“Working because you want to, not because you have to is financial freedom.”
– Tony Robbins
I was brought up in a middle-class home where we had enough. We were happy, and finances never needed to be a topic of discussion. I received my pocket money every month and my parents took care of the rest. At no point did I make it my business to find out how to make more money, and neither of my parents ever had a discussion with me along those lines while I was at school.
Given my background, I am grateful that for most of my life, I have had enough. I never chased money and I never had this burning desire to, for example, become a millionaire by a certain age, or to accumulate wealth that would last for generations. I am content with what I have, and as far as I am concerned, I have enough…
I am not a financial guru, but I have a couple of ‘war stories’ that I would like to share with you, which I trust will be of benefit to you. When I got married at the age of 26, I ironically, held a financial management degree and had a job as a financial accountant that commanded a good salary. My wife-to-be was a law student and had a couple of years to go before she finished her studies. At that time, I had to make the normal buy-or-rent decision around our first property. At that point in my life, that was the first and only major financial decision I had ever had to make.
At the time, I was quite verbal about the fact that I did not want to pay off someone else’s bond, so a rental property was not an option. The only problem was that I could only afford a small flat in an area that was deteriorating. Still, I convinced myself that it was a good idea because we were buying in one of the best blocks of flats in the best part of this neighbourhood. Needless to say, the neighbourhood declined further and property in the area showed negative growth. It wasn’t a seller’s market at the time, and almost four years later we sold our little flat for a 10% loss.
Shared investment learning – Number 1
Rather buy a modest property in a great area that is growing in reputation and value, than a stunning property in an area that is in decline from an image or value point of view. It’s all about the location, location, and location of your property. When making a substantial buying decision, think with logic and facts, not emotion.
“If you cannot control your emotions, you cannot control your money.”
– Warren Buffet
We then moved to Johannesburg and rented a house for a while so that we could get to know the property market before we bought again. That time around, I followed my own advice: We bought the property directly from the owner, in a great area, and at the right time. As a result, we sold it after three years for almost double our original purchase price. Then we went all out and bought a piece of land on a golf estate to start building a house for our growing family. We rented another small house close by. We knew from the start that we were overextending ourselves financially, but we were building our dream house, and we dared to take that giant leap…
Our house should have taken a year to complete, but disaster struck. Our building company went bankrupt, and I needed to take over the building project – before we had even completed the brickwork. I had considerable responsibility at work and needed help with the project, so I employed a part-time site manager, who also oversaw a couple of other projects. More than two years after we started the building project, we eventually moved into our home. Little did we know the next disaster was about to strike…
The prime interest rate increased from 11,0% to 15,5% within two years. This amounted to a massive difference in our bond repayments on our home loan. By the end of the first week of each month, we had no disposable income left, which put a massive strain on our family in more than one way.
Shared investment learning – Number 2
Invest prudently and don’t financially over-extend yourself. You will need enough of a financial buffer for the unforeseen events in life.
“A big part of financial freedom is having your heart
and mind free from worry about the what-ifs of life.” – Suze Orman
Through our divorce, I was fortunate to have kept the house, and eventually, things worked out fine, but things could easily have gone south. I was living on the financial edge. If anything else had gone wrong, like I had lost my job, I could have been forced to declare bankruptcy. The stress and other impacts it had on my life were not worth it.
To fast-forward to a decade later, by the age of 47, I was debt-free, and I have no intention of ever owing anybody or any institution any money again. I am thankful for this, and also for the psychological freedom and relief that comes with it …
You might be wondering why I have written about personal finance in the context of successful self-leadership. There is a simple answer to this: Money is a strange thing – if you have it, it’s not an issue, but if you don’t have it, then life can very quickly
become miserable. A couple of times during and after building our dream house, the thought crossed my mind that I was going to enter bankruptcy. While I was experiencing that period of severe financial stress, I simply could not focus on my self-leadership process, or at least not nearly as much as I ought to have done.
