Somehow the universe has a way of sending you signals and pushing you in a direction. This seems to happen just at the right time and you find out things just when you need to. My financial freedom realisations were just such signs.
Financial Freedom Realisations
I discovered these financial freedom realisations after years and years of working and saving. I should have been in a more comfortable place financially, but I was nowhere near, and I couldn’t understand why. Still my reasoning was that as prices kept going up I just couldn’t get ahead to earn enough money.
It was mid-2015 when I read an article in Moneyweb titled “The most underrated financial principle” It spoke about being frugal, defined as “using only as much money or food as is necessary”. In the article there was a link to a blog called Mr Money Mustasche.
He is a staunch supporter of being frugal and early retirement. The principle is that spending much less than you earn is the way to get rich. I devoured the posts as I came across concepts that I had wondered about but could never put my finger on.
Growing up in a Frugal Household
I grew up in a middle-class family that I thought was quite normal. We lived comfortably but never lavishly. My Dad loved woodwork and made a lot of our furniture. Before I was born he made most of the lounge furniture and afterwards the dining room furniture. He also did all the DIY at home and even did the building on additions after learning how to bricklay.
My Mom not only cooked but baked and canned food as well. She also made almost all of the family’s clothes and used to cut our hair. Only when I discovered the concepts of frugality and financial freedom did I realise that I had lived in a frugal household.
I learned not to be wasteful and that you had to save up for something you wanted to buy. My parents never had debt except for our house which my Dad paid off within 10 years. I assumed they had bought the cars on credit, but they didn’t, all of them cash. I only just found this out very recently after I asked him.
Earning More and Spending More
When I started working I maintained the saving habit and never had any consumer cards, just a credit card. My savings weren’t significant and I had no knowledge or understanding of investments.
As I went through my career I bought a car and a house and got used to spending everything else that I earned. The only significant savings that were accumulating was my pension. I also had the usual unit trust policy that you take from the financial advisor that the bank sends to you. For more than 20 years I lived like this. Earning more and spending more, not bad, but not good either.
Cars Cars Cars
Cars have always been my weakness, Land Rovers to be specific. My very first car was an old Land Rover that I rebuilt when I was a teenager living at home. This was a noble frugal activity so I do get a tick there.
But the minute I got a job with a car allowance I bought a brand new Opel Kadet 1.6 sport. I was getting a “car allowance” so I didn’t even blink an eyelid and I bought the most expensive car that I could afford.
The car wasn’t even 4 years old and I got a promotion, more money. Of course I bought my dream car, a newer Land Rover Defender 90. I couldn’t afford a new one so I had to by a used model, but it still pushed me to my affordability limit.
Then a few years later, worried that the car was getting old and being able to afford a new one, I bought a brand new Defender 90 at great expense. At the time my wife also bought a brand new car after her older one was involved in an accident.
Luckily after that I started coming to my senses and only bought used cars but still far too many too often. In total I have owned 6 cars in 30 years, that’s too many, I could have managed with two, maybe three.
Based on todays cost of running a car you will easily save R688K every 10 years. According to the Wesbank annual report the average new car cost was R321K and a used car R215K. You will make this saving if you buy the used car and keep it for 10 years instead of buying a new car every 5 years.
Bonded for Life
I always saw property as an investment so I had the view that you should spend as much as you can afford on your home. This is not terrible advice as it forces you to invest in an asset rather than spending and wasting it on something else. However it’s not the best advice either. A bigger house means more cost to run and maintain and effectively more wasted unnecessary space.
Also it means bigger bond so you never get to a point of paying off the property. Especially if you have an access bond. Somehow you seem to think that this money is free to use. Reality is the access bond kept me in debt for longer than necessary.
Every home I have bought has been consecutively larger, in a better area and more expensive than the last. Why? Well I deserved it and could afford it, and in property, location, location, location is everything right?
Consumerism is a trap, we have been conditioned into buying more and wanting more. It is a mechanism for success and feeling better about ourselves. I realised that I had been caught up in that from the day that I started earning a salary.
You feel like you deserve things because you worked for it and can afford it. I loved my sporting brands and electronics and of course cars. Not being extravagant, I didn’t realise it at the time. I thought I was still mindful of wastage and cost conscious, but actually, I wasn’t.
Consumerism is all around us and has grown since the 1960s with the advent of mass production and advertising. Ironically the concept of frugality had been in decline since the 1800s. In the last 20 years consumerism has started to wain and frugality has increased in popularity.
In 2013 we had just finished rebuilding the new house that we had bought. It was a dream house. I had just got a great promotion as a General Manager at a business on the other side of the city. The long commute, 180km round trip was not comfortable in my older Defender 110 and I could finally afford something more comfortable.
The Light Bulb Moment
In 2014 I bought my next dream car a 4 year old Land Rover Discovery 3. It sounds like we were living the life but we weren’t. I was in my mid forties and we had a bond of R2M, fancy car, no savings and growing credit card debt. I had no idea how or why I was in this situation.
Our lifestyles were inefficiently designed with long commutes in big expensive cars. This robs us of our family time and health. The effects of lifestyle creep keep us in debt as we earn more and spend more.
We suffer from the law of minutia where we pay high premiums for small increments of improvement. Like a house in the right neighbourhood, latest phone upgrades and top of the range bicycles. Even relatively small recurring monthly expenses add up to staggering amounts over our 30-40 year careers.
This is what lead up to that moment in 2015 when I realised that I was still part of a system. I was trapped in a never ending cycle. It was my moment of financial freedom realisation and the point at which I took stock of the situation.
Finally I understood it and could see a way out. I put in place my 5 step plan to get us to financial freedom and ideally slightly earlier retirement.