Welcome to 2018, it’s a new year with new opportunities. Sadly Donald Trump is still the president of the USA, and in South Africa, we still have President Gupta at the helm but hopefully that will all change soon.
When looking ahead to a new year I always like to consider what I learnt in the last, so here are my top 7 money lessons from last year:
1) It’s very easy to go overboard on spending
Any type of spending. For you it might be cars or eating out. My Achilles heel is holiday spending. Last year I went on three foreign holidays, two more than I usually allow myself. During trip one I spent two weeks traveling through Chile and Argentina. It was an outrageously beautiful trip, and the countries never held back from showing off at all. There was a reason for this trip, my wife had some work to do in Chile, so of course it made sense to use her free ticket to help pay for a holiday. When she suggested a campervan adventure I was completely sold.
Sadly flights to Chile aren’t cheap, the best deal I could get was for R15 100, ouch. Then of course campervans aren’t cheap either, not even tiny little ones without showers which meant we needed to stay in campsites when we were down in the icy southern latitudes. At least further north we could swim in lakes which was a great way of staying clean and then avoid campsite fees. The total spent in Chile and Argentina, R26 400, oh dear. A lot of dough but totally worth it, even the R1600 to don crampons and ice axes and climb the most active volcano was an absolute bargain for the experience.
Trip two to the UK and Germany for a week. My mom was getting an award in Hamburg and she had enough voyager miles for an extra ticket so I could go along. Turns out free tickets with SAA still require you to pay R6 700 in airport taxes. Then of course I had to get a regular ticket from London to Hamburg which was another R 1500. Fortunately I took my little folding bike along so I never had to worry about transport costs inside the two cities. I love that bike!
I even used it to get from my backpackers in central London to Heathrow. Everyone told me I was mad as it’s impossible, but happily I discovered that contrary to popular belief, not only is it possible, it’s also a fantastic ride as you follow the old barge towpaths along the canals that the oxen used to use. It ended up being one of the highlights of my trip! Total spent in London and Hamburg, R12 200. Significantly more than I usually spend for a week.
My third holiday of the year was to Portugal. Happily we found a great deal online and bought return tickets to Lisbon for just R3950 each! Portugal is also a much cheaper destination than pretty much any other overseas country we’ve been to.
We started in Lisbon which is just stunning all over. Even the pavements were breathtaking. Next up was Sintra, which feels like a fairytale land. If you’re ever in Lisbon spend the EUR2.20 to catch the train to Sintra and go explore a few of the many castles there. Our personal highlight was Quinta da Regaleira that appeared to be like a medieval disneyland except that it was all real. We loved getting lost in underground labyrinths before emerging in what felt like a different world.
Next was the beach town of Cascais where you got free WiFi and free bicycles to use, my kind of town! From there we took a long train ride to Porto. What a cool city, loads of beaches, a great old town, and so many things to see everywhere else. There’s even the library that inspired parts of Harry Potter.
After that was the lowlight of the trip. Everyone told us Aveiro was the Venice of Portugal. Sure it is, as long as Venice has just one tiny recently constructed canal filled with plenty of fake fishing boats and not much else. Next time we’ll skip it. We left there for a few more days in Porto and Lisbon which were much more our scene.
Portugal was wonderful, I could easily live there. Costs are low, and the people were so friendly that we kept expecting them to mug or scam us, but that’s just the way they are. The total spent in Portugal, R15 800. Not bad at all considering it was a 3 week trip including return flights.
That means that in 2017 I spent R54 400 on holidays. Next year I plan on cutting that down by at least 50%.
2) It’s always possible to optimize a little more
I love finding money I never knew was there. Recently I decided to see if I was getting the best deal out of my bank. I left Standard Bank for FNB a few years ago and managed to cut my monthly banking fees from +- R180 to R0.
You’d imagine it’s hard to beat paying your bank zero Rand every month, but with a little research I realised there is a much better deal around! You see I like to start every month with two months expenses in my bank account, then at the end of the month I still have one months expenses ready just in case something happens with my salary or I need the cash urgently.
Now FNB paid me no interest, and I found out that Capitec would pay me an effective rate of 5.5%, with minimal charges for everything else. It was literally a no-brainer switching to them, but that wasn’t the best bit. I called up Virgin Money who offer completely free credit cards, and got them to give me a credit limit worth just over a months expenses.
Now I get to leave my money in my Capitec account earning interest, and spend Richard Branson’s money interest free. It should earn me an extra R150 every month. That’s R1800 a year for doing nothing. If you’re disciplined and can responsibly use a credit card I can highly recommend it. Free money FTW (that’s For The Win for those not fluent in geek speak)!
3) Nobody can predict the future
I wonder what the odds would have been in January 2017 that the SA stock market would beat the US stock market. Very long odds I’m sure, but here’s how Sasfin’s David Shapiro spelt it out in a tweet at the end of the year:
Here’s a turn up for the books. JSE in USD was up 29.5% in 2017 compared with S&P500’s 19%. In rand JSE was up 17.4% but late surge in our currency turned the tables. In local currency Europe was up 7.1% (21.2% in USD) and UK up 8.0% (19.5% in USD). Mkts ended in a whimper y’day.
— David Shapiro (@davidshapiro61) December 30, 2017
Yes, thanks to CR17, and of course Naspers, the JSE ended up kicking serious ass. Of course nobody can predict how it will do in 2018, so I will just stick with the only 100% proven strategy, don’t pick shares and don’t pick economies. Yes in 2018 I’ll be just as boring as I was in 2017, and buy the whole world.
4) The importance of diversification.
