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Wealth creation is about how you spend, not what you earn

Feb 20, 2012

This week I received two separate emails from readers who wanted to know where to invest their money. What made them stand out was that both of them had accumulated substantial money despite mediocre salaries. They had not built their wealth from winning the lotto, playing the market or receiving massive bonuses, they had simply saved rather than spent.

“I grew up in a very disadvantage area but managed to save a lot of money over the years to such an extent that I could almost purchase my first property cash,” wrote Neville who is a teacher at a government school. Neville has now bought a second property that he will be able to pay off in five years. He has emergency savings and a retirement fund – all of this on a teacher’s salary.

Adrienne is a 30 year-old single female. She has no debt and her car is paid off. “As a savings oriented person, I’ve always saved at least 10% of my income (since university) and have now an emergency savings account worth 6 months of living expenses and R100 000 saved in unit trusts,” wrote Adrienne who is now looking to start a long-term savings plan.

These emails were a sharp juxtaposition to an email I received a few weeks ago from a reader who told me he “needed” a car for R250 000. Now to put this in context, he was already in financial difficulty and as a result had been turned down by several banks. He took this as a personal affront and even suggested an element of racism at play.

Why does one “need” a car for R250 000? You may need a car to get to work but all it requires is four tyres and reasonable reliably. You certainly don’t “need” a luxury car costing you R4500 per month – that is a want. “Wants” are luxuries that should only be paid for with cash after you have saved sufficiently. The fact that this reader is already in financial difficulty suggests that he values image over wealth.

The trap so many people fall into is that with their first pay cheque they want to have everything they aspire towards, today. They want to show the world they have “arrived” and have all the trapping of success to go with it. But there is a reason it is called “trappings” – it traps you into debt!

I shared with this reader my personal experience of being turned down for finance. I had started my own business and I wanted to buy a car – it wasn’t even a fancy one just a bottom of the range Hyundai. However that was a significant upgrade from my clapped out ten-year old City Golf whose passenger doors wouldn’t open.

The bank turned me down due to affordability. At the time I was so angry and had a lot to say about the bank to whomever would listen, but in retrospect it was the best thing that ever happened to me. The business struggled and cash flow became an issue. If I had bought the car I would have become another statistic. It probably would have been re-possessed and put me into a debt cycle that I would have struggled to recover from. It was a lesson I learnt without the pain and today car debt is something I still avoid.

Sometimes the best thing that can happen to you is to be turned down for a loan.

This article by Maya Fisher-French was first published in City Press





  1. Great article, I am having my first child and would like to save for his education early on. What products do you recommend for long term saving? Thanks

    • I have actually just done an article on this topic for City Press – it will be in the 11 March edition. I suggest you avoid education plans which tend to be expensive endowment policies. A good unit trust or even Satrix. I started saving R200 a month for my son nine years ago in Satrix (it is now in Satrix Rafi) and it is worth R50k! A top performing unit trust may have done even better

  2. Thanks for a great article. What ive noticed in recent years is that banks these days cant wait to give you a loan, even if they can see that you’re over indebted. They just want you to sign. So much greed out there. An example is that Revolving Credit by Standard Bank. The interests are crazy, you find that you’ll ever be able to finish paying for that thing! Urgh 🙁

    • Thanks for you comment, revolving credit is a particularly dangerous debt as you just live in overdraft at a very high rate.

    • The headline “Wealth creation is about how you spend, not what you earn” deserves to be a book title or a seminar subject. Amazing how even the simplest of concepts can sometimes evade us as people. Thank you for simplifying things for us…Keep up the good work


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Maya Fisher-French author of Money Questions Answered

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