How to achieve financial independance

Dear Investor Challenge

I love my job, it’s easily the best thing since the slow motion running scenes on Baywatch. I love the oPamela Anderson Runningffice politics and the free food I get during the endless hours of meetings discussing nothing in particular, and the hours spent behind my desk trying to find the balance between actual productivity and complete boredom.

I’m just scared that eventually I’ll have too much money and won’t need to go in to work every day. Once my wife sees that, she’ll definitely want me to retire, and that will mean I’ll go from being the big man at the office, to replacing her handbag yorkie taking instructions, all day long.

My days will then be spent getting dragged around Mr Price Home trying to decide which of the two identical shades of blue towels would best match our guest bathroom, and cleaning my perfectly disorganised garage so that it has space for the treadmill my wife has recently developed an allergy to.

All this while being called Schmoopie is already too much, but it will also almost certainly mean I won’t be able to get drunk at the annual Christmas party, and flirt with my inappropriately young secretary.

Is there any way I can avoid this disastrous chain of events from becoming a reality?

Schmoopie

I’m so glad you wrote in Schmoopie, because I planned on doing an April fools post this month, but we were all pranked a day early by the biggest fool south of the Limpopo. Well played no. 1, well played… And why the hell do people call you number no. 1 when you remind us so much of a steaming pile of no. 2?

But anyway, at least now I can talk about something else. I’m not a fan of the name Schmoopie either. How about a change. Can I call you Bob?

You’ve done the right thing by asking for help Bob. Most people would simply stroll their way to excess wealth and end up in the nightmare situation called FIRE (Financially Independent, Retired Early) where they had all the time in the world at their disposal.

So without wasting any more electrons, here’s how you can avoid the pitfalls of prosperity.

1) Get a big expensive 4×4
Tell your wife it’s for her safety, your annual trip to the game reserve with it’s mildly bumpy roads, and necessary for her to do the shopping, even though it’s only 2km away and her teacup yorkie fits into the basket on her bicycle perfectly.

It’ll have to be new of course so it can depreciate relentlessly. Something that burns tanker loads of fuel every time you turn the key is what you’re after. Also make sure it has big expensive tyres, and if at all possible, breaks down regularly so you can give more money to the dealerships and parts stores.

If you’re not sure which is the most ridiculous car to buy, try taking a look at the choices made by South Africa’s most efficient spenders, the government ministers. Here’s an article on what they’ve bought for both their Pretoria and Cape Town palaces.

Audi’s Q7 seems to be the top of the pile, and having some Audi experience I can vouch for the fact that they’re outrageously good at ensuring you never become financially independent. Also big on that list is the BMW X5’s and 6’s, and the Mercedes M class. All three meet the criteria above perfectly.

Now I know you might find it hard to be as wasteful as the ministers, but keep in mind, they’re spending other peoples money, something much easier than you and I need to do.

2) Pay extremely close attention to your investments
Stop scratching your head, this is a great way to ensure you never reach FIRE. Keep working on your investments. Find the best unit trust out over the last year and put all your money into it, then change next year to the new king of the pile. Ignore the outrageously high total expense ratios. Surely the more expensive the Unit Trust, the better the people are at looking after your wealth.

You can also take the time to learn technical analysis and begin trading. Draw a few red and green lines on a chart, and then use those to decide what and when to buy. It must be working, I keep seeing a number of courses offered online in spite of the fact that all the billionaires I’ve ever heard of want them banned. Remember, the course instructors are doing all this for you. They’re already rich from all their trading, and now they just want to share those secrets with you out of the goodness of their hearts.

3) Learn about compound interest
It’s really an amazing concept. Even a small amounts of money invested will end up huge given enough time to grow. Yes I know that’s not what you’re trying to do here, but fortunately the opposite is also true. Any money owed can also grow huge given time, and unlike earning interest, there isn’t really any upper limit on how much interest you can pay. The 11% on your homeloan is pocket change. Aim for the 18% car loans, 24% credit and store card charges and the 1000% micro loans. It’s so easy even complete idiots manage to do it every single day. Jump on this band wagon and you’ll soon be tied to your job until the day you die!

4) Lend money to family and friends
I know, they’ve promised they’ll pay you back. They’ve just been through a rough patch, but now they’re starting a new job and can guarantee that you’ll get your money every month starting next Tuesday, or maybe the one after that…

Or give the money to your friend. He’s smart and very hardworking and now has this fantastic new business idea for a restaurant/app/perpetual motion device. He seems so enthusiastic too, you have to get in on this. When else will you get a chance to be part of the next Elon Musk in the making?

Yes Bob, fortunately we both know you’ll never see the money again if you do this.