That kind of serious financial stress was different from any other stress that I have ever experienced. I realised that it affected my wife and kids, too. I was not alone, but I was the man of the house and I needed to fix it. I eventually did, but it came at a price.
I would like to share with you more financial advice, most of it from past experience of things with which I have battled at some point, in the hope that you do not make the same financial mistakes that I have made in my life. If you follow this advice, I do not doubt that it will help you to avoid becoming bogged down by your financial situation, and so allow you to stay focused on making a success of your self-leadership story…
Compound interest – the 8th wonder of the world
“Compound interest is the eighth wonder of the world.
He who understands it, earns it… he who doesn’t… pays it.”
– Albert Einstein
There is no better way to explain the power of compound interest than with a house bond calculation. People who understand this concept, do anything and everything in their power to pay off their home loans as fast as possible because this is the one area where we can save a massive amount of money. Unfortunately, there are many people out there, like most of our parents, who didn’t understand or know about the impact of compound interest. As a result, it took them the full 20 years of their bond term to pay it off. In a country like ours, where the interest rates are far higher than in first-world economies, this is a cardinal financial sin.
If you can’t handle this responsibility, avoid credit cards
When you let their debt carry over, credit cards are evil. If you cannot settle your credit card debt with your next salary, you run the risk of starting to pay super-interest. This means that you are effectively paying a much higher price for the item that you bought, but you unfortunately still get the same value from it as if you had paid cash. We need to ask ourselves: “Do I want it, or do I really need it?” Successful self-leaders understand the difference because we take charge and when it comes to purchasing decisions, we don’t let our emotions dominate our sound judgement.
“If you buy the things you don’t need, you will soon be selling the things that you need.”
– Warren Buffet
In my view, if someone has low levels of self-discipline and low emotional intelligence, they should frankly, not own any form of credit until they have addressed those issues. Fortunately, we as self-leaders have the discipline and the EQ to manage our credit card debt and, at worst, settle it at month-end.
The power of negotiating and sourcing alternative quotes
“In business as in life, you don’t get what you deserve, you get what you negotiate.”
– Chester Karras
At some point, I had to refinance my house, and my bank’s initial interest rate offer to keep me as a valued client was prime interest less 0,25%. I was not satisfied with that response and I started to consult other banks to try to get a better quote. All of the competitor banks offered me a better interest rate than the bank of which I have been a client for more than 25 years.
I wasn’t too keen to move banks or to have my home loan at another bank, because that in itself had its own implications. With the alternative quotes in hand, I eventually settled with my bank on the same interest rate that one of the alternative banks would have offered me, which was 1,75% below prime.
By negotiating with my bank and sourcing alternative quotes, I was able to benefit significantly. I potentially saved R 581 520 over the total bond repayment period. We managed to pay off our bond much quicker, but if we had paid it off over the full term of 20 years, that would have been the total amount I would have saved Marilé and me – the price of a very nice new SUV vehicle.
“Let us never negotiate out of fear. But let us never fear to negotiate.”
– John F. Kennedy
On a professional or personal level, it makes absolute sense to get alternative quotes and negotiate a better price – assuming that we also take the quality of the service or product into consideration. It is simple: If you don’t ask, you don’t get, and if you don’t ask, you would never know if you could have negotiated a better price. Do yourself a favour and ask your local paint shop for a discount next time you have to repaint your house. See what their response is. I did exactly that and was offered a 5% discount without hesitation.
Negotiating or getting alternative quotes is not limited only to large expenses. It could be as simple as learning what to buy from which retailer. That could make a massive difference to your grocery bill. Again, it all adds up, and in the long run, we could save a small fortune by applying sound financial principles.
The blessing of financial peace
By successfully controlling our personal finances, we not only achieve our financial goals but also set a foundation that would help us achieve all of our other personal goals. In my experience, financial peace is a vital component of successful self-leadership.
“I believe that through knowledge and discipline,
financial peace is possible for all of us.” – Dave Ramsey