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