5) Buy a big house
Yes renting is for suckers who like to invest all the money they save on maintenance, transfer duties, sales commissions, maintenance, rates and taxes, levies and more maintenance. Yes that is three maintenances. Yes maintenances isn’t even a real world, but what is real is the money leaving your pocket, all the time. I’m guessing you put in that pool for your annual swim.

I once complained to my friend about how I once over-tightened my bath tap and it broke off in my hand. That meant I had no water for a day until I managed to make a few phone calls and take time off work to meet the plumber who charged me the same repair rates a brain surgeon would for reattaching my spine. My friend said that was nothing, she once had a blocked shower drain so bad they had to dig up the entire base of the shower, then it had to have new pipes laid, and have the shower re-tiled. And then the tiler broke the shower door so that had to get replaced too. “That must have royally sucked” I said to her. “Nah it wasn’t too bad. I called my landlord and he arranged everything, and paid for the plumber, tiler and shower door while I sat on the couch in the TV room playing Candy Crush”.

Then she said it wasn’t even the worst thing to happen to her house. Apparently living close to the airport during the past freakishly heavy rainy season meant her house was under a foot of water. The landlord said he’s never seen flooding that bad in the area ever in his lifetime. She shrugged. He then started arranging to have the wooden floors ripped up, mold treatment done, carpets and floors replaced, new doors fitted and had the pool drained cleaned and refilled. This time she had to play Candy Crush upstairs.

Aside from those nightmares, there’s the lack of flexibility. When the neighbourhood goes downhill you’ll lose money while not being able to move away. Plus the fact that you have a few hundred thousand in deposits tied up earning you no interest, and over a million in debt costing you interest. Of course you can justify it all to your wife by saying it’s not an expense, your house is an asset so it’s just increasing the value. That’s kind of true, it does increase in value, by around 0.1% over inflation on average for the last 100 or so years. Your house being an asset is definitely true, it’s an asset on the banks books. They’ll phone you when you’re a few days late for paying them. Then they’ll sue you a few weeks after that. I don’t know about you, but I generally don’t get sued for owning assets. I think I’ll just stick to ETFs.

6) Don’t keep track of your expenses
Who needs a budget? A Starbucks a day makes you far more pleasant to be around. And those Krispy Kremes are like little hoops of happiness. Don’t you know people look down on you for not having the latest iPhone, and that even if you can’t taste the difference between Johnny Walker Blue and Black, your kidneys definitely can.

The best way to do this is to always keep loads of cash in your wallet, that way there will be no record of where the money goes. Be like Mike… Tyson!

7) Get expensive toys
What do you call a giant hole in the ocean you pour money into? A boat. It also stands for Break Out Another Thousand. I plan on living on a boat one day, so surely I should buy one now and learn to sail it? But actually what I really want now is a DJI Mavic Pro drone. It’s a drone that folds up to the size of a water bottle. And it can fly 5km away for 27 minutes, I must have it! I’ll never get bored of it, not like my three friends who haven’t taken theirs our of the box since the first month. And I’m an aspiring travel blogger, how on earth can I travel blog without a drone?

Why don’t you find a nice expensive hobby Bob. How about a motorbike? No not a small economical run around, that might actually end up saving you money. Buy a cruiser that’s far too awkward to ride to work, and even if you did it costs more to run than your car. Or a superbike that comes with expensive medical bills?

Always wanted to fly? A small plane could remove R1500 an hour from your abused wallet? Not good enough? Switch to helicopters. An entry level two seater would open the taps and drain R3500 an hour. You’d struggle to burn cash that fast on a bonfire!

Do you have any tips for our poor wealthy friend Bob? I’d love to hear them in the comments section below.

How many of the above are you guilty of?

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  • grahamcr

    Can I have a button for none of them and I’m not a liar.
    People who have more than one of these items need to seriously look at exiting their family gene pool. I did lend money to my daughter in law but we had a specific monthly repayment contract in place and a partnership agreement which would result in all the assets reverting to me in the event of non payment of more than 2 months repayments

  • Shaun Dewberry

    Sorry, Graham, you can’t say none and then tell the story of how you indeed did lend money to family.
    I’m guilty of at least 3. (Poor expense tracking, own a house, and lent money to friends)

  • MoneyChief

    I do like expensive toys, but I limit myself to toys that I use a lot. For example an expensive car is not allowed since I only use it 2% of the day, but an expensive computer is ok since I use it 20% of the day.

  • Not a bad strategy, at least that makes allowances for my bicycles!

