A letter from Carel Nel reminded me how utterly irrational I used to be about money. My irrationality manifested in two ways: avoidance and minimising.
In an attempt to feel more in control of my chaotic financial life, I organised all my bills into folders by month. Sometimes I would spend whole days easing my anxiety over my debt by this ritual of organisation. I didn’t read the statements, but doing the paperwork made me feel like I was dealing with my debt.
I also became the queen of debt comedy. When forced to confront my financial situation, I’d joke about the crushing weight of it. “I’m so screwed. Har! Har!” It’s a stupid defense mechanism that I still use.
These days I’m irrational about other aspects of money. For example, the crushing feeling of anxiety when I invest my emergency fund or the inability to buy something I like, want and can afford.
In this episode of The Fat Wallet Show Simon and I try to put together a rationality checklist for making financial decisions. Here’s a cheat sheet:
I think the first step to making more rational choices is acknowledging that we can be irrational. Awareness is often a powerful antidote to stupidity.
I like the concept of dividends: companies that do well share the love and the profit with their investors. Because my investment portfolio is small, however, the dividends I receive are often an inconvenience. While I’d never turn down free money, a R300 dividend payment isn’t exactly changing my life. That’s why I find the concept of income-generating assets confusing. If I had to rely on dividends in my portfolio, my retirement would consist entirely of cat food.
In this episode, I make it my business to learn what I can about dividends. Dividends might be cut and dry for ordinary share investors, but how do ETF issuers handle dividends? Shouldn’t companies be turning their profit into growth instead of paying it out to investors? How do I even know which companies are paying dividends and whether they’re good companies or not? Until my portfolio is larger and earning more dividends, what should I do with my tiny dividend payments? Right at the end I show off what I know about dividends and CFDs, only to be out-shone by Simon. I almost had it.
This is our 40th episode, by the way. As far as milestones go, it’s not a major one, but I want to acknowledge that I did something fun 40 times.
Last week Simon and I discussed how much I save. We also marvelled at Conrad Loots, who manages to save 69% of his salary. Over the weekend I thought about our conversation and how far I’ve come financially. Six years ago I had ten times more debt than income. Back then I would have taken last week’s episode as further proof that a better financial situation simply wasn’t for people like me.
I would love to be able to save 69% of my salary like Conrad does, but I would have to give up things that I love. I don’t want to do that. My current lifestyle is worth more to me than the ability to save more. If I happen to receive a windfall (which is definitely not in the pipeline) I’ll invest it. Until then, what I save is what I save.
Whatever your current financial situation, you can improve it if you want to. You don’t need to be saving 69% of your salary. You don’t even have to save 6%. Start where you are and make improvements where you can. Eventually it will become easier. You’ll see.
This week we also received two questions (and stole one) about the S&P500. Simon and I discuss the different ways to invest in the S&P500. We discuss how it affects tax, the impact of currency conversion and whether or not you should be investing in dollars.
Kris
I’ve been so excited about my tax-free investments. I was going to transfer my tax-free allocation on the 28th, then got paranoid that Capitec would transfer my money on the same day and cost me 40% in tax. I decided to wait until 1 March. The wait frustrated me, but I’m an adult. I know how to delay gratification.
Naturally the first thing I did on 1 March was transfer my allocation to Easy Equities, but then I had to wait another whole day for it to clear. Of course, the first thing I did on 2 March was log into my tax-free account to finally go shopping. When I got there, however, the money wasn’t there. Many scenarios played out in my head at this point. The last thing I thought of, because in my own head I’m incapable of silly mistakes, is that I may have transferred the money into my ordinary brokerage account. Investigation confirmed I had transferred the money into my ordinary brokerage account.
Instead of going shopping, I had to withdraw the money from my taxable brokerage account, transfer it back to my bank account and start over. The world of investments is full of frustrations and I am one of them. I hope your attempts were more successful.
It seems the new tax year has many curious about the opportunities, possibilities and loopholes. In this episode of The Fat Wallet Show, we answer all the tax questions we got this week.
Kris