My wife and I were really stressed and in a bad space in late 2017. It was a terrible time in our marriage. We could not see the light at the end of our trouble tunnel. Somehow, we had to turn our finances around, but we also had a professional squatter in our rental apartment that was now costing us money, instead of bringing in an income. After long deliberation, we made the following tough decisions:
We cancelled our DSTV subscription.
I cancelled my golf subscription and put my golf clubs away for the time being.
I sold my vehicle and bought a much older car.
We changed our Medical aid to a much cheaper Hospital Plan.
And in our own way, we said goodbye to most of our friends, because we were not going to see them for a while in an attempt to cut our expenses.
After realising that we were falling deeper and deeper into debt, we had very specific reasons why we had to change things. But realisation and having your reason why you should make changes gets you to the edge of the cliff. Taking the dive into the water 10 meters below would actually need action to achieve the result.
We were blaming each other for the position we were in. We were right. Both of us were to blame. We were both adults. We had been enjoying life in our comfort zone. Me, more than my wife. I think I did own up to this. It was time to act like adults. Nobody else got us into this situation but ourselves and no one but ourselves will get us out. We appointed the agent that placed the tenant without asking for the relevant paperwork. We had to fix this. We had to take ownership.
One of the books that changed my life was Extreme Ownership: How U.S. Navy Seals Lead and Win by Jocko Willink and Leif Babin. Reading became part of my life at this time and helped in so many facets of my life. It gave me a new perspective and helped me switch off from my problems by reading a few minutes before bedtime. I really suggest making reading part of your life and this book is a great start.
This book made me realise that there are really two kinds of people in life. The ones that give other people the blame for their problems and the people that get and solve the problem or approach it differently in the future. The people that are stuck in their comfort zone and the ones willing to move outside of their comfort zone, to find solutions.
Blaming others for our problems, not owning up to potential problems and not being willing to make sacrifices, are all examples of being stuck in our comfort zone. Naturally, we would rather stay in bed on a cold morning, or watch our favourite TV show on our comfortable couch than go for a run. Naturally, we want to blame others or outside factors for our negative feelings, our bad mood or our problems.
Just yesterday I was on my phone talking to my wife while driving and almost missed my turn-off. I suddenly had to switch lanes and when a vehicle didn’t give me the gap I was hoping for, I took my frustrations out on the driver. After I cooled down, I realised that if I wasn’t on the phone I would have been more prepared to take the turn-off and all the unnecessary excitement could have been avoided.
Most of us have experienced road rage to some degree. The reality is that most of our rage can be spared with a little planning, be it planning for a little traffic – because it’s almost inevitable on certain roads – and leaving earlier or having a good idea of where we are going and how long it will take, before climbing in our vehicle and just driving to a new destination.
When it comes to personal finance, we must take ownership of our expenses. 99% of the time, we are able to cut our expenses, it just needs one more step. I sold my 2-year-old car and bought a 9-year-old car to cut expenses. I know someone that not only did the same, but also sold his house, took a loss and moved to a garden flat. Within 3 years he got his finances back on track.
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Learn how to spend only 85 per cent of your income, or one day you will be forced to live of a lot less.
-The Van Plan
“I just want to enjoy my money for the time being”, the millennial said. Enjoying 100% of your money in your 20s, 30s and 40s, would cause you to not have money to enjoy later in life. At some point debt, inflation, a negative salary increase to inflation or a combination of these will force you to make changes – often too late. Enjoying 85% of your income in your 20s, 30s and 40s, will ensure that you will always have money to enjoy.
Why don’t we have the mindset of, “I just want to enjoy my freedom as soon as possible and not have to work for a boss all my life”, in our twenties?
Not spending all of our income is a mindset. It starts with some financial literacy, tweaking a few habits and fully embracing the reason WHY you want to do this. In a previous post I talked about the importance of the WHY. Later on in the blog I will also explain how you can get the mindset right and how we turned our finances around by changing small habits to cut our expenses.
In the following example, I illustrate how different spending habits can influence their net worth over a 10 year period. John, Jane and Matthew each earn R100 000 in the first year. John only spends 85% of his income and invests any surplus @10% interest. Matthew continuously spends 5% more than his income. Jane spends all her income in her first year and then fails to adjust her expenses due to the cost of living increase. The interest on an overdraft account is 20%. Inflation is 7% each year and each of them gets a 5% increase each year. This is the effect of different spending habits over 10 years.
Matthew has not only neglected to put money away for unforeseen expenses, emergencies or the day that he cannot earn an income anymore, he has also racked up debt that will take him more than 10 years to pay off even if he changes his spending habits to only spending 85% of his income in year 11.
Jane is even worse off due to the fact that her income could not keep up with her expenses. Not having a clear understanding that she effectively had a negative 2% growth year on year on her salary, has put her in a very difficult financial position.
John on the other hand has done well to save up 24 months worth of income. He has put himself in a position where he has various options. He can try and start his own business while not worrying about an income for 2 years. Or keep on saving as he has and after another 18 years of sticking to this formula, the interest on his savings alone, will cover his expenses. This will give him even more freedom in life.
It is quite clear, learn how to enjoy 85% of your income and you will enjoy the rest of your life. If you use 100% of your income to enjoy life, the time will come when you must learn to enjoy life with only 50% of your income or decrease your enjoyment dramatically.
In life, there are really only two types of people. The ones that make excuses for their problems and the ones that accept their problems and do something about it. Which one are you? The one that hopes for a miracle or the one that makes the miracle happen.
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