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Monday, 9 July 2018

I'm 21 Again!

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The key to some important financial
decisions
I recently turned 33 years old, which in itself may not seem very significant. However there is a totally lame pretty cool way you can make yourself feel young again – by converting your current age into hexadecimal1 (it doesn’t always work, because you sometimes end up with letters in your age, but when it does, the psychological injection of youth has been know to put a smile on anyone's face.)

Anyways, after doing the conversion, it turns out that I just recently had my 0x21st2  birthday.



This gave me an idea...
The 0x21 year old me should take a walk down memory lane and have a peek at what decimal 21 years old me was up to back in the day, and reflect on the things I did right, and the things I probably could have done better.

So, walk with me…

It is January 2007, and I have just completed my studies at the University of Johannesburg. Towards the end of 2006, I had applied at a really cool company who had wowed me at their careers day presentation at the University, and I was fortunate enough to land a job with them. As an added bonus, the company was based in Durban, which I thought was a great way to avoid the Joburg winters, and they were willing to assist with relocation costs and initial accommodation. So I made the move.

My dad was very helpful, and before I left he lent me the "family-mobile" and some money to get me up and running (not a lot, but enough for a deposit on a place to rent and some groceries). With the first few weeks of accommodation taken care of, I started looking for a more permanent place to stay, which led me to the first of many financial decisions that 21 year old me was faced with…

Housing


Things I did right
  • I rented instead of buying. Since I had no idea of good and bad areas in and around Durban, or where I would be in the next 5 years, I decided to rent. In truth it wasn’t really a decision – since I had no credit record and hadn’t even received my first salary, there was no ways I would have been able to buy. Either way it definitely turned out to be a good thing, because within a few years I was back in Johannesburg, and we all know how expensive buying and selling a house can be.
  • I got a place according to my needs and not according to what I could afford. I had a rental budget in mind, but I didn’t try find a place which would maximise this budget. Instead I went looking for a place which would meet my needs and not my affordability. This resulted in me renting a garden cottage, which filled my very basic need of a place to crash and a kitchen to whip up a variety of bachelor meals consisting of the three important food groups – bacon, sugar and caffeine (thank goodness the canteen at my work allowed me to cheat on this strict diet with some nutritious meal options!)

Things I did wrong
  • I happily accepted the 10% increase clause in my rental agreement. When I received the contract, I took note of the 10% annual increase, but back then I thought that it was just the way things are done, and there was nothing I could do about it. I have since realised that a 10% increase clause just seems to be a default value and it is definitely negotiable. I would definitely fight for something closer to inflation these days (and ended up doing exactly this in the place my wife and I rented when we first moved to Centurion).

Car


Things I did right
  • I bought a cheaper car than what I could afford (similar to my approach to housing). I checked my budget and settled on a figure, but I didn’t use this as the factor that would determine the car I should get. Instead I came from the other side, and decided on the features and specs I wanted. (Aircon is a non-negotiable in Durban if you don’t want to arrive at work looking like you just completed the Comrades – unless of course you did just complete the Comrades, in which case that is exactly the look you are going for.) I then went looking at the cheapest cars which ticked all these boxes – as it turned out, the car I bought was less than what I could afford to spend.
  • I shopped around at a few different dealerships and negotiated price with each of them – this got me a few extra thousand knocked off the price.

Things I did wrong
  • I bought new instead of second hand. My thinking was that I was in a new city, with no knowledge of good mechanics and I was scared of running into reliability issues. In hindsight, I could have bought a second hand car which was still under warranty, and enjoyed a much lower price.
  • I financed the car – but in truth I had little other choice. I had promised my dad I would return the family-mobile as soon as possible. In truth my dad wouldn’t have minded if I kept the car for another year or two while I saved up to buy a car cash, but I really felt my father had already done enough to set me up in my new city, and felt bad that after supporting me all these years, and putting me through University I was still bumming off him.

Debt


As mentioned above, I financed my car purchase, which meant I had debt within a few months of starting my working career.

Things I did right
  • I put down more than a 10% deposit. This was in part to make sure I got approved for the finance and in part to minimise the size of the car loan.
  • I managed to secure finance at a rate below prime, which was a really nice perk of the company I worked at – they had an agreement with one of the banks that employees were able to secure below prime car finance.
  • I asked the bank for the option of a “flexi-loan” which would allow me to make extra payments into the car loan. The bank told me I would need to open a linked account as a means to get additional payments into the car loan, which I did. I then religiously made extra monthly payments into the linked bank account, but….