  • Have to agree with Shaun here Graham, but you’re still far better than me! I’m guilty of the last four. About R20k down on friends and family, I’ve
    since learnt to say no. I’d previously bought a house too big for what I
    needed, plus all the rentals I had. I’ve never kept track of expenses,
    but in my defense I just minimize every one by default, so maybe I only
    lose half a point here. It’s my hobbies that have cost me a fortune over
    the year. Paragliding equipment, then I bought a motor for it. Then
    there were my electric bikes, obviously one wasn’t enough, oh and the
    electric stand up scooter. The folding bikes I bought in pounds when
    they were at R22 to a pound. Oh and the stupid classic sports car I
    poured money into and still barely ever got to drive it out of the very
    expensive and useless workshop!

  • Isn’t there a superbike hobby hiding in the background too Shaun 😉

  • grahamcr

    Ah, but they have paid me back so there is no debt outstanding so my request still stands

  • Shaun Dewberry

    Haha, yup. I have no excuse, except YOLO!

  • grahamcr

    Patrick – I would suspect that you agonised between needs and wants. I have a program Quicken which I have used since 1998 (can’t get it in this country anymore as the SA originators sold it off to the American and they won’t provide for multiple currencies) which is a 2004 version but you track very single expenditure – this gives one a helicopter view of your wealth – but its sensible to exclude the value of your house or future payouts on insurance policies or unconverted R.A.’s. It give you a great view of where your expenditure is going to as you can create a pie chart of expenses categorises. Over and above this I have a budget spreadsheet which I started in 1995 and update periodically this too helps to reign in expenditure especially when you set monthly expenditure limits per categorises like food, bond, car, utilities, and card – also not forgetting to set aside funds for investing; so everything unfortunately relates to budgeting and then sticking to the budget
    So now can I have my button – None of them – I am not a liar

  • Haha okay I’ll take your word for it. How does the none button suit you now?

    PS, I use the 22seven app on my phone to do pretty much the same thing you were doing with quicken. It seems to do the job well, ties in to your bank accounts and fetches the information automatically too. I can recommend it.

  • grahamcr

    Great – and I see there are 5 votes on this button already
    Don’t use apps but will chat to my kids whom I will get to evaluate and in need get the app

  • Albert Viljoen

    I had a 4×4 cost me R100K in one year alone on repairs. Spend R300,000k on Fuel over 265,000km. Services after 100,000km was around R12,000-R18,000 each. Front and rear brakes – brake pads R2,000 a set and brake discs R2,000 each. Once I replaced all at once it was more than R12,000. Lost R400,000 in depreciation and another R250,000 in finance fees. Diesel fuel around 60-80litres a week.
    A lecturer at business school enquired about my next order on a new expensive BMW and which asset classes he can invest to also afford one… I did not invest anything at the time… I cancelled the BMW and open a share trading account and never looked back.
    Now I drive a Corolla, joined an investment club and invest directly in the equity market and increasing my international exposure.

    Bucket list ambitions – see the world with my loved ones and own some BRK-A

  • MoneyChief

    I am interested to know how much a superbike hobby costs, mind sharing some numbers?

  • MoneyChief

    Ouch, painful to even read. Over a million bucks spent on transport.

  • Yikes, that story gave me heart palpitations! You should give that lecturer a bells if you see him again 🙂

  • Albert Viljoen

    I wrote a letter thanking him for the advice.
    He wrote an article in Fin24 summarising the changed vision. Just look at Buffet we all cant be him but we sure can learn from him.

  • Albert Viljoen

    Yes and time value of money over a five year period will see that R1M double two R2M…

  • Shaun Dewberry

    Well, depending how deep you go, it can be cheaper than golf.
    So a top end bike is probably between R150-200k, but you’re likely better off shopping for a low-mileage second hand. As you would with a car. Then there’s the gear, because I believe in all-the-gear-all-the-time, which includes a helmet (R10k), jacket (R5k), gloves (R1.5k), boots (R3k+). That gets you to weekend warrior status. So it’s a tank or two of fuel per weekend (+/-15litres), plus the cost of breakfast and some alcohol-free beer. Weekends away in Mpumalanga will have a price that varies according to your taste.

    Then if you want to do track days that’s between R1000-R1200 a day once per month at Kyalami, plus fuel, and if you’re serious, get a full bike suit (R4k-8k), a set of track tyres at R3k, which can probably do 6-8 heat cycles before you get rid of them. If you don’t want to ride to the track, get yourself a trailer for R10k and a tow-hitch for R2k. Hell, it’s starting to look like you may as well buy Albert’s 4×4 to tow this whole lot. 🙂

  • grahamcr

    Checked with one of my sons – he indicated that you need to give authority and surrender bank account details to allow the app to suck off the necessary data to create the summary of wealth. So though it has the advantage that it can consolidate some of your wealth it can’t consolidate all as in my case my car loan and my share portfolio do not sit on my portfolio so it won’t do a proper consolidation, and I suspect it won’t incorporate a Living Annuity?
    Quicken though a manual operation at least gives me a single view of my total wealth