell into hard times in the city. With their move to the resort, they could save costs and pay off the debt they had until they were back on their feet. Working remotely enabled them to earn an income despite living more than 100km away from their offices. They made the decision as a family and made sacrifices together. They realised that negative cash flow will only bring more hardship. Their reason WHY, was to break the cycle of negative cash flow.
There are many ways to solve a problem, it just depends on how badly you want it. How strong is your WHY?
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The difference between the impossible and the possible lies in a person’s determination
-Tommy Lasorda
The message in the blog is not to stop spending on luxuries or start living on bread and water. The lessons in the blog will teach you to become more financially savvy and guide you to a positive cash flow as well as a growing net worth to set you up for financial freedom.
It won’t be easy. If it was easy, everybody would be financially free and there would be no need to write about it. You must be prepared to make certain sacrifices. Nobody has ever improved their status quo without a sacrifice of some sort. If you want to lose weight, you need to eat better or exercise more or even both. To get a promotion at work, you might have to study further.
Where there is a strong enough will, there is a way. We are sometimes just too proud to lower our standards of living. Make sure you understand the repercussions of your pride.
Start with having a conversation with your trusties (your besties that you can trust). You will be surprised how many people go through the same struggles. If you don’t feel that you can talk to someone, contact me. I have been there and I have been able to change things around to a great extent.
My goal is to not have to rely on a salary to make ends meet within the next 15 years – my journey already started 6 years ago. I want to earn my income from anywhere in the world and keep a positive cash flow at all times while increasing my balance sheet until the day I die. WHAT are your financial goals? HOW will you reach it? WHY is it important to achieve it?
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