Somebody who definitely doesn’t buy the whole world, though at one point he probably felt like he could, is Christo Wiese. Practically all of his wealth is held in just 5 companies, and a monstrously huge chunk of it in Steinhoff.
Scary things happen when you don’t diversify properly, so between lunch time on the 6th of December and lunchtime on the 7th of December Wiese lost a cool R32 billion. Yes that’s R32 and nine zeros. You can’t burn money that fast in a bonfire, I’m not kidding.
I had to do some major calculations here to get a picture of just how much money that is. First up, let’s pile notes on top of each other. The people at the reserve bank wouldn’t say how thick a R200 note is, but luckily someone measured, and 25 notes pushed tightly together is just 3mm high.
3mm for R5000 worth of R200 notes. How high then would a R32 billion pile be? No you’re wrong. It would be 19.2km high. That’s 64 Eiffel Towers high, nearly double the height a typical airliner flies.
What if you joined them end to end? Well they’re 152mm long, so joining them like that would mean you’d have a ribbon of notes 4 864 000km long. Yes 4.8 million kilometers. The circumference of the earth is “just” 40 000km, so this ribbon would go around the whole world at it’s widest point 121 times.
There’s more mad numbers. Each R200 note weights just 1 gram. R32 billion in notes would therefore weight 160 tons! That’s about 27 full grown elephants. You really couldn’t burn that much in a day! And that’s a pity, because if you could burn it and capture the energy as electricity, it would produce 720 000 kilowatt hours, enough to power 163 households for a year!
So don’t be like Christo, diversify. Diversify as much as you can, over as many different economies as possible. The SA Top 40 index holds 24.7% in Naspers, 9.2% in Richemont and 8.5% in BHP Billiton. A total of over 42% in just three companies and only one country. That is not being properly diversified, that’s a train crash waiting to happen.
As someone who isn’t a registerd financial adviser I’m not allowed to give advice, but I can tell you what I’m doing. I’m putting my tax free allowance into the Satrix MSCI world ETF. It holds over 1000 shares, with the biggest holding being in Apple but at just 2.1%. My offshore money goes into the Vanguard world index. It holds over 3000 shares in just about every listed company in the world. Diversification.
5) It pays to look for a better deal
Last year Virgin Active tried to put the prices of my membership up from R350 to R400, a 14% increase. I took them to task on it. Nowhere in their contract did it say they could raise prices as they liked, all they had were reference to CPI increases.
I let them know that they have only two options, raise it by 14% and I’d pay it for the next 6 months while my contract runs out, and then join another gym, or raise it by 6% and I’d keep my membership there. They raised it by 6%.
The same thing happened with my MiWay car insurance, except they wanted to raise it by 24%. Of course I said no. Instead I told them they could raise it by 6% and I’d stay on, otherwise I’d get on the phone to Santam, iDirect and Regent and move to the best offer. They also accepted a 6% increase.
I’m off to Cape Town next week and will be renting a car. I shopped around and got a great deal of just R1000 for 6 days. Then they tried to sell me extra insurance to bring the excess down from R6000 to R2000. The insurance would add about R800 to the rental making the total rental cost 80% more.
Happily I shopped around and found out it’s possible to insure against rental excesses. Thanks to a website called travelsafe.co.za I now have no excess due for just R56. That’s R56 once off, not per day!
6) What’s your plan B?
The building I work in has a number of different groups working there. One of those groups found out in October that they would be closing down in 6 months time. There will be no retrenchment packages coming, and as it’s an international organisation, there’s no UIF either.
I’ve advised one of my friends who’s about to be out of work to look into a side gig. He comes to work in a Mercedes, so perhaps he could be an Uber black driver until he finds another job.
That wouldn’t work with my car, so my plan B used to be the websites and apps I develop. That’s changed now thanks to years of diligent investing. For the last year and a bit my investments have earned more in dividends than my side gig pays out, so my new plan B is to cut back on spending so I can live off of them. Happily my bare bones budget is something I could do on dividends alone.
Plan C (or actually B2) is still to keep working on the sites and to try get them to increase their income.
I have a plan D too.
At work I’m allowed to hold 60 days leave. It took me a few years to get there, but now I get to take my full annual leave, and at the cut off point I still have 60 days in the leave bank. If I were to lose my job that would pay out three months salary. At bare bones level that alone could pay my costs for a year.
If you’re able to bank up leave it’s a really easy safety net to build up. If you get 20 days a year, just take 10 or 15 and build up to whatever the limit is where you work.
If all that fails I’ll try plan E. After meeting all the full time overlanders in Chile and Argentina I found out there’s a whole community of people who live rent free and have amazing adventures. If you can find a way to wash yourself it’s possible (and completely legal) to spend most nights outside of campsites for free.
In the worst case I’d just be the guy living in a van down by the river. A van with a shower of course!
7) Just stick to the programme
I’ve been investing in index funds since 2013, and all of a sudden compound interest has made itself known. Even though I saved nearly three quarters of my income last year, it was nothing compared to how my investments grew all on their own.
For the first 4 years it felt like I was swimming upstream, but now my goal is in sight, and it really feels inevitable that I’ll get there. You really get the perspective of how powerful compound growth is when on days that the market climbs by one percent, your investments increase by well over a months salary!
All you have to do is sketch up your goals, run the numbers on a spreadsheet, make a plan and just stick to it. My investments are the first thing I spend money on each month, so there’s no way I can use the excuse of running out of money and having nothing to invest at month end. Pay your future self first.
Those are my highlights for 2017, I’d love to hear what money lessons you learnt through the year. Please let me know in the comments below.
Have a fantastic 2018.