Things I did wrong
  • … I never actually moved the money into the car loan. My naivety/lack of understanding meant I didn’t realise that the linked account was just a savings account. Once the extra money was in the savings account, I still needed to move it over into the car loan. I was oblivious to the fact that this was (or rather wasn’t) happening because back then internet banking was a costly feature which I was already paying at my primary bank. I didn’t want to pay for it again at my vehicle finance bank, and so there was no easy way to get statements or view accounts. I did receive a quarterly statement from the bank, but it only showed the outstanding balance and didn’t list transactions on the account. I really should have been better with this though, and should have realised that the balance was not reflecting the additional payments and made some enquiries. In any event, my oopsie became apparent a few years later when I was involved in an accident, and made an insurance claim. The insurance company wanted the loan settlement amount, and it was at this point that I ran some calculations and realised that the outstanding balance on the car loan was impossibly high based on the years of extra payments I had been making. Then I started phoning around and discovered the linked savings account with 10’s of thousands of rands in it. Man in hindsight this was a costly mistake – turns out the car loan could have been settled long before the insurance claim. In any event it all kind of worked out, because I was able to buy my next car cash, and I have been car loan free ever since.

Budget


Things I did right
  • I think this is one area I was really good. I had a spreadsheet for every month, and used to update it as the month progressed (ah, the time advantages of being single with no children…) I even had columns for planned versus actual spend, and I was pretty good at sticking to it. Any money at the end of every month went into my car loan linked savings account (with low interest and zero impact on the loan balance :( ) 

Investing


Things I did right
  • I had a monthly debit orders going off every month into two different investment products. This was a non-negotiable.
  • I voluntarily added an extra contribution to my employers pension fund.
  • I managed to avoid RA’s. At the time I remember discussing RA’s with a few of my work colleagues, but something just didn’t sit right with me about the lock in and inflexibility (still old school RA’s back then). In hindsight, seems like I dodged a bit of a high-fee-not-so-suitable-for-early-retirement bullet.

Things I did wrong
  • My voluntary investments were into Unit Trusts products we do not speak of. Whilst a high fee, under-performing investment is still better than no investment at all, I would have been a lot better off in a Satrix ETF (Satrix was the only provider back then).
  • I invested for the sake of investing. I didn’t really have an end goal for the money and just invested because that is what I was supposed to do. I should have ear marked the investment for retirement because along the way I cashed out some of the investment for various reasons which I figured “well I guess the investment could be used for that”. Eventually I used the remainder of the investment as the deposit on our apartment, which has since became our Rental Property, which is ultimately contributing to our retirement savings - so in a roundabout way it kinda served it's intended purpose.

Saving


Things I did right
  • I remember keeping little envelopes in my cupboard, with each one marked with a specific savings category. Every month I would put some cash into each one – there was one for car maintenance, one for upcoming holidays and one for furniture purchases (man my garden cottage was bare to start!). This little system worked really well, because I didn’t need to go into debt for big purchases, and was never caught off guard by a set of new tyres or a car service.

Things I did wrong

  • I probably could have scored some interest if I had put the cash into a money market or savings account, with a spreadsheet to track each category, instead of keeping it in envelopes.

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Well, that was a fun little exercise, and 0x21 me gives decimal 21 me a pat on the back - all in all I think I did okay? A solid 8/10?

Looking back I am really grateful that I was relatively savvy with regards to the big financial decisions. Once again, if you want to really make some big financial strides, stop fiddling around with bank account fees and insurance comparisons and look into the big stuff – housing, cars, commuting. If you can save in these three areas, it can really set yourself up to start paying off debt, investing and saving – I was able to do all three of these, even at the age of 21, because I had made reasonable financial decisions when it came to the big expenses.

I would love to hear your guys stories and thoughts of what you would tell your 21 year old self to do differently?

Anyways…. All this reminiscing has made me feel like a bacon sandwhich, chocolate and a cup of coffee….




Till next time, Stay Stealthy!
 - ~ - ~

1 You can do this using the Windows Calculator. Click on View->Programmer, then type in your current age, then click the "Hex" bullet, and voila, you are instantly younger!

2 Hexadecimal numbers are prefixed with 0x to distinguish them from their decimal counterparts.